Was this the reason for Cyrus Mistry’s ouster?
Moneylife Digital Team 09 November 2016
Ever since, Cyrus Mistry was removed from the chairmanship of Tata Sons in a nasty coup engineered by the 11 directors of Tata Sons (two abstained from voting), corporate watchers are wondering what could Mr Mistry have done to completely lose the faith of the Board?  Tata Sons has so far not been able to come up with any explanation. Mr Mistry is tight-lipped. However, sources close to the group speculate that Mr Mistry may have stumbled upon a hot button issue with Rata Tata: the relationship with C Sivasankaran, promoter of Sterling Infotech, with whom Mr Tata seems to have had a very cosy financial relationship for more than a decade. 
Documents reviewed by Moneylife show that Mr Mistry had raised the issue of Tata Sons’ dealings with Mr Sivasankaran, which seem to have resulted in large financial benefits to Mr Sivasankaran (often referred to as Siva). Mr Mistry had raised the issue of initiating legal action against Mr Sivasankaran in the last Board meeting that he attended, to force him to settle his liabilities to Tata Group, mainly on account of the money to be paid to DoCoMo. Soon after, it was Mr Sivasankaran, who sent a legal notice to Tata Sons, while the much revered corporate group has not yet initiated any legal action. Sources close to the group wonder if this had precipitated events leading to Mr Mistry’s hasty, inexplicably and crude removal from chairmanship. Here is what was at stake.
The Siva-Tata Telecom Deal 
According to the documents seen by Moneylife, Siva invested Rs884 crore to get a preferential allotment of 520 million shares of Tata Teleservices Ltd (TTSL) through Sterling Infotech Ltd (now known as Siva Industries & Holdings Ltd). Siva had paid Rs102 crore on 23 December 2005 and brought in Rs782 crore by 28 February 2006. He got 520 million shares of TTSL, with a face value of Rs10 for a price of Rs17 per share.
A section of the Tatas’ directors believe that this allotment was priced at a huge discount to the fair value of the TTSL shares. This is based on the fact that eight days later (on 8 March 2006) Temasek Holdings, an investment company owned by the Government of Singapore, was allotted Tata Teleservices shares at a price of Rs26 per share. Siva, they believe, received a huge benefit of Rs468 crore instantly.  
On the other hand, documents, we have seen, indicate that Siva believes he was supposed to get shares at par but settled for Rs17. He is understood to have argued that his investment in Tata Teleservices was made because the Tatas were in dire need of funds. However, in 2013 Ratan Tata seems to have expressed a view that completely contradicts. He said that Siva wanted to invest in TTSL because he believed that telecom was a fast growing sector and he could sell his stake at a sizeable profit. However, Mr Tata confirmed that Siva was offered shares at par and the price was hiked to Rs17 per share in order to avoid any awkwardness with Temasek, which was paying Rs26 per share.
How did Siva get the Rs782 crore he paid in 28 February 2006? That too is an interesting story. He obtained a loan of Rs650 crore from Standard Chartered Bank against a virtual guarantee by Tata Sons Ltd (If Siva were to default, Tata Sons would have had to buy the Tata Teleservices shares and extinguish the loan). Further, Kalimati Investments, a subsidiary of Tata Steel, was made to advance Rs132 crore to Siva as an inter-corporate loan. All this was based on the closeness that Siva and Ratan Tata seem to have shared, although Mr Tata subsequently appeared to have distanced himself by saying that it was Arun Gandhi and Ishaat Hussain who handled the transaction.
In July 2007, Tata Teleservices made a rights issue at Rs25.80 per share, which established the value of the TTSL shares. In November 2008, Japanese DoCoMo made an investment of 26% in Tata Teleservices. Of this, 20% was in the form of an issue of new shares and 6% came from existing shareholders. Siva, was among the existing shareholders who sold 20.74 million of his shares to DoCoMo at Rs117.81 per share. This gave Siva a hefty profit of Rs209 crore or a return of 594% in less than three years, by selling 40% of his original stake of 520 million shares.  
However, the deal with DoCoMo had a put option clause. Through this, DoCoMo had the option to sell its TTSL shares under certain conditions. This put option became active in April 2014. All those who had sold shares (6%) to DoCoMo got claims from DoCoMo in proportion to the shares sold. Siva was to bear the burden of DoCoMo’s claim in proportion to the 20.74 million shares he sold.
