Chandra's third term: Why Tata Trusts and Tata Sons read the rules differently

A 4:1 board vote has opened a legal battle over Tata Sons' Articles, the Trusts' special voting rights and whether a casting vote can override their opposition to Chandrasekaran's reappointment

The discontent in the Tata Sons has spilled out of the boardroom and is headed towards court. A 4:1 vote at the Tata Sons board meeting on September 17 to give N Chandrasekaran another five years as executive chairman has opened a legal dispute over whether the board had the power to approve the reappointment despite opposition from Tata Trusts Chairman Noel Tata.

 

Chandrasekaran, who has chaired Tata Sons since 2017, is serving a term that ends on February 20, 2027. He had informed the board on August 12 that he would complete his term but would not seek another one. The Trusts accepted that decision and began moving towards the process of finding a successor.

 

 

At the September 17 meeting, however, the board asked Chandrasekaran to reconsider. He agreed, and the board voted 4:1 to reappoint him. Noel Tata was the only board member to oppose the resolution. Tata Trusts subsequently said the decision was legally invalid because it did not meet requirements under Tata Sons’ Articles of Association (AoA).

 

The Trusts is also invoking the legal battle that followed Cyrus Mistry’s removal as Tata Sons chairman in 2016, arguing that Tata Sons had successfully defended the special voting rights of Trust nominee directors before the Supreme Court and cannot now disregard those protections.

 

The Trusts has brought in senior advocate Abhishek Manu Singhvi, while senior advocate and former Solicitor General Harish Salve is advising Chandrasekaran.

 

What are Tata Sons’ Articles of Association? 

The Articles of Association are the internal rules governing how a company is managed, including the powers of shareholders and directors.

 

Tata Trusts collectively owns about 66 per cent of Tata Sons, the holding company at the centre of the Tata group. Tata Sons, in turn, holds stakes in a large number of operating companies, including TCS, Tata Motors and Tata Steel.

 

That ownership structure is also reflected in Tata Sons’ Articles. As long as the Trusts meets the prescribed shareholding threshold, Article 104B gives it the right to nominate one-third of the Tata Sons board. The Articles also give those nominee directors special affirmative-voting rights over board decisions.

 

Two other provisions, Articles 118 and 121, are at the centre of the dispute over Chandrasekaran’s third term. Article 118 deals with the process for selecting the Tata Sons chairman, while Article 121 lays down the affirmative-voting requirement involving Tata Trusts’ nominee directors. 

 

What is Tata Trusts’ legal argument? 

Article 121 requires a decision needing a board majority to also receive the affirmative vote of a majority of Tata Trusts’ nominee directors present at the meeting.

 

Tata Trusts currently has Noel Tata and Vice-Chairman Venu Srinivasan as its two nominees on the Tata Sons board. Srinivasan supported Chandrasekaran’s reappointment while Noel Tata opposed it.

 

So, although the overall board vote was 4:1, the two Trust nominees split 1:1. Tata Trusts argues that one out of two cannot constitute a majority and, therefore, the separate requirement under Article 121 was not satisfied.

 

The Trusts has also invoked Article 118, which provides for a selection committee to choose the chairman. Its argument is that another five-year tenure amounts to a fresh appointment and must go through the prescribed process.

 

The role of casting vote and Tata Sons’ counterpoint 

Article 121 also provides for a casting vote in the event of an equality of votes. That has created the second legal question: can the 1:1 split between Noel Tata and Srinivasan be resolved through a casting vote?

 

This is where Tata Trusts disagrees. Its argument is that Article 121 creates two tests: a board majority and an affirmative majority among Trust nominees. A casting vote, it says, cannot create the latter if it does not already exist.

 

The counter-argument is that Article 121 itself provides for a casting vote when votes are equal, and that provision cannot simply be ignored.

 

The Articles earlier required the affirmative vote of all Trust nominee directors but were later changed to require a “majority”. On this reading, a 1:1 split is precisely the kind of equality for which the casting-vote provision exists.

 

The legal issue, therefore, is whether a casting vote can cure the absence of an affirmative majority among the two Trust nominees.

 

What was the Cyrus Mistry case, and why is Tata Trusts invoking it now? 

The same special voting rights were examined during the litigation that followed Cyrus Mistry’s removal as Tata Sons executive chairman in October 2016.

