Shapoorji Pallonji group has challenged the Supreme Court's verdict in favour of the Tata Group. In a review petition, Cyrus Mistry's camp has raised many points of contention which bring back the same matters of corporate governance, rights of minority shareholders and duties of independent directors to the fore. Most importantly, the petition has claimed that absence of terms of separation in the judgement may lead to litigation. SP Group owns 18.37 percent stake in Tata Sons and the two warring camps do not see eye-to-eye on the valuation of the stake.
Challenging the apex court
judgement pronounced by the bench led by now retired Chief Justice of India SA Bobde, the petition read, "[It] Denies relief that would have put an end to matters complained of." SP Group had proposed a separation scheme seeking a pro-rata distribution of shareholding and assets of Tata Group companies. Pallonji Group valued its stake of 18.37 percent at Rs 1,75,000 crore. Tata Sons rejected the proposed terms of separation as an "attempt to break up Tata Group through sleight of hand". Tata Sons counsel submitted before the SC that the value of Pallonji's stake was no more than Rs 70,000 to 80,000 crore.
This being the biggest point of contention between the two camps, the petition read, "The Hon'ble Court ought to have put an end to further litigation by articulating the principles of valuation." It goes on to say, "By leaving it to parties to take recourse of Article 75, or any other legally permissible route, the judgement has only relegated parties to further litigation..."
Points of contention:
Personal remarks on Cyrus Mistry
Findings of fact by NCLAT not held to be preserve
Article 75: forceful exit of minority shareholder
Section 241: Fiduciary duty of independent directors
Absence of relief of separation may lead to litigation
Cherag Balsara, Advocate at Bombay High Court said, "Dehors what the Supreme Court does in the review petition, the next battle will be in respect of the valuation of shares of the Pallonji Group as the Supreme Court has not decided the same. At some point of time an exit of the Pallonji Group is inevitable."
While there are multiple options the two sides could explore for the final separation, agreeing on the valuation is key and a mismatch could be hard to bridge.
The petition also emphatically challenged the disregard for findings of fact by NCLAT citing several examples in the judgement. While
corporate governance aspects have been at the centre stage of the legal battle, the petition did point out the role of the independent directors and challenged the court on declaring 'Trustee Nominee Directors are Sui-generis' or unlike other directors.
SP Group also stated that acknowledging independent judgement confuses the duties of an independent director and added, "Just by exercising the duty of independent judgement, one does not become an Independent Director."Besides being the most high profile corporate legal battle, it looks clear that the spotlight will be on the fiduciary duty of independent directors and may trigger a public debate given the precedence of the judgement in the Tata vs Mistry case.