Mumbai, Nov. 4: Tata Group's move to erase the four-year history of Cyrus Mistry's leadership suffered a massive blow today when the independent directors on the board of Indian Hotels Company Ltd came out strongly in support of the beleaguered former chairman of Tata Sons.
Mistry, who was suddenly removed from the post of chairman of Tata Sons on October 24 in a boardroom coup, continues as chairman of seven listed group companies, including Indian Hotels.
The other companies are Tata Consultancy Services, Tata Motors, Tata Steel, Tata Power, Tata Chemicals and Tata Global Beverages.
There has been intense speculation about the timing of Tata Group's move to remove him from the post of chairman of the operational companies.
On Friday, the six independent directors on the board of Indian Hotels -- Deepak Parekh, Keki Bomi Dadiseth, Nadir Godrej, Ireena Vittal, Gautam Banerjee and Vibha Paul Rishi -- took the unprecedented decision to hold a separate meeting in Bombay House, the group's headquarters, ahead of the full board meeting and expressed full confidence in Mistry.
"(They) praised the steps taken by him in providing strategic direction and leadership to the company," said a terse note that the independent directors sent to the stock exchanges at the end of the day.
The independent directors decided at their meeting that since Indian Hotels was a listed company, it "was imperative (for them) to state their views to the investors and public at large, such that those who trade in securities of the company, make an informed decision", the note added.
The decision to hold a separate meeting of the independent directors was apparently orchestrated by Parekh, chairman of mortgage financier HDFC and a strong advocate of good corporate governance.
Parekh had been handpicked by the Manmohan Singh government to head a government-appointed, three-member board of directors to clean up the mess at Satyam Computers after the Rs 7,000-crore accounting scandal broke in January 2009.
The independent directors of Indian Hotels met at 2pm and gave a ringing endorsement of Mistry's leadership after "taking into account board assessments and performance evaluations carried out over the years."
But a piquant situation appears to have developed since Dadiseth - a former managing director and vice-chairman of Hindustan Unilever Ltd - is also a trustee of Sir Ratan Tata Trust. This would make him the first trustee of a Tata Trust to vote unequivocally in favour of Mistry.
At the Tata Sons board meet on October 24, three representatives of the Tata Trusts - Amit Chandra, Nitin Nohria and Vijay Singh - had all voted against Mistry, fulfilling a key condition in the modified articles of association of the holding company for the removal of its chairman.
The articles of association were modified in December 2012 - just a day before Mistry took over as chairman of Tata Group. The new articles said that two Tata Trusts -- the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust -- would have the right to jointly nominate one third of the number of directors on the board of Tata Sons.
Since Tata Sons had nine board members, the trusts had nominated three directors. In order to remove the chairman, the articles said at least five directors (a simple majority) had to vote in favour of the proposal.
The rider was that all three Tata Trust directors would also have to vote for the proposal. At the October 24 board meeting, six Tata Sons directors, including the three Trust-appointed directors, voted in favour while two others abstained. Mistry was the only one who voted against his removal.
After the lead provided by the independent directors of Indian Hotels, attention will now focus on the actions of the independent directors on the boards of other group companies.
The boards of directors of Tata Chemicals and Tata Steel are scheduled to meet on November 10 and 11 respectively to discuss the second quarter results.
TCS held its board meeting on October 13 before the cataclysmic events rocked Bombay House. Mistry had chaired the board meeting of Tata Global Beverages uneventfully on the day after his removal from the chairmanship of Tata Sons.
It is believed that if Mistry does not resign on his own, the promoters may take steps to remove him from the board of various group companies. In such an event, shareholders will be asked to vote on such a resolution.
If it comes down to a shareholders' vote, institutional investors like Life Insurance Corporation (LIC) - which has a significant stake in Tata Group companies - could play a crucial role.
Mistry had been suddenly removed from the position of chairman of Tata Sons - the group's holding company - after the six of the nine members voted against him because of what was described as a "trust deficit" resulting from the decisions relating to group companies made by the 48-year-old former chairman along with his cabal of top executives banded together under the group executive council (GEC) which has since been disbanded.
Ratan Tata has been named interim chairman and a selection committee has been appointed a chairman for Tata Sons within four months.
There has been simmering discontent within the Tata group over Mistry's style of leadership and his moves to unscramble some of the overseas acquisitions orchestrated by Ratan Tata in 2007-08 before the global economic crisis erupted and turned them into leaden, loss-making assets including Tata Steel UK which was acquired at a cost of $12 billion.
In his five-page letter to the directors of Tata Sons and the Tata Trusts, which was leaked to the media, Mistry had slammed the erstwhile management of Indian Hotels, which owns the Taj group of hotels, for its "flawed international strategy" that included a relentless pursuit of European luxury hotel chain Orient Express that began in 2007.
The bid for the luxury hotel chain began with share purchases in August 2007 and it was finally abandoned in 2013, resulting in steep losses.
"Many foreign properties of IHCL and holdings in Orient Hotels have been sold at a loss," Mistry had said, adding that the onerous lease terms made it a challenge to exit the New York-based Pierre.
He had also claimed that the Taj group had paid an inflated amount for the Sea Rock hotel in Mumbai -scarred in the serial blasts of March 1993 and acquired by the Taj group for Rs 680 crore in 2009. IHCL had to write down almost its entire net worth over the past here years, impairing its ability to pay dividends, the letter said.
On Friday, Indian Hotels reported a narrowing of consolidated net loss to Rs 26.76 crore for the second quarter ended September 30, 2016. The company had posted a net loss of Rs 151.96 crore in the July-September quarter a year-ago.
Total income from operations on consolidated basis was down marginally by 1.05 per cent during the quarter under review at Rs 884.95 crore as against Rs 894.37 crore of the corresponding quarter of the previous financial year.
Last year, the Indian Hotels board under Mistry's leadership had permitted United Overseas Holding Inc (UOH), an indirect wholly owned subsidiary of Indian Hotels, to pursue the option of selling Taj Boston hotel at a consideration of not less than $125 million (about Rs 839 crore). However, IHCL intended to retain its brand presence at the US property through a management services agreement.
Taj Boston was acquired in November 2006 and housed in IHMS (Boston) LLC, a Delaware company, and a step-down subsidiary of Indian Hotels. The Boston hotel had been unable to earn profits since acquisition and Indian Hotels had to fund the losses since it was acquired.
On Friday, Indian Hotels said it had suffered a loss of Rs 103.07 crore on account of the sell-off.
Earlier in the day, a scuffle broke out between security personnel and photographers who were trying to capture pictures of Mistry when he arrived for Indian Hotels' board meeting
A Tata Sons spokesperson later apologised for the incident. "We deeply regret the incident during the entry of certain board directors today. We profusely apologise to the press corps and their families for this incident. We will ensure that such a situation does not recur," a statement said.
Tata Motors rebutted some of the caustic observations that Mistry had made in his five-page letter. The automobile firm said that it had fully provisioned for the loans that had been extended to first-time buyers of the Nano. Mistry had said in his letter that Tata Motors Finance, an arm of Tata Motors, had extended credit with lax risk assessment. As a result, bad loans had soared to over Rs 4,000 crore.
