InvestorQ : Why are the Tata and the Mistry families once again at logger heads with each other and what is this issue about pledge of Tata Sons shares?
Rashi Mehra made post

Why are the Tata and the Mistry families once again at logger heads with each other and what is this issue about pledge of Tata Sons shares?

Answer
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Archita Jajjoo answered.
2 weeks ago


To be fair, the Tatas and the Pallonji Mistry group have been at logger heads since 2016 when Cyrus Mistry was asked to leave the chairmanship of Tata Sons. In the latest twist to the ongoing turf war between the Tatas and the Mistry family, a new dimension of pledging of shares by Mistry has come in.

To start off, Mistry is the 18.4% owner of Tata Sons and that gives them a wealth of $18 billion, making them a formidable shareholder. Since the Pallonji group is in the midst of a liquidity crisis, they want to pledge Tata Sons shares and raise money. That is the bone of contention.

In fact, the Shapoorji Pallonji Group has been in a liquidity crisis for some time and COVID-19 has brought construction activity to a virtual halt in India. This is the mainstay bread and butter business of the Pallonji Mistry group.

Now the Mistry family is keen tp pledge part of their 18.4% stake in Tata Sons to global investors to raise funds. It is against this decision of the Mistry Group that Tata Sons has approached the Supreme Court to stay the pledge of shares.

Why have the Tatas take the legal route? Tatas want to block the pledge of shares by the Mistry family with the argument that a pledge of shares can be construed as tantamount to sale of shares. Apparently, this is in contravention of the articles of association of Tata Sons.

As per AOA, any sale of Tata Sons shares by Mistry family will require giving right of first refusal or ROFR to the Tatas. These restrictions have been enabled by Tata Sons being converted into a private limited company a few years back. So that is the key issue.