MUMBAI (NewsRise) -- An Indian appellate tribunal on Wednesday reinstated Cyrus Mistry as the chairman of Tata Sons, saying he was illegally removed from the board three years ago, rekindling worries about a legal battle at a time when many group companies are grappling with falling sales.
The National Company Law Appellate Tribunal, or NCLAT, said the appointment of Tata Sons' current Chairman N. Chandrasekaran was "illegal." The order also seeks to restore Mistry as a director of Tata group companies. The ruling will take effect in four weeks, giving Tata time to appeal to India's Supreme Court.
The NCLAT verdict deals a major setback to the $110 billion Tata Group and its chairman emeritus Ratan Tata. Investors are concerned that a prolonged legal battle between Mistry and the Tatas could take up management bandwidth when several key group companies such as Tata Motors and Tata Steel struggle with weaker demand and staggering debt.
Tata Sons released a statement Wednesday saying that the company "strongly believes in the strength of its case and will take appropriate legal recourse."
The statement, issued in the name of Shuva Mandal, the group's general counsel, said "Tata Sons assures its various stakeholders that it not only has always operated in a fair and equitable manner but also acted in accordance with the law and will continue to do so."
In an emailed statement to Indian media, Mistry said the outcome of the appeal was "a vindication" of his stand taken when the then-board of Tata Sons "without warning or reason removed me, first as the executive chairman, and subsequently as a director of Tata Sons."
Mistry said that his aim as chairman was always to "promote effective board governance to create long term stakeholder value, sustainable profits and growth." He said "It is now time that all of us work together for sustainable growth and development of the Tata Group, an institution that we all cherish."
Shares of top Tata companies such as Tata Motors and Tata Power fell in Mumbai trading after the verdict. Tata Motors lost 3.1%, while Tata Power declined 1%. The benchmark S&P BSE Sensex gained 0.5%.
"Investors may avoid Tata stocks until further clarity emerges," said R.K. Gupta, managing director of Taurus Mutual Fund. "The group will surely approach the Supreme Court for relief, but the uncertainty until a verdict is a concern."
The Mumbai-based group has been embroiled in a bitter feud with Mistry for more than three years after he was unceremoniously ousted in 2016, with the group citing nonperformance, leading to a bruising public fight between Mistry and founding family scion Ratan Tata.
The group then appointed Chandrasekaran, then chief executive of its software outsourcing arm Tata Consultancy Services, to the board of Tata Sons, the holding company for the group, and named him chairman in January 2017. Mistry subsequently approached the National Company Tribunal (NCLT) but the court rejected his petition. Mistry had taken charge as the chairman of Tata Sons in 2012 from the Ratan Tata.
Mistry's family holds a 18% stake in the group through two investment firms, making it the single largest shareholder. Tata Trusts, a charity trust, holds a 66% stake in the conglomerate and is helmed by Ratan Tata.
--Dhanya Ann Thoppil