Tata Sons seeks to delist into Pvt Ltd firm; Cyrus strongly objects

Tata Sons Ltd, the holding company of Tata Group firms, is looking to change its status from a publicly listed company to a private limited one, and has sought approval from its shareholders to amend its memorandum of association and articles of association to this end.

Tata Sons has issued a notice to its shareholders ahead of the annual general meeting (AGM) scheduled for 21 September. It has also sought to change the name of the company from Tata Sons Ltd to Tata Sons Pvt Ltd.

However, Cyrus Investments, one of the Shapoorji Pallonji family's holding companies, has vehemently objected to the conversion of the primary holding company of the $104-billion Tata Group into a private limited company, saying it amounts to oppression of minority shareholders.

The Mistry family holds 18.4 per cent equity stake in Tata Sons.

Apart from voting against the resolution, ousted Tata Sons chairman Cyrus Mistry will move the National Company Law Tribunal (NCLT) against it.

A letter from Cyrus Investments to the Tata Sons board said, ''The proposal to convert Tata Sons from a public company to a private company constitutes yet another act of oppression of the minority shareholders of Tata Sons at the hands of the majority shareholders.''

The change in Tata Sons' corporate structure will require to be cleared by a special resolution, needing at least 75 per cent of the 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.''

While two investment firms of the Shapoorji Pallonji family - Cyrus Investments and Sterling Investment - own 18.4 per cent, Tata Trusts own 66 per cent of the share capital of the company and the remaining shares are held mostly by the Tata family, some group companies and a few individuals.

"The real motive behind convening the proposed AGM is mala fide and for an ulterior purposes and the proposed resolutions are not in the interests of Tata Sons as a whole or at all," says the letter from Cyrus Investments.

It further says that the AGM notice and explanatory statement that suggests the conversion of Tata Sons from a public limited company to a private limited company is merely a formality, is misleading.

Business Standard points out that Tata Sons was incorporated under the Companies Act, 1913, at which time its articles of association had the features of a private limited company. In 1975, it became a "deemed public company" under the Companies Act, 1956. However, its articles of association remained unchanged and it continued to retain features of a private limited company.

The Mistry firm said that after amendments in the Companies Act in 2000, Tata Sons was required to inform the registrar of companies if it had become a private company, which it didn't. Despite being a public company, its articles of association remained unchanged and continued to contain features of a private limited company. The concept of a "deemed public company" is not statutorily recognised under Companies Act, 2013.

According to BS, corporate law experts are divided on the impact of the move on minority shareholders. While converting to a private limited concern would entail less compliance requirements, any restrictions on sale or transfer of shares would be decided by clauses in the articles of association of the company.

However, there is no mandatory requirement for the presence of an independent director in a private limited company. "This could be construed as detrimental to status of minority shareholder," a corporate law expert told BS.

The letter from the Mistry firm said, "The explanatory statement fails to disclose that the true effect of converting the status of Tata Sons into a private company is to introduce/re-introduce restrictions on transferability of shares which otherwise today are void and unenforceable under law and norms applicable to public companies."