Tata Sons urges SC to void pledges by SP Group | Economic Times

Mumbai: Tata Sons has asked the Supreme Court to invalidate the pledging of Tata Sons shares by the Shapoorji Pallonji Group in favour of Axis Trustee Services and IDBI Trusteeship Services, according to documents filed in the court.On September 5, Tata Sons moved the Supreme Court challenging these pledges — that were created in December 2019 and April this year — as well as a fresh move by the Mistry family-owned SP Group to pledge shares in favour of Canadian PE firm Brookfield Asset Management.Importantly, Tata Sons has also sought the apex court’s permission to invoke a provision in its Articles of Association (AoA) allowing it to squeeze out shareholders if it was not possible to set aside the pledges.The embattled SP Group has raised ₹5,000 crore by way of debentures against pledges in favour of Axis and IDBI — a fact not reported previously. Cyrus Investments has pledged almost 82% of its holding in Tata Sons in favour of Axis Trustees to secure debenture funding of ₹825 crore, which was later modified to a total amount of ₹3957.84 crore in April 2020, said the Tata Sons plea in the SC.SP Group has Breached AoA: Tata SonsThe filing further said that Cyrus Investments’ balance holding in Tata Sons (about 1.68%) was pledged in favour of IDBI Trusteeship Services in April this year to secure about ₹1,117 crore. 78098159Tata Sons said in its plea that if the borrowings are not repaid and the lenders invoke the pledge, the rights under article 75 of the Articles of Association could be in jeopardy. “All rights bestowed on the lenders exalt their status to a shareholder of Tata Sons, vitiating the closely knit character of members in the private company,” the plea said.According to the petition, by pledging the shares, the SP Group is in breach of several provisions of the Tata Sons AoA, including article 57 (transfer to members only), article 58 (notice to transfer) and article 59 (procedure of transfer).ARTICLE 75 OF AOATherefore, pleaded Tata Sons, the SC should to direct the beleaguered real estate and construction group to remove all pledges and charges or alternatively allow the holding company of the Tata Group to withdraw an undertaking that it gave to the apex court on January 10 related to invocation of article 75 of the AoA against investment firms owned by the Mistry family.Article 75 permits Tata Sons to order at any time, by a special resolution, any holder of ordinary shares to transfer them. On January 10, Tata Sons had informed the Supreme Court that it will maintain status quo on shareholding until the court’s further orders.Tata Sons’ plea, citing data from the ministry of corporate affairs, said that SP Group has raised money through debenture where Axis Trustee Services is a security trustee. The debentures were issued by Goswami Infratech, a company over which the SP Group has significant influence.Legal experts said there was a possibility of the SC imposing an embargo.“It is settled in law that mere creation of pledge does not amount to transfer of title of shares. But as the matter relates to transfer of shares and restrictions under the AoA, there is a possibility the apex court may impose an embargo to further deal or create any rights and/or deal in any rights already created in favour of any third party till the matter is decided by the court,” said Ankita Singh, partner at law firm A&P Partners.‘FACTS NOT DISCLOSED’Tata Sons has charged the SP Group with not disclosing facts to the apex court.“It is shocking to note that even though the special resolution to issue debentures had been passed by Goswami Infratech as far back as December 26, 2019, respondent No. 1 (Cyrus Investments) and 2 (Sterling Investment) still did not come forth and disclose these facts to the court while obtaining an order on January 10, 2020,” said the Tata Sons plea. “Instead, the respondent No. 1 deployed chicanery in raising a false apprehension of their shares being taken away by resorting to article 75 and induced the aforesaid undertaking (to the Supreme Court) from Appellant (Tata Sons).”