As is well known, DoCoMo’s claim under the put option has led to an international arbitration, resulting in an award of Rs8,450 crore. Information in the public domain shows that Tata Sons wanted to pay up, but the Reserve Bank of India (RBI) refused. DoCoMo had then gone into an arbitration, won the award and approached the Delhi High Court to enforce it. Meanwhile, Tata Sons has deposited the full amount on behalf of all the parties including Siva with the court. According to the insiders, Siva's share of the claim amount is Rs694 crore,  which Mr Mistry was trying to recover from Siva to protect the interests of the Tata Group. According to sources, all the Tata Group companies who had sold shares to DoCoMo like Siva have deposited the amounts due from them but Siva alone has not done it.
On 15 September 2016, Cyrus Mistry briefed the Board that Siva was not responding to the Tata Sons’ demand that he pay up. The board was convinced enough to approve legal action against the Siva Group. However, within days it was Siva, who sent a legal notice to Tata Sons, Tata Teleservices and DoCoMo dated 15 September 2016, alleging oppression and mismanagement of Tata Teleservices. 
This raises many questions. Did Siva know of what transpired in the Tata Sons board meeting of 15 September 2016? Did someone leak the Board decision to Siva and allow him to strike before the Tata Sons’ Board could act? Why has Tata Sons not been in any hurry to legally proceed so far? Incidentally, an article in the Mint, quotes Tata spokesperson Debasis Ray saying that the “Tata Sons is pursuing all legal options for the recovery of this amount”. 
We learn that Darius Khambatta was the legal counsel who advised Tata Sons not to go initiate proceedings against Siva. Interestingly, Mr Khambatta, later became a trustee on one of the powerful Tata Trusts, but also resigned immediately after the decision to sack Mr Mistry. The next Board meeting, after all this activity, was on 24 October 2016 when Mr Mistry was ousted even before the Board Meeting could begin or take up any of these issues.
Our sources close to the Tata group say that Siva has a deep and longstanding relationship with the Tata group under Rata Tata’s leadership. Siva may have been paid nearly Rs600 crore between early 2003 and mid-2008 towards services relating to procurement and vendor management by TTSL and its listed subsidiary Tata Teleservices Maharashtra Ltd. Also, the Tata group has forked out Rs330 crore to purchase Dishnet DSL, a Siva group company in 2004, at a huge valuation. This money had to be written off later. Interestingly, Sivasankaran, who was once the Ambassador-at-large of Seychelles, was declared bankrupt in August 2014 by the Supreme Court of Seychelles. 
According to those in the know, the close relationship between Ratan Tata and Siva, the huge sums involved, the sudden backtracking of Tata Sons’ Board in initiating legal proceedings against Siva, and the timing of Mr Mistry’s ouster seem curiously connected.  
“Did Mistry have to be removed because he was poking into several deals that were causing discomfort to Mr Tata”, asks an insider, close to the action at Bombay House.
Updated at 9.30 pm:
Subsequent to publishing this story we received the following response from the Group Spokesperson, Tata Sons. While, we did not get answers to the specific questions we asked, we are reproducing this response verbatim.
"Mr. C. Sivasankaran had made an investment commitment much before Temasek. Considering the industry was in a growth phase at that time, the investment price was finalised accordingly.
This investment was funded partly by Mr. Sivasankaran’s companies through a loan from Standard Chartered Bank for which security of Tata Teleservices (TTSL) shares was offered to the bank.
To ensure that, in the event of default on repayment of the loan, the shares of TTSL were not sold to a third party, Tata Sons agreed to an arrangement whereby the bank would sell the shares to Tata Sons. A part of the purchase consideration was funded by another Tata company, for a short period of few days, on market-linked terms.
Subsequently in 2008, Docomo agreed to acquire shares of TTSL. Tata Sons voluntarily offered other shareholders of TTSL an opportunity for a pro-rata sale of their holdings. This was subject to the shareholders agreeing to bear a pro-rata portion of any claims or amounts payable to Docomo should such an event arise. The sale of shares in 2009 resulted in substantial profits for the selling shareholders.
Thereafter in 2014, Docomo exercised the put option. In terms of the agreement with the selling shareholders, Tata Sons demanded from Mr. Sivasankaran his pro-rata share of the amount payable to Docomo. Tata Sons is pursuing all legal options for recovery of this amount."
