The parties to the dispute – TAFE
MFC (Massey Ferguson) – are directed to maintain status-quo with regard to the subject matter of the dispute till the disposal of the suit,” Mr. JUSTICE ABDUL QUDDHOSE said in his order dated February 5.
The court was rehearing the interlocutory applications in these suits pursuant to the directions issued by the Division Bench of the Madras High Court through its common judgment dated 18.11.2024. By the aforesaid judgment, the Division Bench, while remanding the matter to the learned single judge, directed the parties to the dispute to maintain status quo until the interlocutory applications are reheard by the single judge afresh and finally disposed of.
“In the case on hand, TAFE has been using the MF brands continuously without interruption whatsoever since 1960 and only in the month of April, 2024, on account of invocation of the termination clause of the license agreement, there became a stumbling block for TAFE to use the MF brands/trademarks. MFC also as on date does not have any factory to commence production of MF brands of tractors/farm equipment in India.
Either they will have to engage the services of another trading/manufacturing partner, who is already in the field, or they need to build infrastructure by building up new factories for the production in India. TAFE by its long existence in India from 1960 onwards is having the requisite infrastructure for the manufacture of tractors/farm equipment and they have built up a large network of dealers and reputation all over India. If the status-quo order granted by the Division Bench of this Court is not extended until the disposal of the suit, it will cause huge loss and hardship only to TAFE and not MFC, which cannot be compensated in terms of money as it would be an irreversible loss to TAFE. Balance of convenience is certainly in favour of TAFE for continuation of the status quo order granted by the Division Bench of this Court. While deciding an application seeking for interim injunction, the Court should exercise the discretion judiciously. In the case on hand, since TAFE has made out a prima-facie case and they have also established a balance of convenience and irreparable loss, necessarily this Court has no other option left except to continue the status-quo order granted by the Division Bench of this Court till the disposal of the suit,” the order said.
“When strict timelines have been fixed under the CC Act for the disposal of the main suit itself, Courts should not be burdened with spending considerable amounts of time in disposing of interlocutory applications. The case on hand is one such case that due to the protracted arguments in interlocutory applications, no progress could be shown for the disposal of the main suit. Since a prima-facie case, balance of convenience and irreparable hardship have been established by TAFE in their favour, necessarily, status-quo order granted by the Division Bench of this Court has to be continued till the disposal of the suit,” the order further said.
The status quo order must come as a big booster for the Chennai-based tractor major, which has been embroiled in a bitter legal row with its partner AGCO for a while now.
The Origins of TAFE and Its Partnership with AGCO
TAFE, incorporated in 1960, is one of the largest tractor manufacturers globally and the second-largest in India by volume. With an annual turnover exceeding Rs. 12,500 crore, the company produces over 200,000 tractors each year. For over six decades, TAFE has maintained a strategic alliance with AGCO, a U.S. corporation valued at over USD 11 billion. This partnership has allowed TAFE to use the Massey Ferguson brand name for tractors and related components in India and other select markets. AGCO, in turn, holds a 21% stake in TAFE, while TAFE and its affiliates own approximately 16% of AGCO’s shares.
Under the agreements between the two companies, TAFE is licensed to use the Massey Ferguson trade name for tractors produced in India. In 2017, TAFE and AGCO extended their relationship with a new agreement allowing TAFE to supply Massey Ferguson Heritage tractors to countries like Vietnam, Indonesia, Thailand, and several others. In 2023, AGCO purchased USD 171.6 million worth of tractors and components from TAFE, while also selling USD 3.6 million worth of parts to TAFE.
The Conflict and Legal Action
However, tensions began to escalate when AGCO informed the U.S. Securities and Exchange Commission (SEC) in April 2024 that it intended to terminate its commercial agreements with TAFE. This unexpected decision prompted TAFE to seek legal recourse in Chennai’s commercial court, which ruled in favor of TAFE, allowing the company to continue using the Massey Ferguson trademark. On September 30, 2024, AGCO officially confirmed the termination of its commercial ties with TAFE, worsening the dispute.
As a result, TAFE filed a contempt petition against AGCO and its leadership, including AGCO’s chairman and CEO. The legal battle appears to have evolved from a mere business dispute to a complex governance issue, particularly involving AGCO’s corporate management practices.
The Role of Agency Capitalism
A key factor contributing to the breakdown in the TAFE-AGCO partnership may be the rise of agency capitalism, which has reshaped ownership structures in U.S. public companies. In this model, equity ownership is concentrated in the hands of institutional investors, such as pension funds, mutual funds, and other large financial entities, rather than being dispersed among individual shareholders. These institutional investors exercise voting power on behalf of the actual shareholders, while CEOs manage the company with their approval.
In AGCO’s case, institutional investors such as The Vanguard Group, BlackRock Advisors, and State Street Corporation hold over 40% of the company’s outstanding shares. In contrast, TAFE’s chairman, Mallika Srinivasan, is the largest individual shareholder in AGCO, owning 16.21% of its shares. This ownership structure has influenced the governance dynamics within AGCO, contributing to the growing tension between the two companies.
Governance Concerns at AGCO
The legal battle between TAFE and AGCO has grown beyond trademark issues to involve serious concerns about AGCO’s corporate governance. TAFE has accused certain members of AGCO’s board of taking actions that could harm the company’s operational performance, shareholder returns, and corporate governance. In its SEC filing, TAFE claimed that AGCO’s directors had failed to address issues related to the company’s governance, financial performance, and engagement with shareholders. Instead, TAFE alleged that these board members sought to undermine the long-standing agreements and trust between the two companies.
TAFE further argued that AGCO’s decision to terminate its commercial relationship with TAFE came unexpectedly, especially after both parties had agreed to extend their standstill agreement in good faith. This standstill agreement, which has been in place for 10 years, was intended to maintain a long-term, strategic partnership between the two companies. TAFE also pointed out that during a board meeting in April 2024, AGCO’s board made no mention of any issues regarding the commercial relationship with TAFE, which seemed to betray the trust that had existed between the two entities.
Calls for Governance Reforms
Amid the ongoing dispute, TAFE has called for significant reforms in AGCO’s governance structure. Specifically, TAFE advocates for the separation of the roles of chairman and CEO, the adoption of more shareholder-friendly governance practices, and a meaningful refresh of AGCO’s board to ensure better oversight and accountability. According to TAFE, these changes are necessary to restore confidence in AGCO’s management and to address the company’s declining competitive position in the market.
A Test Case for Corporate Alliances
The legal and governance issues surrounding TAFE and AGCO have garnered significant attention, particularly in the context of cross-border corporate relationships. The outcome of this dispute could have broader implications for how multinational companies manage their partnerships and the trust that underpins these relationships. As the case progresses, it may serve as a test for how corporate governance issues are addressed within major international alliances and whether trust-based partnerships can survive in an environment increasingly dominated by institutional investors and agency capitalism.
Ultimately, the resolution of this dispute will likely shape future cross-border corporate marriages, as companies and investors alike grapple with the challenges of balancing strategic interests, governance reforms, and the evolving dynamics of global business.