In a dramatic development, Tata Sons, the holding company of the $103-billion (around Rs 6.88 lakh crore) Tata group, said its board has removed Cyrus Pallonji Mistry, 48, as chairman of the conglomerate and named Ratan Tata, chairman of Tata Trusts, the largest shareholder in Tata Sons, as interim chairman for four months.

In a letter to Tata group employees, Tata said the board has requested him to perform the role of chairman and he has agreed to do so "in the interest of stability of and reassurance to the Tata group”.
 
However, a brief statement by Tata Sons did not give any reasons for Mistry’s ouster, though sources close to the development said it was because of “performance” issues and the issue has been brewing for some time. The turnover of India’s largest conglomerate dropped to $103 billion in 2015-2016 from $108 billion the previous year. Net debt rose to $24.5 billion (about Rs 1.63 lakh crore) in March 2016 from $23.4 billion a year ago. 

Sources close to the developments said Tata has been expressing his displeasure to Mistry about the way the group is being run. 

The board has constituted a selection committee to choose the new chairman. Apart from Ratan Tata himself, the committee comprises TVS Chairman Venu Srinivasan, Bain Capital's Amit Chandra, former diplomat Ronen Sen and Kumar Bhattacharyya of Warwick. All of them, except Bhattacharyya, are on the board of Tata Sons.

The committee has been mandated to complete the selection process in four months. “The selection of the new chairman will be from across the world and all suitable candidates will be considered,” said a top source in Tata Sons.

The CEOs at the operating company level of the group have not been touched. 

Tata Trusts, chaired by Tata, owns 66% stake in Tata Sons, while the Mistry family owns 18.5% stake. The rest of the shares are owned by Tata group companies and private investors. Sources indicated that the Pallonji Mistry group is considering legal action against the removal of Mistry.
 
The youngest son of construction magnate Pallonji Mistry, Cyrus Mistry took over as the chairman of Tata Sons in 2012, replacing Tata, who stepped down after 21 years at the helm.
 
Mistry will remain an independent director on the board of Tata Sons – a position he held before he became chairman. But he will have to quit as chairman of all group companies. 
 
A top source in Tata Sons said the group was not doing well under Mistry and the board was unhappy with the performance, especially in Europe and India. “Look at the poor returns on investments across all businesses in India and abroad,” the source said, adding the Tatas were not happy with the advisors around Mistry. With a new chairman at the helm, many top managers hired by Mistry are likely to be changed, the source said, adding Tata Sons was unhappy with Mistry's approach of shedding non-profit businesses, including the conglomerate's steel business in Europe, and concentrating only on cash cows.
 
The Tata group is also engaged in a legal battle with Japan's Docomo over the split of their telecom joint venture Tata Docomo.
 
In April 2013, Sir Sorabji Tata and Sir Ratan Tata Trust, the two Tata trusts chaired by Ratan Tata, had got sweeping powers in the constitution of selection committees to appoint Tata Sons' future chairmen. They also acquired power to appoint or remove a chairman with their own three-member quorum of the selection panel.
 
Under the changed articles of association, three of the five members of the selection committee will be nominated by the trusts, while Tata Sons was to appoint one member and the fifth will be an independent person. The trusts will select the committee's chairman from among the members nominated by them. Earlier, this was done by the entire five-member panel.
 
The new articles of association had said the quorum for a meeting of the selection committee, if necessary, will be the majority of the members nominated jointly by the trusts. The same process will be followed for the removal of a chairman. 

Mistry was chosen as Tata's successor in November, 2011, and was appointed deputy chairman of Tata Sons, whose board he had entered in 2006. He was made chairman on the basis of his representation from Shapoorji Palonji, the largest shareholder in Tata Sons.
 
This decision came after close of markets. Tata Motors, the only Tata group stock listed overseas, was trading 1.7% higher on the New York Stock Exchange at 8:00 pm India time. #casansaar (Business Standard)