Minority Shareholders 'Short-Changed' At Bombay House

The National Company Law Tribunal (NCLT) has turned down a request from Shapoorji Pallonji Group (SPG) vide its investment outfits, viz, Sterling Investment Corporation and Cyrus Investments, to initiate action against Tata Sons for the “oppression of minority interest and mismanagement”. It was done on the ground that the petitioner does not have the required minimum shareholding of 10%.

- Uttam Gupta

The SPG holds 18.4% shares of Tata Sons which is higher than the 10% threshold. But its holding plummets to a mere 2.17% once preference shares are also included in computation. Preference shares by nature are entitled to special privileges in regard to dividend payment vis-àvis equity shares but they carry much lower voting rights or no rights at all. Hence, their inclusion for the purpose of arriving at the voting power of a particular group is anomalous.

The NCLT has the power to waive the minimum share holding requirement to determine whether the petition is maintainable. The Tribunal can exercise this discretion if it is convinced that the issue raised by the petitioner concerns wider public interest and has ramifications for minority shareholders. Yet, it decided against the maintainability of the petition.

It has averred that the actions of Tata Sons have not affected minority shareholders and the public at large. Two crucial aspects need to be tested. First, whether there exists a link between the two. Second, whether the former took such decisions/actions as would adversely impact the latter.

Tata Sons is a closely held entity controlled by family-owned trusts which alone hold 66% of the shares. But it exercises control over dozens of companies, viz, Tata Motors, Tata Steel, Tata Consultancy (TCS), Tata Power, India Hotels and Tata Chemicals, to name a few. In TCS, Tata Sons has 73% ownership whereas in others, its share holding ranges between 22% and 31% (acting in concert with institutional investors, it carries through all its proposals).