In today’s newsletter, we will talk about Cyrus Mistry's dismissal as Executive Chairman of Tata Sons and the implications of his unexpected comeback.

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A Prelude

Before we get to the meat of the story, let’s talk a little bit about how the Tata empire is structured. The global conglomerate’s parent company is Tata Sons. It’s the glue that holds together all of Tata’s ventures — Tata Steel, Tata Motors, Tata Consultancy Services, etc.

Tata Sons in turn predominantly belongs to two large institutions.

Tata Trusts, a group of charitable organizations set up by the revered Sir Rantanji Jamsetji Tata, owns 66% of Tata Sons, while Cyrus Mistry’s family, the Shapoorji Pallonji group owns about 18.4%. So to summarize,  Tata Trusts owns a majority stake in the enterprise. And Shapoorji Pallonji, the minority stake.

With us so far? Good.

When Ratan Tata turned 75, he handed over the reins of his global empire to Cyrus Mistry, son of construction giant Pallonji Mistry. It was time to take a backseat, he said. He was impressed with Cyrus’s vision for the future and was further assured by his long association with Tata Sons. But this confidence didn’t last long.

On 24th October 2016, four years after  appointment, Tata Sons shocked the business community by announcing that Cyrus Mistry had been asked to step down as the Executive Chairman of Tata Sons, effective immediately.

According to reports, Mistry had been asked to resign minutes before a board meeting. They also threatened to dismiss him through a no-confidence motion if he did not relent. Mistry for his part refused to step down and the board members took matters into their own hands and fired him.

Mistry was ousted. Ratan Tata was made interim Chairman. And Natarajan Chandrasekaran finally took over as Chairman of Tata Sons on 21 February 2017

But that still leaves us with a very important question. Why was Cyrus fired in the first place?

Well, according to Tata Sons, Mistry had “overwhelmingly lost the confidence” of members of Tata Sons' board of directors, on account of “repeated departures from the culture and ethos of the group”.

One instance that could have contributed to this decision was Ratan Tata finding out about a 3000 crore payment made by Tata Group companies to Shapoorji Pallonji & Co for construction-related work. The fact that Mistry’s family had benefited from this was deemed to be a conflict of interest.

Yet another affront to the Tata Sons board was Mistry’s delay in telling them about Tata Power’s plans to acquire Welspun Energy’s renewable power assets. Even when they were intimated at a later stage, they weren’t given all the details. This definitely ruffled some feathers. So the prevailing consensus was that Cyrus Mistry’s actions were an attempt to dismantle the structure Ratan Tata had lovingly put in place and strip away Tata Trusts’s powers.

Mistry didn’t quite agree. In December 2016, he filed a case of oppression and mismanagement against Ratan Tata and several others.

The core dispute here was centered on one question — Is Tata Sons a partnership between Tata Trusts and the Shapoorji Pallonji group or is it not? If it is, Mistry can claim that his rights as a minority shareholder were suppressed. If it isn’t, he’s just an executive in Tata’s enterprise and can be fired for not meeting company expectations.

When Mistry first filed his case, the courts ruled against him. So in 2018, he appealed the decision trying to take one last stab at getting his dismissal reversed. And lo and behold the appeals court is now siding with Mistry. The court ruled that his dismissal as chairman was illegal. It also noted that there wasn’t any real evidence to suggest that Mistry wasn’t meeting company expectations either. So it asked the board members to reinstate Cyrus Mistry as Executive Chairman and also restored his directorship in other Tata Group companies.

Now readers must note that the court did provide a four-week window before the ruling can be enforced. Meanwhile, Tata Sons can pursue further legal recourse and appeal the decision in the Supreme Court. But it still leaves the group in no man’s land for now.

What happens to Chandrasekaran’s appointment? Will that be deemed illegal?  What about the subsequent decisions that he enforced as executive chairman. Are we going to scrutinize all of them? And will Mistry even want to take over now? If he does, can’t the board members simply follow procedure and remove him once again. After all, Tata Trust is still the majority shareholder?

Well, these are very valid questions. But for now, nobody knows for sure how things will pan out. What we do know is that the uncertainty surrounding this little affair can't bode well for the Tata Group of companies. So hopefully they can resolve this matter at the earliest.

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