 

At the October 24 board meeting, Tata Trusts’ nominee directors said the Trusts had lost confidence in Mistry and sought his resignation. After he refused, a resolution removing him as executive chairman was placed before the board and passed.

 

The removal triggered an oppression and mismanagement case brought by companies of the Shapoorji Pallonji Group. Among the issues challenged were the special powers available to Tata Trusts through Articles including 104B and 121.

 

The National Company Law Appellate Tribunal (NCLAT) ruled in Mistry’s favour on several issues. Tata Sons appealed, defending the Trusts’ nominee and affirmative-voting rights before the Supreme Court.

 

In 2021, the Supreme Court overturned the NCLAT order and rejected the attempt to delete or restrict the affirmative-voting provision. Tata Trusts is now relying on that outcome to argue that Tata Sons cannot defend Article 121 when its validity is challenged and disregard it when the provision affects Chandrasekaran’s reappointment.

 

But the Mistry judgment did not decide the precise issue arising now. In 2016, the Trust nominees were not divided over Mistry’s removal. In Chandrasekaran’s case, they have split 1:1, raising the fresh question of whether a casting vote can overcome that division.

 

What the legal advisors say 

The conflicting interpretations were laid out publicly when senior advocate Abhishek Manu Singhvi, representing Tata Trusts, and former solicitor general Harish Salve, advising Chandrasekaran, spoke separately to NDTV on the dispute.

 

In Singhvi’s reading of the rules, if one of two Trust nominees opposes a resolution, there is no affirmative majority among them. He has argued that Tata Trusts’ approximately 66 per cent ownership cannot be treated as irrelevant to major decisions and that the Articles deliberately give the majority shareholder protections through its nominee directors.

 

Singhvi has also invoked what he describes as the primacy of the shareholder in the Tata structure, arguing that the board cannot simply act past an active disagreement from the controlling shareholder. He has indicated that the dispute is likely to require a judicial resolution.

 

Salve’s interpretation places greater weight on the powers of the Tata Sons board and the casting-vote provision. His argument is that the Articles once required unanimity among Tata Trust nominees but were changed to require only a majority, and that the provision dealing with an equality of votes must therefore be given effect when the nominees divide evenly.

 

The two lawyers also differ on the larger significance of the dispute. Singhvi has presented the immediate legal question as whether Tata Sons followed its own Articles in reappointing its chairman. Salve has argued that the confrontation cannot be divorced from the wider disagreement over the future of Tata Sons and, particularly, its proposed listing.

 

How does the Tata Sons listing issue fit into the dispute? 

On September 11, the Reserve Bank of India (RBI) rejected Tata Sons’ application to surrender its registration as a core investment company (CIC). Tata Sons had sought deregistration after becoming debt-free, a route that could have helped it remain unlisted.

 

Tata Sons had been classified as an upper-layer non-banking financial company in September 2022, a category subject to listing requirements.

 

In the September 17 meeting, the Tata Sons board decided to move ahead with steps towards a listing and asked Chandrasekaran to reconsider his decision not to seek another term. Noel Tata opposed both moves.

 

Tata Trusts has opposed the move towards listing and has argued for exploring alternatives and seeking more time. The Trusts’ concern is also tied to the potential impact of listing on Tata Sons’ governance structure and its special rights under the Articles.

 

Singhvi says the listing question is a “red herring” as far as Chandrasekaran’s reappointment is concerned. Whether Tata Sons eventually lists or challenges the RBI’s decision, he argues, does not change the requirement to follow the company's Articles when appointing its chairman.

 

Salve says the two issues cannot realistically be separated. His case is that differences over listing lie behind the breakdown between Tata Trusts and Chandrasekaran. A listing would subject Tata Sons to a different regulatory and governance framework and could require changes to provisions in its Articles.

 

For now, Chandrasekaran remains chairman until February 20, 2027. Tata Trusts is weighing legal options to challenge the reappointment, and Singhvi has said a legal fight now appears likely. The forum and precise form of such a challenge are yet to be settled publicly.

 

If the dispute reaches court, one of the key questions will be one the Mistry litigation did not answer: what happens to Tata Trusts’ affirmative-voting rights when its own nominee directors divide down the middle.