Tatas move SC to block Mistry firms from raising capital against security of their shareholding in Tata Sons

New Delhi, September 12: Tata Sons has moved the Supreme Court seeking to restrain the Shapoorji Pallonji Mistry Group firms from raising capital against security of their shareholding in Tata Sons. It also wants that any “such action created on its shares be removed forthwith.”

Tata Sons in its fresh application has also sought a direction to the SP group, which owns 18.32% in Tata Sons, “to disclose on affidavit all the pledges, encumbrances or charges, direct or indirect, that may have been created” upon its shares or the shares of the two Mistry family run firms’ – Cyrus Investment Pvt Ltd and Sterling Investment Corporation.

The application is likely to come up for hearing next week, Financial Express reported.

It also wants the SC to restrain the two firms from “creating any further pledge, charge or encumbrance whether direct or indirect, in respect of shares of Tata Sons or over the shares” of the Mistry’s investment firms.

“In the alternative, allow the withdrawal of the undertaking given to the SC on January 10, 2020 and permit the invocation of Article 75 of the Articles of Association (AoA) of Tata Sons against” the two Mistry firms, the application seeking urgent hearing stated.

Under the AoA, the board of Tata Sons claimed it has a right of first refusal (RoFR) to buy at fair value the shares of Mistry and others who want to sell their shares.

However, the SP group wants the apex court to dismiss this petition as ‘creation of pledge does not amount to transfer of shares’.

While the urgent application by Tata Sons was filed soon after the SP Group signed documents with a marquee global investor to raise Rs 3,750 crore, the latter has accused the former of blocking its Rs 11,000-crore fund-raising plans.

The SP group companies cried foul, alleging in a statement that the move by Tata Sons will inflict irreparable damage on it. The SP group also said that its main sectors – the construction and real estate sector – have faced the worst impact of the Covid-19 pandemic and is in need of funds.

The SP Group spokesperson questioned the motive and timing of Tata’s application stating “the security documents, which are in the public domain, clearly record that lenders would comply with the Articles of Tata Sons in the event they seek to enforce the pledge of shares. Tatas have suppressed this vital information in their application in a desperate attempt to mislead the SC.”

In January, the SC, while according a stay on the NCLAT verdict, had recorded that the Squeeze Out provision of Article 75 would not be used on the SP Group. In their application, Tata’s also sought to reverse their commitment made to the Supreme Court. Article 75 of the AoA of Tata Sons, gives Tata the power, via a special resolution, to ‘squeeze out’ the Mistry family by buying out their shareholding at fair market value The NCLAT in an order had noted that the fair value of the SP Group’s 18.37% stake in Tata Sons was more than Rs one lakh crore.

The Tata group and SP group are involved in a bitter legal battle after Mistry was sacked as the chairman of Tata Sons in 2016.

The Supreme Court had in May sought response from the Tata group and its patriarch Ratan Tata on the cross-appeal by Cyrus Mistry-run family firms seeking proportionate representation for the Shapoorji Pallonji (SP) Group on the Tata Sons’ board. Earlier, the top court on January 10 had stayed in entirety the NCLAT’s December 18 order that reinstated Cyrus Mistry as chairman of Tata Sons after calling his removal in October 2016 as “illegal”.

The appellate tribunal while terming Tata Group’s actions against Mistry as “prejudicial” and “oppressive” had also Tata Sons’ move to turn into a private company from a public limited as unlawful, and had ordered its reversal.

https://www.financialexpress.com/industry/tatas-move-sc-to-block-mistry-firms-from-raising-capital-against-security-of-their-shareholding-in-tata-sons/2081240/