Why Tata Trusts and Tata Sons are having a clash
What's the story
The ongoing conflict between Tata Trusts and Tata Sons over N Chandrasekaran's reappointment as chairman has escalated into a legal battle. The dispute stems from a board resolution passed by the Tata Sons board last week, granting Chandrasekaran another five-year term, and paving the way for the much-anticipated listing of the group's holding company. However, this move has been contested by Tata Trusts, which holds around 66% of Tata Sons.
List
Who are the board members?
The board members include Chandrasekaran (Chairman), Venu Srinivasan (Tata Trusts nominee Director) and Noel Tata (Tata Trusts nominee Director). Harish Manwani (Independent Director), Saurabh Agarwal (Executive Director & CFO) and Anita M George (Independent Director) are also there.
Objections
'Legal nullity'
Tata Trusts has challenged the validity of the board resolution, calling it a "legal nullity" for not having the backing of both Trust-nominated directors.
While one nominee, Srinivasan, supported Chandrasekaran's reappointment, Noel voted against it.
The Trusts have also argued that a casting vote cannot revive what they consider a failed resolution, and said any attempt to alter their century-old structure is "a sledgehammer to crack a nut."
Market impact
Impact on Tata Group stocks
The ongoing corporate governance issues have put pressure on Tata Group stocks.
Today, Tata Capital fell by some 2% to ₹344, while Tata Power declined by 2.1% to ₹366.85.
Other companies such as Tata Investment Corporation and Tata Technologies also witnessed a dip in their share prices.
However, not all companies in the group saw a decline; for instance, Tata Chemicals recovered from an initial fall of 4% to end 0.05% higher.
Legal representation
Legal representation for Tata Trusts
Tata Trusts, led by Noel, has legally challenged the board's decision and is seeking judicial intervention to maintain the status quo on Chandrasekaran's tenure.
Senior advocate Abhishek Manu Singhvi will represent Tata Trusts in this case.
The Trusts have reiterated that Chandrasekaran's reappointment was never validly approved as per Tata Sons' Articles of Association, which require support from both Trust-nominated directors for such resolutions.
Voting rights
Dispute over casting vote's applicability
The Trusts have disputed the applicability of a casting vote, saying it applies to a tie at the overall board level and cannot override the separate requirement for Trust-nominated directors. They also rejected claims that their opposition created a situation that could paralyze Tata Sons.
Power
Complications due to legal issues
To complicate matters, the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust together control 51.54% of Tata Sons, with their allied trusts taking those voting blocs to 37.91% and 27.39%.
However, the Sir Ratan Tata Trust and its related entities cannot exercise their voting rights after a Maharashtra Charity Commissioner order barred them from doing so.
This is worrying as it could affect Chandrasekaran's position at the next shareholder meeting, if held without this bloc's support.
Challenges
Challenges in securing shareholder approval
If a shareholder meeting is held without the Sir Ratan Tata Trust bloc, Chandrasekaran would need support equivalent to 36.31% of Tata Sons' total shareholding to secure approval.
Noel Tata's 1% stake and the Sir Dorabji Tata Trust bloc together account for 38.28%, potentially blocking the board-approved reappointment on current numbers.