On Tuesday, the Supreme Court ordered status quo against Mistry firms & Shapoorji Pallonji Mistry on raising capital against security of their shareholding in Tata Sons, by pledging, transferring or any further action in relation to the shares.

The Bench of Chief Justice of India SA Bobde and Justice AS Bopanna and Justice V. Ramasubramanian passed an order to this effect while hearing an application filed by Tata Sons challenging SP Group's move to pledge its shares in Tata Sons for raising monies.

The is application was filed by the Tata Group after the SP Group proceeded to enter into an agreement with a Canada-based company to raise monies to the tune of ₹3,750 crore by pledging its Tata Sons shares.

Tata has opposed this move on the ground that the Articles of Association bars the SP Group from transferring the shares without first giving Tata the Right of First Refusal (ROFR).

Appearing for Tata, Senior Advocate, Mr. Counsel Harish Salve told the Court today that if SP Group wishes to sell the shares, Tata is willing to buy them. However, they have chosen to hold on to the shares and instead pledge them for raising funds.

"This is the mischief they are playing", Salve said while pointing out that in the event of default, the pledged shares will be placed on the block for being sold and if a third party offers to pay a premium, Tata Sons would have no choice but to match the higher price.

It was further argued by Mr. Salve and Senior Counsel Abhishek Manu Singhvi that the shares could not have been pledged.

This point, however, was contested by Senior Counsel Aryama Sundaram on behalf of Cyrus Investments. He said that the AoA bars a transfer of shares, and not their pledging.

CJI Bobde noted that it has been held on various ocassions that pledging is in fact a limited transfer itself. The Bench also noted that the matter needs to be heard at length for final disposal, and proposed to place the case for final hearing after four weeks.

Senior Advocate Janak Dwarkadas, appearing for Cyrus Mistry along with Sundaram, argued that the restructuring of the company was scheduled shortly, and that the company had to disburse salaries of a number of its employees and migrant workers.

However, both sides ultimately agreed for the matter to be heard after four weeks while requesting for status quo.

The Supreme Court proceeded to direct for status quo to be maintained on the aspect of transfer and pledging of shares by SP Group. It added that the SP Group ought not proceed further or take action on the shares already pledged thus far.

This application was filed by Tata Group at a time when the appeals by its Chairman Emeritus Ratan Tata and various other Tata companies against the NCLAT's December 2019 judgment remain pending before the Supreme Court.

The Supreme Court today restrained Cyrus Mistry's Shapoorji Pallonji Group (SP Group) from pledging any of its shares in Tata Sons for raising funds.

The company has also been directed to maintain status quo and not take any action as regards the shares already pledged.

 The cross-appeal filed by Mistry against the NCLAT's ruling of December 2019 is also yet to be heard.

The case is listed for 28 October 2020.


This news has been reported and prepared by Ms. Suheena Khan & reviewed by Ms. Samreen Ahmed, Research Assistant, Research & Innovation Department, MyLawman.