6 years ago
From the sequence of events, it is very clear that Mr. Sivasankaran seems to have had a cosy relationship with Tata Sons and received much more benefits that what is normally expected from a normal business relationship. It seems clear that Mr. Sivasankaran has not invested any of his money while pruchasing the shares of Tata Teleservices, but at the same time was allowed to realise huge profit from the transaction. It is indeed scandalous that Tata Sons did not initiate any action, legal or otherwise, to force Mr. Sivasankaran to force Mr. Sivasankaran to meet his obligations to Do-Co-Mo, under this deal. In the year 2014, Do-Co-Mo raised this issue and for more than 2 years, Mr. Sivasankaran has met his obligations - whereas Tata Sons deposited the amount on behalf of Mr. Sivasankaran- and Tata sons did not take any action against. just about the time, action was about to be initiated, mr. Sivasankaran sends a legal notice to Tata Sons alleging that he has money on this transaction. In actual fact, he has hardly invested any money and where is the question of his incurring losses. This has the potential of turning into a major scandal involving Mr. Ratan Tata and Sivasankaran.
Beena Kothari
6 years ago
Very well articulated data based article.. Its not unknown to anyone as to what goes at the top in big companies.. However, one stops to ponder why this act out of greediness when sheen goes off the person's image (reputed or otherwise)..
Sunil Rebello
6 years ago
6 years ago
Tata Group chairman Ratan Tata and Sivasankaran are all international players beholden to western money bags and they in turn pump money into loss making western conglomerates like Corus steel and other industries.Mistry may not be in loop of these things.
Srinivasan Balasubramanian
6 years ago
The entire complicated issue resulted in Cyrus Mistry outster -nothing strange. But this happening in TATA compa y certainly raises questions & RATAN TATA'S QUESTIONABLE Decision
Kamal Garg
6 years ago
Too many uncomfortable questions? How can you give advances to an investor to invest in your company through some different route. After reading the whole ploy, it looks as if Cyrus was coming very close to spoil and upstage the apple cart arrangement (?) between Ratan Tata and Siva. God knows for what reasons. It is a complete mockery of trust and fiduciary duties of a business head and that too of one of the largest business empire of India. And now it seems that, that's why Tatas wanted to settle DOCOMO's claim at any cost and out of court though the real reason why RBI did not approve of this transaction and repatriation of money out of India is because you cannot enter into a pre-defined or pre-determined price for exit of your investment. Nothing ethical or moral uprightness in it. It is actually an opaque veil through which they operate and generally public at large is not aware of all these developments. Owners of Tata Sons are public charitable, therefore beyond any scrutiny and Tata Sons itself is a non-listed entity, therefore immune or free from all sorts of uncomfortable disclosures.
Simple Indian
6 years ago
Yes, is is well-known in Tata circles that Siva has very close ties with Ratan Tata, and it's likely that he benefited from this relationship, to the detriment of the Tatas, thanks to Ratan Tata's overbearing presence in the group. It seems Cyrus Mistry went about undoing various such "indiscretions" of Ratan Tata as Chairman of Tata Sons. It is also plausible that, as Cyrus Mistry stated in his recent letter (post ouster) to Tata Sons Board, that several decisions of Ratan Tata's tenure were being sustained for "emotional" reasons, though they were financially unviable. The Tata Nano project, and CORUS acquisition bleeding Tata Steel UK are just two examples. From what is known so far publicly, it appears that Cyrus Mistry was trying to correct Ratan Tata's mistakes, which obviously didn't go down well with the Chairman Emeritus of Tata Sons.
Neeraj Mittal
6 years ago
Thanks for shedding light on "so called ethical tata". New bar has been set by removing Cyrus through surgical strike naming group moralities.
Suketu Shah
6 years ago
Rotten is not as bad as it seems-hes far worst.Spare a thought for Cyrus-for no fault of his he is being targeted in a "rotten" manner never seen in corporate India before.
Kunal Singh
6 years ago
Ripping thru the corporate veil of Tata Tele. The other group cos are no different. Even if the listed cos are making loss, the group ensures profits thru the unlisted cos which drain the resources from listed cos.
Rajendra Ganatra
6 years ago
So now we have credible reason for Mistry' ouster. And that bares Tata. Some of the stories

So ultimately we have credible reason for Mistry's ouster. And that bares Tata!
6 years ago
The Emperor has no clothes, after all!
6 years ago
Tata must have routed his funds thru Siva. Ratan Tata need to be investigated. His clean image is an image.
6 years ago
The sheen is coming off Ratan Tata faster than what he would have liked.
6 years ago
Love the dirt. What a sordid story! Right up your alley Sucheta - well written. Please interview Siva and Cyrus and lay it out for us.

I am waiting for the next episode. This beats Sherlock.
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