Shapoorji Pallonji Group submits plan to Supreme Court for separation from Tata Group

Mumbai: The Shapoorji Pallonji Group (SP) has proposed that its stake in Tata Sons be swapped for a pro-rata stake in the Tata Group’s listed companies. It has also proposed that its share of the Tata brand and of unlisted group companies be settled in cash or in marketable securities.

The proposal, which is set to intensify the battle between the estranged partners who are also among the country’s oldest industrial groups, has been submitted before the Supreme Court, the SP Group said in a statement on Thursday.

The move comes as the Supreme Court is set to resume hearings early next month on the SP Group’s decision to pledge its stake in Tata Sons and raise cash and fund its various businesses. The court had stayed the move following a petition by Tata Sons in September. The SP Group had responded to the stay by formally calling for separation from the Tata Group. SP owns 18.37% of Tata Sons and is its largest non-Tata shareholder.


Capital Gains
"Selective reduction of capital by extinguishing shares of Tata Sons held by minority shareholders by swapping them with shares of listed companies (say Tata Consultancy Services and others) would be a simple solution to provide the liquidity to the Tata companies and fair value compensation for the SP Group," the SP Group said in its submission before the court. "A neutral third-party valuation can be done for the unlisted assets adjusted for net debt," it added.

The three-stage separation plan calls for the SP Group to be given pro-rata shares in Tata listed companies such as TCS, Tata Motors and others in lieu of its stake in Tata Sons. For instance, 72% of TCS is owned by Tata Sons. The SP Group’s holding in Tata Sons translates to 13.22% of TCS at current market prices, the SP Group has said.

In unlisted companies, the group wants an agreement on valuation with the Tata Group with the settlement for its 18.37% stake in Tata Sons done on cash or marketable securities. Similarly, a pro-rata share of the Tata brand value can be settled in cash or in listed securities, the group has said. The brand value can be determined on the basis of a report by Brand Finance.

The SP Group values its 18.37% stake in Tata Sons at ₹1.75 lakh crore. However, the Tata Group has disputed this valuation.

Uday Ved, a partner at global tax practice group KNAV, raises an important issue of capital gains if this transaction is pursued. "Interestingly, if Tata Sons agrees for the separation in the proposed manner, then SP Group will be transferring shares of Tata Sons and in turn will get shares of say TCS. This will be subject to capital gains tax in the hands of the SP Group," said Ved. "Similarly, since Tata Sons will be giving up shares of TCS in return for shares of Tata Sons, this will also be subject to capital gains tax on account of transfer of TCS shares."