Indian Tata faces deep challenges following the court victory against Mistry

Ratan Tata, patriarch of one of India’s best-known conglomerates, picked up in a letter to fellow dynasty Pallonji Mistry the bond between his two families, one that has been shaped not only by business but by nearly a century of ‘history and even by marriage.

“Our common agreement and our mutual faith will foster a true and lasting relationship,” Tata wrote in 1991, according to court statements. “Let me reiterate that I will never do anything consciously to harm you or your family.”

Three decades later, these words were read as the first verses of a Shakespearean tragedy after their bond was broken by one of the most intense disputes in India’s recent corporate history.

Beginning during British colonial rule, the Mistrys helped the Tatas build their group in the largest independent conglomerate in India. The interests of the company cover dozens of sectors included has, airlines and submarine cables, including assets Jaguar Land Rover and his British steel industry makes him the largest industrial entrepreneur in the United Kingdom.

But the spectacular drop in families after Pallonji’s son Cyrus was fired as president of Tata Sons in 2016 sparked one of the ugliest chapters in the group’s history. A tough legal battle for years ended last month when the Supreme Court ruled decisively in favor of the Tata, rejecting Cyrus’ appeal that his removal was illegal.

However, for Tata Group, it is now without a doubt the most difficult. First, you have to hire a deal to buy the 18% stake in the Mistrys and break the ties. Then, he has to turn around the fortunes of a conglomerate that has struggled with a convoluted structure, with lower returns than legacy companies and late arrival to growth areas like the growth of India’s digital and consumer markets.

“You probably wouldn’t see the Tata group as a modern conglomerate,” said one person close to the company. “The most important [thing] is to define themselves. “

The Tata and Mistry families come from the Parsi community of India, followers of Zoroastrianism who came to the subcontinent from Persia more than 1,000 years ago. Parsi businessmen, including the Tata, prospered during the British Raj in the opium trade, textile manufacturing and steel manufacturing.

The bonds between the two families began almost 100 years ago. According to the 2019 book, the Shapoorii Pallonji group, a construction company run by Cyrus ’grandfather, became the Tata’s favorite contractor. Dad against Mistry by Deepali Gupta. Shapoorii Pallonji acquired several stakes in Tata Sons in later decades.

Such was the depth of the ties that Aloo, Cyrus’ sister, married Noel, Ratan Tata’s half-brother.

But his kinship worsened after Cyrus succeeded Ratan as president in 2012, a conflict that culminated four years later with his removal. Cyrus claimed that he was unfairly fired for resisting Ratan’s intrusion and that the Tata Group oppressed the rights of the Mistrys as minority shareholders.

He also criticized the group’s unusual ownership structure and alleged serious governance failures. The Tata Sons holding company is majority owned by Tata Trusts, a collection of charities chaired by Ratan.

Tata Group, meanwhile, said Cyrus’ dismissal was a consequence of his mismanagement.

While the Trusts ’philanthropic record has fostered the conglomerate’s reputation as a well-run ethical group, critics like Cyrus argued that the structure lacked transparency and allowed Ratan and trustees to unduly influence the business.

In its ruling last month, the Supreme Court rejected the Mistrys’ case, comparing Cyrus to “a person who tries to set fire to his own home for not getting what he legitimately perceives belongs to him.”

Both parties declined to comment. But after the trial, Ratan had said he was vindicated after the “relentless attacks on my integrity and the group’s ethical conduct.” Tata Sons said he will “continue his efforts towards nation development and business building.”

Cyrus said he was disappointed, but “he would sleep with a clear conscience.”

Observers, however, said Tata Group did not leave the episode unharmed.

“It simply came to our notice then. Tata’s reputation was built. . . on an outside image of more professional and stable management that did not involve personal conflict, “said Mircea Raianu, a University of Maryland historian who has researched the group.” It made people question whether to have such closely involved trust. it’s always good. “

The case also drew attention to Tata’s mixed business record, including the difficult legacy of its UK acquisitions. Corus Steel in 2007 i JLR in 2008. The Mistrys said the Tatas had contributed to “the greatest destruction of value in Indian corporate history.”

The Corus steelworks at Port Talbot, Wales, which has could not be broken at the operational level for a decade, it has become a serious political and business headache. JLR is looking for a radical electrical overhaul of their business after falling behind other vehicle manufacturers.

Critics argued that despite its labyrinthine interests, the group also remained unhealthy for Tata Consultancy Services, the IT group that generates much of its profits.

“You have to close the unproductive business,” said Nirmalya Kumar, who was head of strategy under Cyrus ’leadership. “We need to find out in which companies we can make a difference and stand out from the others.”

Natarajan Chandrasekaran, who took over the presidency in 2017, has sought to consolidate the group’s structure, revive its international assets and refocus on the fast-growing consumer internet market in India, including a E-commerce “super app” discussed.

Some analysts, however, are skeptical that the debt-laden group could keep up with pocket competitors, such as the American e-commerce group Amazon or the Indian billionaire. Mukesh AmbaniReliance Industries.

Tata Sons “has done great things in the past, but when an investor considers it they will look at their returns,” said Girish Kuber, newspaper editor and author of a book about the Tata. “It simply came to our notice then. Finding a balance between so – called values ​​and balance will be a real challenge for the group. “

Mistrys ’Shapoorii Pallonji group, whose core interests are construction and property, faces possibly greater challenges.

He was immersed in a crisis when India went into lockdown last year. The group was forced last month to restructure more than $ 100 billion ($ 1.3 billion) with creditors through a pandemic relief emergency plan.

The two parties are expected to negotiate a deal to buy Shapoorii Pallonji’s stake in Tata Sons, which the Mistrys believe is worth more than Rs 1.75 crore. Tata, however, said the shares were worth less than half.

One option proposed by the Mistrys was to change its stake in the parent company for shares in listed companies, such as TCS. A different possibility involves attracting another investor.

But people close to each side wondered if the years of bad blood would allow them to find a resolution from very different starting points. Tata “won,” one of the people said. “Will they be an elegant winner or a nasty winner?”

Another concern was that relations could be broken again, forcing the dispute to return to court and public focus.

“Neither side wants to live with the other,” another person with knowledge of the discussions said. “Possibly, it will end with a litigation on the following value. Hopefully it doesn’t get to that. But if he does, the only winners you’ll end up with are the lawyers. “