InvestorQ : Both Tatas and Mistry are arguing whether a pledge is a sale or not? What is your view? Can you call a pledge as a sale and what could happen to this feud?
Rashi Mehra made post

Both Tatas and Mistry are arguing whether a pledge is a sale or not? What is your view? Can you call a pledge as a sale and what could happen to this feud?

Answer
user profile image
Archita Jajjoo answered.
1 week ago


The entire battle between the Mistry family and the Tatas boils down to just one question; whether the pledge transaction can be construed as a sale transaction. Both the sides have their own view on the same and the lawyers are arguing their brief accordingly.

Let us first look at the issue from the perspective of the Mistry family. They need funds to bankroll their expansion and even sustenance in the post COVID scenario. The family is the legitimate owners of 18.4% stake in Tata Sons and nothing stops them from pledging shares.

Even if the Mistry family pledges just part of their shares, the overall value of the shares in the market today would be around Rs.145,000 crore and it could be the perfect foil for them to raise funds in these tight market conditions.

Mistry family has consistently argued that pledge is not tantamount to a sale as the ownership still vests with the pledgor of the shares. Their counsel has argued that since there is no transfer of ownership that happens, it can be construed as a sale.

The Tata group has a slightly different take on this subject. They look at the pledge more in terms of discrete outcomes than as per the technical word of law. Their limited point is that In the event of any default by the Mistry group on the loans, the pledgee automatically gets triggered.

In such cases, it is not clear whether the commitment to the pledgee will prevail or the AOA of Tata Sons will prevail. Since there is an element of uncertainty on that issue, Tata Sons wants to pre-empt the situation by blocking the pledge.

However, the Indian Courts may take a wary stance since the law can be interpreted both ways in this case. Also the court will be wary of the kind of legal precedent it sets by its judgment on this subject.

It is very likely that the court may direct the Tatas and the Mistry families to sit across the table and hammer out a solution. Overall, it must be said that Indian business and the economy will be more comfortable if a truce is reached between these two parties.