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Tata Sons seeks approval to give voting rights to preferential shareholders

LiveMint logoLiveMint 18-09-2017 Shally Seth Mohile

Mumbai: Tata Sons Ltd has sought shareholders’ approval to give voting rights to preferential shareholders, if the holding company has not been able to pay dividends for a period of two years or more. Tata Sons shareholders will vote on this, among other proposals, at the company’s annual general meeting (AGM) on 21 September.

The move, said legal experts, is yet another negative for the Mistry family as it further dilutes their rights, even as it strengthens the effective control of those with preference shares over the holding company.

“Where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote and all the resolutions placed before the company,” Tata Sons said in the notice to the shareholders.

The preference shares allow an investor to own a stake in the company which is issuing it, with a condition that they would be prioritized over the rest of the shareholders whenever the company decides to pay dividends. Also, they would be the first to get their due in the event of liquidation of the company.

Tata Trusts chairman Ratan Tata owns 10.5 lakh preference shares or nearly a quarter of those outstanding. Narotam Sekhsaria (5.7 lakh shares) and NA Soonawala (2.6 lakh shares) are among other major holders of preference shares. The Mistry family, which holds 18.4% stake in Tata Sons, owns just 20,000 preference shares. There are more than 10 individuals, including former employees, who own preference shares in the holding company, the Economic Times reported on Monday.

All these moves, whether it’s changing the status of the company from public limited company to a private limited or giving voting rights to preferential shareholders, are directed towards “reducing powers of a big minority shareholder during the meetings”, said Tejesh Chitlangi, partner at law firm IC Legal, without naming the Mistry family. He added that the idea, it seems, “is to oust them in every legally possible manner”.

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