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Mistry family firm objects to Tata Sons’s plan of becoming a private limited company

LiveMint logoLiveMint 15-09-2017 Shally Seth Mohile

Mumbai: Cyrus Investments Pvt. Ltd, the investment firm of the Mistry family, has written to Tata Sons Ltd, objecting to the proposal to convert the holding company of the Tata group to a private limited company, calling it “yet another weapon” to oppress minority shareholders.

A private firm has restrictions on transferability of its shares, while Tata Sons’s articles of association had such a clause this was “unenforceable”, the letter said. Mint has reviewed a copy of the letter.

The Mistry family firms, which own 18.6% in Tata Sons and have already filed a suit against Tata Sons citing oppression, will vote against the proposal and appeal against it at the National Company Law Tribunal (NCLT), said a person aware of the matter, who did not want to be named.

Converting a public company to a private company requires the assent of a tribunal, according to the Companies Act, 2013.

The firm alleged that the explanatory statement issued along with the notice to the shareholders for the proposed annual general meeting (AGM), fails to make requisite disclosures regarding the implications of the change in the status of Tata Sons. “The explanatory statement fails to disclose that the true effect of converting the status of Tata Sons into a private company is to introduce/reintroduce restrictions on transferability of shares which otherwise today are void and unenforceable under law and norm applicable to public companies and which ought to never have been included in the Articles of Association of a public company in the first place,” it said.

Tata Sons has sought approval from its shareholders to amend its memorandum of association and articles of association for the same, the Business Standard reported on Friday, citing the holding firm’s notice to its shareholders ahead of the AGM scheduled for 21 September.

The change in Tata Sons’s corporate structure will require to be cleared by a special resolution, needing at least 75% votes. Besides shareholders’ approval, the change in its status will also need an approval from the NCLT.

Commenting on the rationale behind the move, a Tata Sons spokesperson said, “Tata Sons as a private company was considered by the board to be in its best interest.”

The Mistry family firm pointed out that given the nature of the grievances already raised and reliefs sought in the petition to the NCLT, the time of the issuance of the AGM notice “is a subversion of the judicial process”. It alleged that a majority of the shareholders are using it as a weapon to “oppress the rights of minority shareholders of Tata Sons”. “It is giving the restrictions the cloak of enforceability and legality by converting Tata Sons to a private limited company.”

The investment firm, in its letter, said that it is going to oppose the proposal during the AGM adding that the letter is addressed to the board without prejudice to Cyrus Investments’s rights to adopt appropriate legal proceedings to challenge the AGM notice.

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