Investigating Concentrated Shareholder Patterns In India: A Case Study Of Tata V. Mistry And Its Effect On Corporate Governance

Shivansh Goel & Madhumitha RS, National Law University, Jodhpur

ABSTRACT

Concentrated shareholding pattern could be defined as a situation where the shareholders are considered as the ultimate supreme authority of a company owing to their significant percentage in a company's outstanding shares. The concentrated shareholding pattern is a prime example of the second agency problem, which involves the conflict between the majority or controlling interest of the firm and minority and non-controlling owners. Assuming that the controlling owners are the agents and the non-controlling owners are the principals, the challenge is preventing the latter from being expropriated by the former. In a country like India, where shareholders are the owners of the company, with concentrated shareholding and negligible separation of ownership and management, the minority shareholders turn out to be the ultimate victim of this arbitrary separation of power and responsibility. But the situation varies quite differently in the context of other countries like the USA and UK, which follows a dispersed shareholding pattern.

Analysing the Tata-Mistry case, the authors seek to explain that Indian companies and law lack in the area of enhancing shareholders value that the pluralist model in India dictates that the Board’s goal is to protect the stakeholder’s interests even when it does not enhance or align with the shareholder’s value which we study in comparison with the model used under English law.

This research paper aims to examine into the implications of concentrated shareholding which is prevalent in India with a case study of Cyrus Investment Pvt. Ltd. v. Tata Consultancy Services Ltd. which is a prime example of the negative implications of the same. In doing so, we try and look at the different approaches taken by the English and Indian law with respect to the shareholding pattern. Family shareholding is very prevalent in a country like India and even TATA group is primarily family-owned and hence, the authors take a look at how family shareholding affects corporate governance and entrenchment effects caused by the same which are a potential threat to minority shareholders’ rights and interests. In conclusion, the authors ponder upon solutions and possible ways to reduce the negative

impacts caused by concentrated shareholding in India.