Cyrus Mistry's letter to Tata opens up a Pandora's box: Is Tata the new Satyam?
A letter written by Cyrus Mistry's leaked in the public domain has opened up a Pandora 's box that has the fire-power to bring down the 150-year-old empire of the Tata Group of companies.
Mistry, who was shown the door by Tata Trusts, the conglomerate that owns Tata Steel, Tata Motors, Tata Power and Tata Consultancy Services apart from other companies, from the position of Chairman of Tata Sons has launched a sort of coup against the shareholders of the company.
In his letter, Mistry has said that he had inherited a debt-laden enterprise saddled with losses from companies like Indian Hotels, Tata Motors, Tata Steel, Tata Power and Tata Teleservices being the "legacy hotspots".
He further added that the group had invested Rs1.96 lakh crore - more than the net worth of the group - into those companies, yet, those units faced challenges, and the group had to write down about Rs1.18 lakh crore of its assets.
Not informing the markets regulator - Securities and Exchanges Board of India - about the real value of companies assets raises questions over the corporate governance hygiene in the company. And this has the potential of taking the Tata Group down the Satyam lane.
Satyam shocked the Indian stock markets in 2009, when its promoter, Ramalinga Raju, accepted to inflating the revenue as well the value of assets held by the software giant.
Here is a look back at the Satyam scam and the comparison between the allegations against Tata Group and charges proved against Satyam computers -
1) The Satyam scam involved misreporting of around Rs 8,000 crore of revenue by company promoters. Misreporting of revenue or assets, is considered to be against corporate governance laws as it reflects the wrong figure of a company's value leading to inflated stock price.
2) In his letter, Mistry alleged that he was forced to approve certain transactions which he did not have full knowledge about. Hiding or misrepresenting the full details of any transaction in a company can lead to wrong investment decisions by shareholders. Promoters of Satyam computers were guilty of not sharing full details of the transactions made by the company promoter with the shareholders.
3) Hiding or misreporting the declining value of assets can implicate connivance of third party auditors in the case. In Satyam fraud case, three auditors from the third party auditing firm PricewaterhouseCooper India were found guilty of 'serious negligence' in performing the audit of the Satyam accounts. The content of the letter by Mistry raises questions over Tata Group's third party auditor, as well.
The spat between Mistry and Tata Trusts has rocked the Ministry of Corporate Affairs, headed by Finance Minister Arun Jaitley, and the government would not want a group like Tata to land into trouble, especially at a time when the Indian economy is facing a dearth in investments from the private sector.
A corporate governance fraud case against the Tata Group would impact over 100 companies that come under it and has an yearly revenue of over $100 billion (approximately Rs 10,000 crore).