InvestorQ : Why is Tata Sons trying to block the pledging of Tata Sons shares by The Pallonji Mistry group?
prachi Patwardhan made post

Why is Tata Sons trying to block the pledging of Tata Sons shares by The Pallonji Mistry group?

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sara Kunju answered.
2 months ago
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Tata Sons has moved an application before the Supreme Court of India restraining the promoters of the Shapoorji Pallonji Group from raising capital by pledging their shareholding in Tata Sons. Tatas sought to restrain creation of direct or indirect pledge.

Under the extant guidelines, Tata Counsel has opined that, any pledge will amount to transfer of shares and under the Articles of Association of Tata Sons, the board of Tata Sons has the right of first refusal or ROFR to buy such shares at fair market value.

The situation has become complicated after Cyrus Mistry was removed from the top job at Tata Sons leading to a rift in the 100 year old association between the two business families. Shapoorji Pallonji Group currently holds 18.4% stake, although this is disputed.

The Pallonji Group is currently in the process of raising Rs.11,000 crore from a clutch of global investors by pledging its Tata Sons shares. The group is into construction business and that business has taken a big hit in the aftermath of the COVID pandemic.

SP group has argued that creation of pledge does not tantamount to transfer of shares and that their ability to pledge shares in Tata Sons was not in any way subservient to the articles of Tata Sons. That is because the title of the shares remains with the pledgor.

Clearly, Tata Sons will not risk allowing this as any default by Shapoorji Pallonji group would give the investor backdoor access into Tata Sons. That is something the Tata Group clearly wants to avoid.

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