Tata-Mistry rivalry continues, share pledges latest flashpoint

Tata-Mistry rivalry continues, share pledges latest flashpoint thumbnail
A file photo of industrialist, philanthropist Ratan Tata with Cyrus Mistry (Photo: PTI) 2 min read . Updated: 02 Apr 2020, 12:45 AM IST Jayshree P. Upadhyay, Swaraj Singh Dhanjal Article 75 of Tata Sons’ Articles of Association says the privately held company has the first right to buy if any shareholder decides to sell…

A file photo of industrialist, philanthropist Ratan Tata with Cyrus Mistry (Photo: PTI)

2 min read

. Updated: 02 Apr 2020, 12:45 AM IST

Jayshree P. Upadhyay, Swaraj Singh Dhanjal

Article 75 of Tata Sons’ Articles of Association says the privately held company has the first right to buy if any shareholder decides to sell sharesThe article also empowers it to direct its shareholders to sell their holdings by passing a special resolution

MUMBAI :
Tata Sons Ltd will challenge the Shapoorji Pallonji Group’s plan to raise funds by pledging shares in the Tata group holding company, a person aware of the matter said, sparking a new flashpoint in their simmering corporate rivalry.

Article 75 of Tata Sons’ Articles of Association says the privately held company has the first right to buy if any shareholder decides to sell shares. The article also empowers it to direct its shareholders to sell their holdings by passing a special resolution.
“It is clear that Tata Sons wants to be a closely held company; so if at any given time, pledged shares are invoked and a bank takes ownership of those shares or shares are sold to another third party, then the entire purpose of restricting transfer of shares is defeated,” the person said on condition of anonymity.
The construction and real estate focused Shapoorji Group, headed by Pallonji Mistry, needs to raise funds to tide over its liquidity issues.
The latest disagreement adds to the protracted corporate battle ever since Cyrus Mistry was ousted as Tata Group chairman in 2016.
However, according to a second person aware of the matter, the Shapoorji group believes that the article does not restrict pledging of shares, but only transfer of shares to undesirable entities.
Spokespeople for both Tata Sons and Shapoorji Pallonji Group declined to comment.
“Pledge is not a sale or transfer. Not allowing pledging of shares would confirm oppression of minority shareholders. Tatas threatening not to let pledging of shares shows a clear reason why they moved from public to private,” the person said on condition of anonymity.
According to legal experts, even if Shapoorji Group pledges the shares, potential lenders may be wary.
“Considering there is a restriction on share transfer, the lenders would, in fact, be hesitant to accept the share pledge as it appears to be non-enforceable,” said Ramesh Vaidyanathan, founder and partner, Advaya Legal.
However, Vaidyanathan added that in his opinion, taking the interpretation that Article 75 restricts only transfer of shares is a very narrow one, as a pledge potentially could lead to a transfer of shares.
Mistry group companies had termed Article 75 as draconian and confiscatory in nature during their court battle. The National Company Law Appellate Tribunal in its judgement on 13 December did not strike down the section, but directed the Tata group to not exercise the section oppressively.
“To my mind, if Tatas prevent the share pledging, it is not oppressive, but simply the group using the power vested by the section to prevent share transfer,” Vaidyanathan added.

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