Tata Group Weighs Ending 90-Year-Old Shareholding Partnership With Shapoorji Pallonji Group

As the 157-year-old Tata organisation, the biggest corporate conglomerate in the nation, negotiates intricate shareholder disputes and strategic choices, a number of changes within the organisation are garnering fresh attention. The firm has been embroiled in fresh scandals since the death of seasoned businessman Ratan Tata last year, involving everything from domestic family conflicts to government interference.

The main cause of the current commotion is the possible departure of Tata’s biggest and oldest shareholder, the Shapoorji Pallonji (SP) Group. As of 1936, the SP Group had an 18.37% ownership holding in Tata Sons. Tensions erupted in 2016 during the well-known Cyrus Mistry-Ratan Tata case, which went to the Companies Tribunal and then the Supreme Court, where Tata Sons prevailed. The relationship had been characterised by friendly relations for decades.

SP Group Navigating Through Financial Crunch

Ten years later, tensions between the two families have returned, this time in relation to Mehli Mistry and Noel Tata. According to reports, Tata Sons has started looking into ways to permanently address these problems, such as maybe purchasing the SP Group’s holding.

In order to reduce its financial risk, the SP Group, which has substantial debt commitments, has indicated a desire to sell its shares in Tata Sons. However, corporate governance regulations impede any escape. Since the SP Group is a promoter with a holding greater than 10%, any acquisition or disposal must go by the rules of the Reserve Bank of India, Tata Sons’ articles of association, and general business standards.

Options Available for SP Group to Strike the Deal

The first option is for Tata Sons to buy all of the SP Group’s shares directly. The 36% capital gains tax that the SP Group will pay on the acquisition, which might total thousands of crores, is the reason for the opposition to the agreement, which is anticipated to cost about INR 3 lakh crore. Converting the SP Group’s investment into stock in Tata companies like Tata Steel or TCS is the second option. This would enable the SP Group to pay off its $1 billion debt that is due in 2026 by progressively realising funds.

However, such an exchange is now prohibited by Tata Sons’ current Articles of Association; thus, rule revisions are required. Thirdly, the SP Group could divest to a private equity fund or another external investor. This strategy saves Tata Sons money but also necessitates the conglomerate’s public listing—a step that has long been opposed in order to preserve the group’s private status.

Fourth, the SP Group would have a formal way out if Tata Sons were listed. However, the Tata Trusts, which own the group and have been adamant about maintaining its private ownership, have prevented this possibility from happening. Experts predict that any resolution will be drawn out and dependent on regulatory clearances, particularly those from the Reserve Bank of India and possibly the Supreme Court, given these limitations.