SP Group's Exit From Tata Sons Still Hangs On Fire

As the Supreme Court on Friday ended a long strecthed dispute between the Tatas and the Mistrys, the matter of the Mistrys-led Shapoorji Pallonji Group's (SP Group) exit from the Tata Sons still hangs on fire.

Although the top court on Friday allowed all the appeals of the Tata Group and dismissed the appeal of the SP Group, it did not decide on the prayer of the latter for its exit from Tata Sons in lieu of "fair compensation", leaving the matter unresolved.

SP Group, which holds 18.4 per cent stake in Tata Sons, had sought separation from the conglomerate through a scheme of reduction of capital by extinguishing the shares held by the SP Group in lieu of fair compensation effected through a transfer of proportionate shares of the underlying listed companies, with the balance value of unlisted companies and intangibles, including brand value, being settled in cash.

The verdict of the apex court, in a way, comes as another major setback for the SP Group which was seeking to raise funds by selling its stake in Tata Sons and strengthen its weakened financial condition.

The three-judge bench headed by Chief Justice S.A. Bobde noted that the application was filed after Tata Group moved an application for restraining SP Group from raising money by pledging shares and this court had passed an order of status quo on September 22, 2020.

"For the first time, the SP Group seems to have realised the futility of the litigation and the nature of the order that the Tribunal can pass under Section 242. This   is reflected in Paragraph 62 of the application, where SP Group has stated that they are seeking such an alternative remedy as a means to put an end to the matters complained of," it said.

The bench observed that SP Group should have sought such a relief from the tribunal (NCLT) at the beginning.

"But in an appeal under Section 423 of the Companies Act, 2013, this court is concerned with questions of law arising out of the order of NCLAT. Therefore, we will not decide this prayer," the top court said.

The apex court said that after attacking Article 75 before the NCLT, the SP Group cannot ask the Supreme Court to go into the question of fixation of fair value compensation for exercising an exit option.

According to Article 75 of the Tata Sons Articles of Association, the company may at any time by 'Special Resolution' resolve that any holder of ordinary shares do transfer his ordinary shares. Such member would thereupon be deemed to have served the company  with a sale notice in respect of his ordinary shares.

The court said that what the Mistrys have sought in the application for separation of ownership interests require an adjudication on facts of various items. The valuation of the shares of SP Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets, among others, and also perhaps the funds raised by SP group on the security or pledge of these shares.

"Therefore, at this stage and in this court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard," the court said in its 282-page judgement.

As the Supreme Court did not give a clear directive in the matter of SP Group's exit from Tata Sons and has left it to the two parties to resolve the issue, it seems that Tatas now have an upper hand in the matter, making it tough for debt ladden SP Group to exit and raise funds, legal experts said.