India Tata faces serious challenges after court victory over Mistry

Ratan Tata, patriarch of one of India’s most legendary conglomerates, captured in a letter to compatriot Pallonji Mistry the bond between their two families, a bond that has been shaped not only by business, but by close of a century of history and even of marriage.

“Our common understanding and mutual faith will foster a true and lasting relationship,” Tata wrote in 1991, according to court documents. “Let me repeat that I will never do anything consciously to hurt you or your family.”

Three decades later, those words read like the opening verses of a Shakespearean tragedy after their bond was torn apart by one of the most intense disputes in recent Indian corporate history.

From British colonial rule, the Mistry helped the Tatas to make their group the most important conglomerate in independent India. The company’s interests span dozens of industries including tea, airlines and submarine cables, while assets such as Jaguar Land Rover and its UK steelworks make it the UK’s largest industrial employer.

But the dramatic fall in families after Pallonji’s son Cyrus was fired as Tata Sons president in 2016 sparked one of the ugliest chapters in the group’s history. A bitter legal battle that lasted for years ended last month when the Supreme Court ruled decisively in favor of the Tatas, dismissing Cyrus’ appeal that his ouster was illegal.

Yet for Tata Group, arguably the hardest part comes. First, he must negotiate a deal to buy out Mistry’s 18% stake and sever ties. Then it must revolve around the fortunes of a conglomerate that has struggled with a convoluted structure, underperforming traditional businesses and arriving late in growth areas such as India’s booming digital and consumer markets.

“You probably wouldn’t think of the Tata Group as a modern conglomerate,” said a person close to the company. “The most important [thing] is to define oneself.

The Tata and Mistry families are from the Parsi Indian community, followers of Zoroastrianism who arrived on the subcontinent from Persia more than 1000 years ago. Parsi entrepreneurs, including the Tatas, flourished during the British Raj in the opium trade, textile manufacturing, and steelmaking.

The ties between the two families began almost 100 years ago. Shapoorji Pallonji Group, a construction company run by Cyrus ‘grandfather, has become the Tatas’ preferred contractor, according to 2019 book Tata vs. Mistry by Deepali Gupta. Shapoorji Pallonji took several stakes in Tata Sons over the following decades.

The bond was so deep that Cyrus’ sister, Aloo, married Ratan Tata’s half-brother, Noel.

But their kinship worsened after Cyrus succeeded Ratan as president in 2012, a dispute that culminated in his dismissal four years later. Cyrus claimed he was wrongly fired for resisting Ratan’s interference and that the Tata group oppressed the rights of the Mistry as minority shareholders.

He also criticized the group’s unusual ownership structure and alleged serious governance gaps. The Tata Sons holding company is majority owned by the Tata Trusts, a collection of charities that Ratan chairs.

Tata Group, meanwhile, said Cyrus’ dismissal was a consequence of his mismanagement.

Cyrus Mistry, left, and Ratan Tata

Cyrus Mistry, left, and Ratan Tata in 2012, when they served together on the Tata Group board of directors © Subhankar Chakraborty / Hindustan Times via Getty

While the Trusts’ philanthropic record bolstered the conglomerate’s reputation as a well-run ethical group, critics, including Cyrus, argued that the structure lacked transparency and allowed Ratan and the Trustees to unduly influence the business.

In its ruling last month, the Supreme Court dismissed the Mistry’s case, comparing Cyrus to “someone who tries to set his own house on fire for not getting what he considers rightfully owed to him.”

Both sides declined to comment. But after the judgment, Ratan said he had been vindicated as a result of “relentless attacks on my integrity and the ethical conduct of the group.” Tata Sons said he would “continue his efforts for nation development and enterprise building.”

Cyrus said he was disappointed but would “sleep with a clear conscience”.

Watchers, however, said the Tata group did not come out of the episode unscathed.

“It became a personalized drama. Tata’s reputation has been built. . . on an outward image of more professional and stable management that did not involve personal conflict, ”said Mircea Raianu, a University of Maryland historian who studied the group. “It made people wonder if having trusts so closely involved is still a good thing.”

The case also drew attention to Tata’s mixed business track record, including the difficult legacy of its acquisitions of Corus Steel in the UK in 2007 and JLR in 2008. The Mistry said the Tatas had contributed to “the greatest destruction of value in Indian business history”.

Corus’ steel plant in Port Talbot in Wales, which failed to break even operationally for a decade, has turned into a serious business and political conundrum. JLR has sought a radical electrical overhaul of its business after falling behind other automakers.

Critics have argued that despite its labyrinthine interests, the group also remains unhealthily dependent on Tata Consultancy Services, the IT group that generates a large chunk of its profits.

“You have to shut down the underperforming business,” said Nirmalya Kumar, who was responsible for strategy under Cyrus’ leadership. “You have to find out in which companies can we make a difference and stand out from the rest.”

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Natarajan Chandrasekaran, who took the chairmanship in 2017, sought to consolidate the group’s structure, relaunch its international assets and refocus on the fast-growing consumer Internet market in India, including with a “super app” of electronic commerce evoked.

Some analysts, however, doubt the indebted group can keep up with deep-pocketed competitors such as US e-commerce group Amazon or Indian billionaire Mukesh Ambani’s Reliance Industries.

Tata Sons “has done great things in the past, but when an investor looks at him, he looks at his returns,” said Girish Kuber, editor and author of a book on the Tatas. “It’s definitely going to be a problem. Finding a balance between their so-called values ​​and their track record will be a real challenge for the group. “

Mistry’s Shapoorji Pallonji group, whose core interests remain in construction and real estate, may face greater challenges.

He was plunged into crisis when India went into lockdown last year. The group was forced last month to restructure more than 100 billion rupees ($ 1.3 billion) in debt from its creditors as part of an emergency pandemic relief program.

The two sides are expected to negotiate a deal to buy out Shapoorji Pallonji’s stake in Tata Sons, which the Mistry says is worth more than Rs 1.75 billion. Tata, however, said the shares were worth less than half that.

One option offered by the Mistry was to swap its stake in the parent company for shares of listed companies, such as TCS. Another possibility involved bringing in another investor.

But people close to each side wondered if the years of bad blood would allow them to find a solution from vastly different starting points. Tata “won,” one of the people said. “Will they be an elegant winner or a nasty winner?”

Another concern was that relations could break down again, forcing the dispute to come back to court and be brought to the public eye.

“Neither side wants to coexist with the other,” said another person familiar with the talks. “Maybe then you will end up with a value dispute. Hopefully that doesn’t happen. But if so, the only winners you’ll end up with are the lawyers. “

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