Tata finale. It’s not about a meeting or about a law. It is about survival. And those with zero skin in the game making decisions. If these are the puppets – who is the puppeteer. And whose puppet show is it anyway.
The start is a simple question. What kind of a trust are the two trusts that control 51% of Tata Sons ? Is it a private family trust or is it a public charitable trust. It would not be right of me to reveal this but it won’t take any reasonably intelligent person to figure out.
Second question. Is this an entity akin to a HUF (Hindu united family). That is an obvious answer. Parsis are not Hindus. So there is no succession involved. No wills to be probated. Because to will something you have to first own it. I cannot register a will transferring the Rashtrapati Bhavan. Because I don’t own it.
Third question. Can a trust own shares in Indian Companies Act ? If not how is it that mutual funds are organised as trusts. As are most venture capital funds (though the smart ones got out). The shares of a trust are held by trustees. In the case of mutual funds or venture capital funds – those trustees are NOT individuals but Trusteeship companies. These are entities which are duly licensed and regulated. Licensed banks should own them. But because of our inherent foolishness, some deep state owned entities control them. In the case of Tata Trust there is NO trusteeship company.
The trusts invest in Tata companies through Tata Sons. And this is where the crux of the problem lies. Tata Sons is a company and therefore the ownership of shares in Tata Sons is as they would say “barely legal”. In my humble opinion, it is illegal. The shares can be held by the Trustees on behalf of the Trust but NOT by the trust.
Now it gets worse. There are two other shareholder groups besides the Trusts. One is the Shapoorji Pallonji group which owns shares through investment companies. All legit. This is THE promoter of Tata Sons. Few realise this. Cyrus Mistry did but the Indian legal system didn’t come to his rescue.
The other shareholder group are the Tata companies who themselves are owned by Tata Sons. It is a circular entry. And if one understands Company law – these shares have little value other than economic interest.
Now let’s come to the Board of Tata Sons. The appointees of Tata Trusts cannot vote on a resolution where they are an interested party. So that eliminates one third of the Board.
Now come to the balance two thirds. Who are these individuals ? What is their skin in the game ? Who are the independent Directors. And are they independent really ? Do they have a fiduciary relationship with any of the Tata companies ? Are they eligible to vote ?
One shareholder with over 10% holding is claiming mismanagement and malfeasance. He is right.
Now what.
Watch the drama.
But if you read the above.
The ending is known.
The only unknown is how illegal an act will the legal system allow. Cyrus Mistry case study is not very inspiring.
