By: John Elliott

A year ago, the stately Tata business group was in a crisis that threatened its reverential image and international credibility after Ratan Tata, the 78-year old veteran patriarch, forced the sacking of Cyrus Mistry, who had succeeded him when he retired as chairman of the group in 2012.

In that sudden boardroom coup at India’s largest conglomerate, Tata installed himself as temporary chairman of Tata Sons, the holding company of the US$103 billion group.

The move sparked a dramatic and high profile public exchange of vitriolic and damaging allegations and counter-allegations between the two sides about business practices and the group’s alleged failures. Legal action was initiated and has moved slowly, though there is a hearing at the National Company Law Tribunal (NCLT)  later this week – November 3.

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Calm has now been restored to the group’s businesses under a new chairman, Natarajan Chandrasekaran, 54, who previously headed Tata Consultancy Services, the group’s supremely successful information technology cash cow.

But, while the business brand of Tata companies has recovered from the crisis of a year ago, much remains the same and, crunching below the surface, is the fall-out from the way  that Tata removed the 50-year-old Mistry.

Tata now seems to be trying to punish the Mistry family with a legal maneuver that would reduce their voting power – the family has a 18.4 percent equity stake in Tata Sons and is the second largest shareholder after charitable Tata Trusts with 66 percent.

The Mumbai business establishment rallied round Tata a year ago with a mixture of loyalty and fear of the damage that the crisis could do to the image both of Mumbai and their own companies. Mistry was quickly removed from all Tata boards, including Tata Sons. Chandrasekaran was announced as chairman on January 12 this year, and normal business was resumed after he took over a month later.

The Mistry family however started legal proceedings last December against Tata Sons at the NCLT, lodging a 344-page petition that alleged oppression of minority shareholders and mismanagement. It called for an administrator temporarily to take over the group’s affairs. It also lodged appeals at the NCLT, including one against the effective voting rights of its 18.4 percent stake being reduced to 2.17 percent, when (at the request of Tata) other investors’ preference shares were included. That 2.17 percent was below the 10 percent minimum required to file petitions, so Mistry’s petitions were blocked.

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Ratan Tata and Cyrus Mistry in happier days

The tide turned however, at least a little, when the NCLT’s appellate board (NCLAT) in September overruled the stake-holding restriction on the Mistry petitions, which has led on to the hearing fixed for Nov.3.

Criticism of Tata also increased when, a day before that ruling, its annual general meeting on Sept. 21 voted to seek official NCLT approval to convert Tata Sons from being a public limited company into a private limited company, changing its name from Tata Sons Ltd to Tata Sons Private Ltd. It also voted to give preference shareholders permanent voting rights (which they do not currently have) if there was a default in dividend payment for two years.

That would, reports suggest, raise Tata’s voting power from 0.83 percent to 31.43 percent, and introduce other minority shareholders, thus restricting the Mistry family’s clout.

There was considerable public criticism of these moves, partly because they seemed contrived to reduce the Mistry power, and partly because the private company change would reduce the governance requirements and potential for public scrutiny at a time when the trend is for increased transparency.

Tata Trusts

The counter view is that the Tata Trusts are anxious to ensure that other interests do not change Tata Sons to such an extent that it affects the flow of profits that are essential for their charitable work.

Either way, it appeared a clumsy move at a sensitive time.

“By the look of things, the Mistry camp seems reinvigorated by its recent victory and appears charged-up to impose their renewed legal strategy on their corporate opponents,” Satvik Varma, a corporate lawyer, wrote in a newspaper article critically analyzing the case.

Meanwhile Chandrasekaran has a difficult role to play at a time when loyalties of individuals at the group’s Bombay House headquarters in Mumbai are not always clear, especially after the recent legal moves.

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Natarajan Chandrasekaran with Ratan Tata when he took over as Tata Sons chairman in February 2017

He needs to make the same tough decisions that Mistry was tackling, while acknowledging Tata both as his previous boss and as the powerful patriarchal mentor at the head of the Tata Trusts. He seems to be handling this skillfully, leaving Tata space to shine – for example being the senior Tata figure at the Paris Air Show in June when the group signed up with Lockheed of the US to make F-16 fighter jets in India.

That was in stark contrast to the approach of Mistry and his top advisers who aimed to sideline Tata, asserting their own authority. Since Tata was “convinced that he was irreplaceable,” as a colleague put it to the Financial Times, the showdown a year ago was inevitable.

In a series of media interviews over the past month Chandrasekaran has laid out what he is doing. The never-successful loss-making Tata Teleservices business is being taken over by Bharti Telecom, Tata Steel’s debt-ridden European business, including Corus in the UK, is being hived off into a joint venture with ThyssenKrupp. Some reports suggest that even Mr Tata’s favorite project, the unsuccessful Nano, looks like being reincarnated as a possible face-saving small electric car.

Overall, Mr Chandrasekaran wants to simplify the group’s extraordinarily complex company relationships and overlapping interests – two airline joint ventures with just 15-20 aircraft each for example, and there might be a third if Tata decides to make a privatization bid for the deeply loss-making Air India, which the group founded in 1932 and ran till it was nationalized in 1953.

Then there are four companies in defense manufacturing, and at least three in information technology.

Fewer companies

“I would like to see ourselves as 5,6,7 groups as opposed to 110 companies. The more we see ourselves as 110 or 120 companies, nothing will be done,” he told The Economic Times in a long interview.  No company, he said, could survive with “hundreds of subsidiaries and joint ventures”

He also needs to tackle loss-makers, especially Tata Motors, which is currently kept afloat by its hugely successful Jaguar-Land Rover operation – buying what is called JLR from Ford Motor was one of Tata’s most successful initiatives.

But he let Tata Motors’ Indian operations slide, and saddled them with the Nano car. “Our cost structures are out of whack. Every single car and model is losing money. It’s important to pick up volumes and try to become profitable,” said Mr Chandrasekaran.

Two books

Meanwhile the Tata and Mistry camps both have pending books that will no doubt cause more controversy when they appear.

A biography of Tata is being written by Peter Casey, an Irish born Atlanta-based businessman who runs an executive search agency. He wrote a corporate hagiography, Tata – The World’s Greatest Company that was published by Penguin in 2014, and also backed Tata in the row with Mistry. Penguin Random House India is handling the biography which has yet to appear, though it was expected in the first half of this year and may, according to reports, be awaiting Mr Tata’s clearance.

The Mistry side of the battle is coming from Nirmalya Kumar, a Singapore business professor who was one of Mr Mistry’s closest advisers. He has described it as a “who-dunit on the whole affair” and says it is completed, though a publication date has not yet been fixed. In the past few days, he has been writing on his blog about what happened a year ago.

Clearly, there is a lot of mileage in this story. The best solution would be for Tata and Mistry to make a clean break, with Mistry selling their stake either to Tata or another investor. But, it seems, scores have to be settled before that could happen.

John Elliot is Asia Sentinel’s New Delhi correspondent. He blogs at ridingtheelephant.wordpress.com