Its unconventional structure has led to layers of dispute for the Tata Group, which would take years to resolve in court due to drawn-out litigation
By Anirudh Gotety, The writer is a commercial disputes and international arbitration lawyer based in Delhi “I was ruined not once, but twice: once when I lost a lawsuit and once when I won one” is a famous apocryphal quip. Costs and time taken into account, the nominal “winner” of a lawsuit can often be the loser. But what if winning or losing a lawsuit is not an option to begin with? We are in such strange territory in India.
The Tata Group and its disputes, which have been in the news for the better part of the year, are a stark reminder of the absurdities of the Indian judicial system. Tata Sons is the holding company of the group companies, many of which are listed. Tata Sons in turn is majority-owned by the Tata Trusts, which own around 66%. The Shapoorji Pallonji (SP) Group owns around 18%. The Tata Trusts, being charitable non-profits, are statutorily overseen by the Maharashtra Charity Commissioner.
This unconventional structure has led to layers of disputes for the Tata Group. It mandates large non-banking financial companies that hold assets above the threshold of Rs 1 lakh crore, such as Tata Sons, to mandatorily list themselves on exchanges. In September, the RBI rejected Tata Sons’ application to surrender its licence, paving the way for listing. This directive, of course, is open to challenge before the Bombay High Court.
If contested, even optimistically it could take three-five years to resolve. That takes us to the second layer. Noel Tata, the Trusts’ chairman and its nominee director on Tata Sons’ board, is the lone challenger to the reappointment of N Chandrasekaran as the executive chairman of Tata Sons. His case is that reappointment falls foul of the veto of the Trusts’ nominee directors under the Articles of Association of Tata Sons.
With fellow nominee director Venu Srinivasan breaking rank and voting for reappointment, the dispute is over who holds a casting vote in this situation. This will likely end up as an oppression and mismanagement action by the Trusts as a shareholder before the National Company Law Tribunal (NCLT), which could take five-10 years. The NCLTs were introduced with much fanfare in 2016 as a way to funnel away company and insolvency cases.
However, the surfeit of insolvency cases ensures company cases like these are hardly ever prioritised. The third layer is at the Trusts level. The Maharashtra Charity Commissioner has multiple proceedings pending over the governance of the Tata Trusts. Acting on a complaint by trustee Venu Srinivasan alleging irregularities and the status of three lifetime trustees, including Noel Tata, the commissioner has ordered an investigation into Sir Ratan Tata Trust (SRTT).
It has also placed a freeze on any meetings of the SRTT, and hearings are not expected soon. The Charity Commissioner’s office, which is tasked with administrative as well as judicial powers, is ostensibly understaffed and underfunded, and is notoriously slow. These layers are inextricably linked. The SP Group, which wants to pare its stake to deleverage itself, and the Tata Sons board are in favour of listing.
Noel Tata is opposed to it. However, whether the RBI mandate is challenged before court is premised on whether Noel Tata can turn the board in his favour. That is dependent on NCLT litigation followed by appeals at the National Company Law Appellate Tribunal and the Supreme Court that may perhaps take 10 years. And that case needs the SRTT’s approval, which cannot come until the Charity Commissioner finishes its enquiry or lifts the freeze.
That alone could take five-10 years, counting appeals. While the public is not fully aware of the inner machinations of the Tata Group, the stay at the SRTT level has effectively foreclosed Noel Tata from challenging Chandrasekaran’s reappointment or the RBI’s listing mandate. That is the absurdity of the Indian judicial system referred to above. To be clear, courts are expensive and time-consuming around the world, and a settlement usually benefits all parties.
However, courts are at least an option, a card to play for parties abroad. For example, in Delaware, US, corporate trials can be expedited and completed in 90 days, and 98% of civil suits otherwise are concluded within two years. In the UK, most commercial suits can be wrapped up in three years. Litigation in India has become a game of timing the courts and perpetualising interim relief. A drawn-out litigation is just not a card to play.
So the job of a lawyer is to engineer negotiated exits, by obtaining leverage from court proceedings and finding off-ramps. The Supreme Court is still ordering states to provide basic infrastructure like toilets and manpower to its courts. While investing in judicial infrastructure is unglamorous, India’s capital needs courts that can effectively enforce the law and contracts. Fortunately, high-profile family and corporate disputes, as we are already seeing with the Tatas, the TVS Group, and Sunjay Kapoor’s estate, will shine some light on the state of India’s judicial infrastructure, which is otherwise unexciting to talk about. Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.
