However, these objections completely deflect from the real issue, failing a simple, definitive test: The Companies Act, 2013.
Every company begins with its shareholders. They subscribe to the memorandum, frame the articles and bring the company to life. Section 10 makes the articles a binding contract between the company and every member. The articles decide how the board is formed, how business is conducted and which decisions need special approval.
Shareholders appoint directors in a general meeting under Section 152 and can remove them by ordinary resolution under Section 169. The board manages the business, but Section 166 binds every director to act in accordance with the articles. Directors have duties.
Shareholders have authority. Directors run the company; shareholders decide the constitution it runs under, and who runs it.
The Act does not grade its shareholders. A promoter, a private equity (PE) fund, a multinational parent or the trustees of a public charitable trust hold the same share with the same rights. Section 47 gives every equity shareholder a vote in proportion to paid-up capital. The Act never asks who the shareholder is, where the money came from, or what will be done with the dividend.
The Tata Trusts hold about 66 per cent of Tata Sons whose articles give directors nominated by the Trusts an affirmative vote, in effect a consent, on key matters, including the chairman’s appointment. The Supreme Court upheld those articles in 2021 as legally valid. On September 17, the board reappointed N Chandrasekaran with the two Trust nominees divided and a casting vote deciding the matter. The Trusts said the articles were not honoured.
That is the core issue, and it is narrow: Did the resolution satisfy Article 121? It is a question of reading a contract and, if need be, one for the courts. It is not answered by asking whether a charity should own what it has owned for a century. The jargon does not illuminate that question. It changes the subject.
Fanciful questions, settled law
The Act does not make voting rights dependent on whether a shareholder can be bought out on a stock exchange. It does not ask a shareholder to prove skin in the game, or to explain how its own governing body is chosen. A PE fund’s investment committee is not elected by the public. A family holding company’s board is not chosen through an open process, even when family feuds tear a business apart. No one asks them to justify their vote at a general meeting, and the Act gives no one that right.
On risk, the Trusts bear more than any shareholder on the register. They cannot sell, cannot diversify and have no other endowment. They have historically taken only a small share of Tata Sons’ dividends, leaving the rest to compound in the business.
On discipline, trustees answer to the Charity Commissioner under the Maharashtra Public Trusts Act, 1950, who can audit them, inquire into their conduct, surcharge them for loss and remove them. A trustee holds shares only for the trust’s purpose. To use them for himself would be a breach of trust. No fund manager or promoter faces that much scrutiny.
Nor is an affirmative vote exotic. In joint ventures (JVs) and PE deals, I have rarely seen a significant investment without a long list of reserved matters. Multinational corporations (MNCs) insist on them; funds will not invest without them. Nobody calls them undemocratic then.
Disclosure, not dispossession
Fairness demands one concession, and only one. How trustees are chosen and how conflicts are handled are part of the trust’s design; that was the settlors’ wish. Rewriting that design is like rewriting a will after the testator has gone, with no one left to defend his intent. The Trusts can fairly be asked to disclose more. But the rights of the shareholder are a different matter. They flow from the shares and the articles, exactly as they do for everyone else. To confuse the two is dispossession dressed up as reform.
If a shareholder’s rights can be argued away because of who that shareholder is, no shareholder is safe. Today it is a charity. Tomorrow it could be a promoter family, a foreign investor or a fund. The sanctity of the articles is not a Tata issue. It is India’s.
The deeper harm is to compassionate capital. Sir Ratan Tata and Sir Dorabji Tata could have left their shares to their families. Instead, they gave them to strangers they would never meet and tied them permanently to a public purpose. That is trust by design. A century later, those shares fund hospitals, cancer care, scholarships and research, while the profits left in the business built the group.
India is creating wealth faster than at any time in its history. Its new founders will ask one question before they give: If I place my shares in a trust for the public good, will the law respect that trust as a shareholder, or will commentators argue its rights away at the first dispute? If the answer is uncertain, they will keep their shares in the family.
Indian philanthropy will remain a matter of cheques, never of ownership.
Denmark, Germany and Switzerland settled this long ago. Novo Nordisk, Carlsberg, Bosch and Rolex are controlled by foundations, and their governments protect the model rather than question it.
Let the Tata dispute be settled the way company law settles every dispute: By the articles, the board and, if need be, the courts. But let no one suggest that a shareholder deserves fewer rights because it chose to serve the public rather than itself. The Companies Act draws no such distinction. Neither should we.
The writer is a senior corporate and M&A lawyer
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