Tata and Mistry should avoid long-drawn legal battle: IHCL shareholders

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Tata Sons, led by interim chairman Ratan Tata, and the salt-to-software conglomerate’s former chairman Cyrus Mistry should try to amicably resolve their differences and avoid long-drawn litigation, observed the shareholders of Indian Hotels Co. Ltd (IHCL), who expressed their views at the company’s extraordinary general meeting (EGM) held in Mumbai on Tuesday.

Since Mistry resigned as a director, and thereby as chairman, on the board of IHCL on December 19, there was no business left to be transacted at the EGM. The sole purpose of the IHCL EGM was to vote on the removal of Mistry as director. Since shareholders had been intimated about the EGM and many of them had expressed their desire to share their views on the current imbroglio at the Tata group at this forum, IHCL’s management decided to let shareholders “informally express their sentiments.”

Mistry and his brother Shapoor Mistry – also an IHCL director – didn’t attend the EGM. But 79-year-old Ratan Tata, along with his close aides and former Tata Sons directors RK Krishna Kumar and NA Soonawala; current Tata Sons director Vijay Singh; and Tata Trusts’ managing trustee R Venkataramanan were present in the auditorium of the Indian Merchants’ Chamber on Tuesday, where the IHCL EGM took place.  Among the independent directors of the company, only Deepak Parekh and Nadir Godrej were present.

EGMs of other group companies like Tata Power, Tata Motors, Tata Steel and Tata Chemicals will also proceed as planned. While the sole business to be transacted at the Tata Power EGM also includes removing Mistry as a director, meetings of the other three companies will see shareholders take a decision on Nusli Wadia’s fate as independent director on the boards of these companies as well.

Following a Tata Sons board meeting on December 19, Mistry put in his papers as the director and chairman of the group operating companies of the $103 billion-conglomerate and promised to continue his battle, which he says is to preserve the legacy of the Tata group, at a larger platform where “the rule of law and equity are upheld.” This has led many to believe that the legal recourse that Mistry will resort to might see him filing court cases.  
 
The over three dozen shareholders who spoke at the EGM expressed their unanimous support for Ratan Tata and the direction in which the Tata group companies, including IHCL, had progressed under his leadership. One shareholder, Vinod Agarwal opined that Mistry should have resigned soon after he was removed as Tata Sons chairman on October 24, since it would have been logical to relinquish all other posts within the Tata group, after he was sacked as chairman of the flagship holding company.

“The blame game needs to stop. Whatever decisions have been taken in the past have been collectively approved by the board,” said Tamal Kumar Mazumdar, an IHCL shareholder who came from Kolkata to attend the meeting.

IHCL shareholders Aloysius Mascarenhas and Chandiramani Mohan observed that a legal case should be avoided since the legal machinery takes a long time to decide on matters and the uncertainty that an impending court case brings with it could lead to further erosion of shareholders’ wealth. Shareholders were unanimous in their view that a legal case should be avoided and both sides should look to arrive an amicable settlement.

Sea Rock Acquisition
Anil P Goel, IHCL’s former executive director and chief financial officer, was also present at Monday’s EGM as a representative of Tata Capital, a shareholder in IHCL. Goel took the podium at the EGM to clarify on some of the points raised by Mistry in his October 25 letter against the way IHCL was run under the erstwhile management under Ratan Tata’s chairmanship.

A few of the points that Mistry raised in his letter with respect to IHCL included the acquisition of the sea-facing Sea Rock Hotel on Bandra Bandstand, a stone’s throw from Taj Land’s End, IHCL’s existing property in the same vicinity, at a “highly inflated price.”. Furthermore, Mistry mentioned that Sea Rock was housed in an off-balance sheet structure.

Goel admitted that the Sea Rock acquisition was an expensive one, but it made strategic sense for IHCL to buy the property and the company’s board had collectively approved the proposal to do so. Goel stated that the Sea Rock acquisition was further to IHCL’s strategic decision to expand its presence in the upscale Mumbai suburb of Bandra. It was also a “preemptive investment”, said Goel, to protect the interests of Land’s End, which is the second-most profitable hotel that IHCL runs. The rationale being that if Sea Rock was acquired by a rival hospitality chain, which would then build its own hotel next to Land’s End, it may have eroded the latter’s business.

The former IHCL executive also pointed out that the Sea Rock acquisition was funded entirely through debt and lenders had done their own independent evaluation, following which they agreed to lend to the company to buy the property at the valuation agreed with the sellers.

Goel further elaborated that Sea Rock was housed in an off-balance sheet structure through a special purpose vehicle, in order to maintain flexibility when it came to taking a decision on how to fund the proposed hotel that IHCL was to build on that piece of land. This could have included the potential induction of another financial investor as well. Construction of the new hotel at the Sea Rock site was delayed due to hurdles in securing government clearances, Goel said. “Prior to my retirement (in October 2016), almost all necessary approvals in place and the expectation was that the project should take off the ground soon,” Goel said. “Half of the debt taken for the Sea Rock acquisition has been retired already and the property has been brought into the balance sheet.”

Another allegations that Mistry had levelled at the Tata Trusts, the group of philanthropic bodies that collectively own 66 percent of Tata Sons, and its trustees was that they unduly solicited business information from the operating companies of the group. Goel denied this as well by saying: “During my time at the company, no trust ever sought information from the management.” Goel had been with IHCL for 35 years and functioned as the company’s finance director for a decade.