Tata Sons faces legal fight as Trusts challenge Chandrasekaran's reappointment
What's the story
The ongoing dispute between Tata Sons and Tata Trusts over N Chandrasekaran's reappointment as executive chairman could escalate into a long-drawn legal battle. The conflict was sparked by the Tata Sons board's decision on September 17 to extend Chandrasekaran's term by five years after his current tenure ends on February 20, 2027. While four directors voted in favor of the resolution, Tata Trusts chairman Noel Tata opposed it.
Legal dispute
'Legal nullity': Trusts call board's resolution
Tata Trusts, which owns about 66% of Tata Sons, has called the board's resolution "illegal" and a "legal nullity."
The trusts argue that the company's Articles of Association require a majority of their nominee directors to support the appointment or reappointment of a chairman.
However, Tata Sons has taken a different stance.
After the meeting, the company said Chandrasekaran was willing to reconsider his August decision not to seek another term and that his reappointment was approved by majority vote.
Expert opinions
Legal experts weigh in on potential legal battle
Legal experts believe the starkly different positions could lead to a legal battle over the interpretation of Tata Sons' articles and the powers of its board vis-a-vis its controlling shareholder.
Ekta Rai, an advocate at Delhi High Court, said, "The articles consequently assume significance," noting that they envision the chairman being appointed from within the board.
A resolution not complying with provisions governing nominee directors could be challenged as beyond the board's authority.
Governance question
Dispute hinges on interpretation of Articles of Association
The dispute hinges on the interpretation of the Articles of Association, specifically whether it requires unanimous or majority agreement among all Tata Trusts nominee directors for a chairman's reappointment.
Supriya Majumdar, partner at Elarra Law Offices, said, "Tata Trusts could argue the requirement of unanimous consent" while Tata Sons would stick to its stance of majority board voting in favor.
Future impact
Proposed listing, funding decisions could be affected by friction
Majumdar also warned of a possible challenge or hurdle in ratifying the appointment resolution by Tata Trusts at its upcoming AGM.
She added that the friction is likely to affect Tata Sons' proposed listing and other important funding and succession decisions.
The trusts argue that both their nominee directors must be present and a majority must vote in favor for a resolution appointing or reappointing the chairman to be valid.
Legal support
Legal opinion from former Chief Justice of India
Noel presented a legal opinion from former Chief Justice of India DY Chandrachud backing the Trusts' position. However, the board did not take note of it, according to Tata Trusts.
Whether this interpretation prevails will depend on how relevant provisions of the articles are read with company law and individual directors' powers and fiduciary duties, experts said.
Directorship issues
Directorship retirement by rotation adds complexity to situation
Chandrasekaran's directorship is also due for retirement by rotation and needs shareholder approval at the company's adjourned annual general meeting (AGM).
Legal experts have warned that the validity of his underlying directorship could impact his continuation as chairman.
This means the September 17 board resolution may not be the final step in securing Chandrasekaran's continuation.
The AGM, originally scheduled for August, has been adjourned and is likely to be reconvened by December.