The decision was taken at the company's board meeting, a statement said here. A committee has been formed to select the next chairman within four months.
"The committee comprises Ratan N. Tata, Venu Srinivasan, Amit Chandra, Ronen Sen and Lord Kumar Bhattacharyya, as per the criteria in the Articles of Association of Tata Sons. The committee has been mandated to complete the selection process in four months," the company statement said.
Corporate India reacted with amazement at the announcement. Harsh Goenka, Chairman of RPG Enterprises, described the move as a corporate coup. "Historical corporate letter. Biggest corporate coup executed with utmost precision," he said in a tweet.
Mistry, 48, an Irish-Indian citizen, had taken over as Chairman of Tata Sons four years ago in December 2012. Ratan Tata, who led the group for 21 long years, is the Chairman Emeritus of the conglomerate.
He is the younger son of Pallonji Mistry, whose construction company Shapoorji Pallonji & Co is the largest shareholder of Tata Sons, with a stake of around 18 per cent.
Mistry was replaced keeping in mind the "long-term interest" of the company, according to a Tata Sons spokesperson.
"The company's board and the principal shareholders in their collective wisdom took this decision, which they thought may be appropriate in the long term interest of Tata Sons and the Tata Group," the company spokesperson told IANS.
"There is no change in the CEOs at the operating level," the spokesperson added.
Mistry, on his appointment in Tata Sons in 2012, had relinquished his position as managing director of Shapoorji Pallonji, to avoid any conflict of interest.
His father Pallonji had been a passive investor in Tata Sons, although he sat on its board till 2006, when he retired and ceded the position to Cyrus.
Mistry became the sixth chairman of the group and the second who did not have the name of Tata, after Nowroji Saklatwala. The Economist once described him as "the most important industrialist" in both India and Britain. But it also described him as being "dangerously content just to sit atop what has grown into an impressive but lumbering pachyderm."
Mistry took over from Ratan Tata at a time when some of the group's main companies were facing tough operating environments, and his major challenge was to turn around the group's international steel business and to consolidate the other businesses. The $100 billion group employs some 700,000 persons.
In an interview to the Tata Group's online platform last month, Mistry said that the high debt levels of some group companies should be seen in the context of business growth, increasing cash from operations, and capital projects underway which will lead to future growth.
"As the group has been growing significantly in the past, the total capital employed has also grown. Proportionately, there has been increase in debt."
In September this year, Tata Steel reported a 10-fold jump in its net loss to Rs 3,183 crore in the quarter ended June 30, as compared to a net loss of Rs 317 crore in the corresponding quarter last year.
Reacting to the knee-jerk move, Goenka said it was a "strange" news. "Ta-ta to Cyrus Mistry. Uncertainty in India's most respected group not good for the nation. What's happened to Cyrus is a 'Mistry'!" Goenka tweeted.(IANS)