As majority shareholders of Tata Sons approved a resolution to give voting rights to its preference shareholders in case of a default in dividend payment for two years, Ratan Tata might just emerge as the largest shareholder of the company. Chairman emeritus of Tata Sons and chairman of Tata Trusts, Ratan Tata currently holds 3,368 equity shares and 10,50,000 preference shares of Tata Sons, giving him a direct stake of 31.43 per cent.
Currently, preference shareholders don't have any voting rights. They get a fixed dividend, payment of which is on priority, over that of ordinary shareholders. The recent development gives them voting rights on a par with equity shareholders in the event of a two-year non-payment of dividend. In case it happens, Cyrus Mistry family's hold over the company will fall from 18.4 per cent to 2.82 per cent. Mistrys currently hold 74,352 equity shares and 20,000 preference shares.
Tata Sons have come close to becoming a private limited company, as a majority of its shareholders approved the proposals. The Mistrys, however, voted against both the proposals, as it will restrict the sale of Tata Sons shares to external parties and dilute their voting rights. Mistry's Cyrus Investments wrote a letter to the boards of six listed Tata companies- Tata Steel, Tata Motors, Tata Global Beverages, Tata Power, Indian Hotels, and Tata Chemicals, saying the curbs will be “contrary to the interests of public shareholders.”
It also said the move would lead to “dilution” of governance standards. “The provisions of AoA which are voluntarily included by Tata Sons despite its change of status to a private limited company cannot be equated with the same levels of accountability and governance norms to ensure minority protection as those which have statutorily been prescribed in the case of public limited companies,” it said.
The company urged the board to act in the best interests of all stakeholders and be mindful that the investments involved are “material in nature and size”. Most of the Tata companies acquired Tata Sons' shares in a rights issue in 1995 when its main shareholders Tata Trusts were restricted from participation due to government rules. Cyrus Investments said that the directors of these listed companies had additional responsibilities owed to public shareholders and investors in their stocks.
