“Illegal”: Tata’s boardroom battle could soon move to the courtroom

The Tata Group’s famously discreet boardroom culture has been replaced by something considerably more unusual: an open dispute between Tata Trusts and Tata Sons that could soon find its way into court.

The immediate trigger is N Chandrasekaran’s reappointment as executive chairman of Tata Sons. On September 17, the Tata Sons board voted 4-1 to give Chandrasekaran another five-year term, after he had earlier indicated that he would not seek another term. Tata Trusts Chairman Noel Tata cast the lone vote against the resolution.

The Trusts subsequently challenged the validity of the entire process. In a strongly worded letter, Noel Tata described the resolution as “null and void ab initio” and objected to the manner in which the board meeting was conducted. Tata Trusts is now considering legal options, including a possible approach to the National Company Law Tribunal (NCLT) or the Bombay High Court.

At the centre of the disagreement is a fairly arcane provision with potentially significant consequences: Article 121 of Tata Sons’ Articles of Association.

Tata Trusts owns roughly 66% of Tata Sons and has special rights under the company’s Articles as long as its aggregate holding remains above specified thresholds. Article 121 provides that decisions requiring a majority of the Tata Sons board must also receive the affirmative vote of a majority of the directors nominated by the Tata Trusts.

There are currently two such nominees: Noel Tata and Venu Srinivasan. While Noel opposed Chandrasekaran’s reappointment, Srinivasan supported it. Tata Trusts argues that because the two nominees split their votes, the required affirmative support from a majority of Trust-nominated directors was absent. It also disputes the use of the chairman’s casting vote to resolve the matter. Tata Sons, however, proceeded with the reappointment, creating a direct disagreement over how its Articles should be interpreted.

The dispute is complicated further by the fact that Chandrasekaran’s reappointment is only one part of a much larger disagreement over the future direction of Tata Sons.

The board has also moved towards complying with Reserve Bank of India requirements after the regulator rejected Tata Sons’ request to surrender its registration as a core investment company. Tata Sons has consequently begun steps that could lead towards a public listing.

Tata Trusts has opposed treating listing as the only route forward, arguing that other options should also be examined. Noel Tata has also warned that a listing could alter the character of Tata Sons and, by extension, the structure through which the group’s charitable trusts receive dividends to fund philanthropic activities.

That makes the current confrontation considerably larger than a disagreement over one chairman. It raises a fundamental governance question for one of India’s most important business groups: where does the authority of the Tata Sons board end, and where do the special rights of Tata Trusts begin?

The question has precedent. The Supreme Court’s 2021 judgment in the Tata-Mistry dispute examined Articles 104B and 121 and recognised the special position of Trust-nominated directors. Tata Trusts is now invoking those provisions in challenging the latest board decision.

For now, the next move may depend on Tata Sons’ response to Noel Tata’s objections. But with the Trusts considering legal action, the dispute could soon move beyond Bombay House and into India’s courts.

And if it does, the case could determine more than who occupies the chairman’s office. It could clarify how power is meant to work at the very top of the Tata Group.