Cyrus Mistry asks government to intervene in Tata Trusts

MUMBAI: Ousted Tata Sons chairman Cyrus Mistry asked the government to intervene in the functioning of Tata Trusts, which hold 66% stake in Tata Sons, alleging mis-governance and inappropriate interference in the business decisions of the Group.

Mistry appealed to the government in his letter to the shareholders of Tata Steel, Tata Motors, Tata Chemicals, Tata Power, Tata Consultancy Services and Indian Hotels. These companies are holding extraordinary general meetings this month to remove Mistry as a director.

"At the heart of the sustainability the Tata Group is governance reform, throughout in the institution. This would mean the Government ensuring the working of Tata Trusts, which are public charitable trusts, the property of the people of India, have a defined, transparent governance structure." Mistry wrote in the letter.

"The very future of the Tata Group lies in how the trustees govern the Tata Trusts, since the main trust property is the holding of shares in Tata Sons."
Tata Trusts, chaired by Ratan Tata and governed by about 20 trustees, were instrumental in the sacking of Mistry on Oct. 24. Since then Mistry has raised questions around the governance structure of Tata Trust, which has an all encompassing control of the salt-to-steel conglomerate. After Tata Trusts, Mistry's Shapoorji Pallonji is the second largest shareholder in Tata Sons.

"The conferment of all decision making power in one man or a "high command" among them is unethical, improper and breach of trust. It is critical that serious decisions of severe magnitude and consequence are not taken whimsically, without much thought, or for unstated collateral objectives," he wrote. He added that it is necessary to have a strong method of checks and balances in the trustees decisions, particularly of decisions they take could indirectly give them personal benefits.

Tata Group spokesperson, in an emailed statement, said the Trusts are governed by the individual Wills of Jamsetji Tata, his two sons, Sir Dorabji Tata and Sir Ratan Tata, and other founders. The Trusts have been scrupulously following the mandates set out in the Wills.

The test of a public trust is not who manages the trust, according to Noshir Dadrawala, CEO at Centre for Advancement of Philanthropy, a company specialising in charity law. If the beneficiaries are members of the public the governance can remain private and autonomous, he added.

Mistry said that if the trustees were to start managing the business, overstepping the entire governance structure in Tata Sons, they would jeopardize their legal status including tax exemptions, risking the future of the Tata Group. He was referring NA Soonawala alleged interfering with Tata Power's decision to buy Welspun Renewables and Ratan Tata pushing to start new aviation ventures with Air Asia.

ET was the first to break the story (Read here: I-T Department may probe validity of exemptions given to Tata Trusts) that Income Tax department is taking a close look at the functioning of Tata Trusts to check whether conditions under which they avail income tax exemption are getting violated. A show-cause notice sent to Sir Dorabji Tata Trust, Sir Ratan Tata Trust, JRD Tata Trust and RD Tata Trust asked why the exemption should be not withdrawn on the ground that they may be actively involved in running Tata Group.

Tata Trusts are governed under the Maharashtra Public Trust Act and Income Tax Act. They enjoy a unique position in India because they are allowed to hold shares in a commercial entity despite being completely income tax exempt given their charity work.

"The role, functions and actions of the trustees of public charitable trusts are governed by special law. In the absence of an appropriate governance structure and ethical behaviour of trustees, it would become an inherent obligation of the government to remedy and repair breakdown in the governance of such trusts," he wrote in the letter.

Mistry said that the governance charter across the Tata Group including the holding and operating companies requires repair to conform to company law and global best practices. "The governance of Tata Trusts has to become more accountable, transparent and the moral high ground that has been lost needs to be reclaimed."

Mistry said Tata Group faces challenge from the complex inter-relationships between the Tata Trusts and Tata Sons, and between Tata Sons and Tata Group companies, and governance failure at any of these three levels poses the most serious risk to the future of Tata Group.