Tata Sons Can Lawfully Coerce Mistry Family Into Selling Its Shares

By passing a resolution in accordance with its articles of association, Tata Sons Ltd can ask the the Mistry Family to sell the 18.4 per cent of ordinary shares that it holds in the company, Livemint has reported.

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.”

Two firms managed by the family - Cyrus Investments Pvt Ltd and Sterling Investments Pvt Ltd - own shares worth $16 billion. According to Bloomberg, Ratan Tata is looking for a partner to buy the Mistry’s stake. It is known to be in contact with an Indian state-owned financier, a foreign state-owned investment company and one of the world’s largest pension funds for the same.

This will not be an easy task, not least because Tata Sons is an unlisted company and there is the question of liquidity in its shares. To add to this uneasy situation, the articles of association of the company impose burdensome requirements on stakeholders. Among other things, the laws say that stakeholders can sell shares only to other existing shareholders or outsiders selected by the board. To overcome some of these hurdles, the Mistry family’s stake might have to be broken into smaller holdings.

The ongoing legal battle between Tata Sons and the Mistry family in the National Company Law Tribunal will also impede the process, though there are no legal restrictions in place.