India’s clash of the titans: Tata Group vs the Mistry family

The conglomerate is rushing to change its legal status to stop the Mistry’s from selling stakes to competitors

Tata Group chairman emeritus Ratan Tata and allies move to change the company's legal status as a block to the Mistry family shareholders. Danish Siddiqui / Reuters

Tata Group’s feud with one of India’s richest families deepened after the country’s biggest conglomerate moved to change its holding company’s legal status to one that would restrict the Mistry family’s ability to sell its stake to external investors.

Shareholders of the closely held company, Tata Sons, are scheduled to vote September 21 on changing its registration to a private limited entity rather than a public one, Pradipta Bagchi, a spokesman for the group, said by telephone Friday. The Mistry family plans to vote against the proposal, according to a letter to Tata Sons seen by Bloomberg.

The move comes almost a year after patriarch Ratan Tata ousted Cyrus Mistry as chairman of the US$105 billion cars-to-software group, sparking a corporate showdown that has yet to fully conclude because Mistry’s family still owns more than 18 per cent of the holding company. The proposal to alter Tata Sons’ status amounts to “oppression of the minority interests,” the Mistry family’s investment fund wrote in a letter to the holding company on Thursday.

“The true effect of converting the status of Tata Sons into a private company is to introduce/reintroduce restrictions on transferability of shares,” Cyrus Investments said in the letter. “We urge you to withdraw the AGM notice and the proposal.”

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The Tata Sons proposal requires at least 75 per cent of shareholders to pass, Mr Bagchi said.

Tata, founded in 1868, named Natarajan Chandrasekaran to take the helm in January after a feud between Ratan Tata’s allies in the company and Mistry over the latter’s strategy of paring back the empire built through more than a decade of acquisitions.

As Mistry looked for ways to pare the conglomerate’s debt-laden sprawl, growth lagged. At the same time, Chandrasekaran helped turn the group’s software maker Tata Consultancy Services. into a profit machine, boosting its market value more than 10 times since 2009.

Tata Sons is currently a public limited company. That means the Mistry family could legally sell its stake to one of Tata’s rivals, for example, something a private limited company shareholder could not do, according to India’s Companies Act.

“This means less transparency, less flexibility,” said Sandeep Parekh, managing partner at Mumbai-based Finsec Law Advisors over phone. “This restricts the transferability of shares in Tata Sons by making them less liquid.”