In a move which would intensify the battle between Tata Sons and its former chairman Cyrus Mistry, the holding company of the Tata Group has initiated a proposal to turn itself into a ‘private limited company’ from a ‘deemed public company’.
In a statement, Tata Sons said that the reinstatement of Tata Sons as a private company was considered by the board to be in the best interests of the company. The Mistrys have termed the Tata Sons move as “yet another act of oppression of the minority shareholders of the company at the hands of the majority shareholders”. In a September 14 letter to the holding company’s board of directors, the Mistrys investment arm Cyrus Investments said, “The real motive for conveying the proposed AGM (annual general meeting) is mala fide and with ulterior purposes.”
“The true effect of converting the status of Tata Sons into a private company is to introduce/reintroduce restrictions on transferability of shares which otherwise today are void and unenforceable under law and norms applicable to public companies,” Cyrus Investments said in the six-page letter. Besides Mistrys’ 18.4%, seven Tata charitable trusts hold 41.73% in Tata Sons, nine Tata Group companies have 9.81% and Tata family members and others own 30.06%.
When the Mistrys acquired the stake in Tata Sons in 1965, it was a private limited company. Tata Sons, incorporated in 1917, converted itself into a public limited company in 1975 following changes in the companies law. The change in legal structure means that the Mistrys, who are in the midst of a legal battle with Tata Sons and Tata Trusts over minority shareholder oppression and mismanagement at the holding company, will not be able to sell their shares to persons of their choice. In other words, Tata Trusts will have the power to negotiate the share transfer price.
Cyrus Investments said that it has the right to take legal recourse to challenge the AGM notice. Besides restriction on transferability, a private limited company has fewer rules and disclosures to comply with. “The move means less accountability, less transparency and less disclosures,” said Shriram Subramanian, founder & MD, InGovern Research Services. Going by Tata Sons’ ownership structure, the requirement of 75% shareholder votes for the proposal to be passed won’t be a hurdle for the company.