Delay in Chandrasekaran's Third Term Puts Tata Trusts' Unanimous Resolution Under Scrutiny

The recent developments within the Tata Group, where a decision on extending Tata Sons Executive Chairman N Chandrasekaran's tenure was deferred, have sparked fresh questions about the Tata Trusts' earlier unanimous backing of his third term, PTI reported citing group observers.

Point to note: Chandrasekaran himself sought a postponement of discussions on his reappointment, citing the need for better alignment among key stakeholders within the Tata Group. The request followed differences that reportedly emerged during the Tata Sons board meeting held on Tuesday, February 24.

The trustees had passed the resolution last year recommending an extension of Chandrasekaran's tenure. This comes as granting a third term requires a special resolution as well as an exception to Tata Sons' retirement policy, which generally caps non-executive leadership roles at 65 years of age. Chandrasekaran turns 63 in June this year, and by the end of a potential third term, he would have crossed the prescribed age limit.

During the board meeting on Tuesday, Noel Tata, Chairman of Tata Trusts had raised concerns about losses in some of the Tata Group's newer businesses. This led to a detailed discussion among board members, according to an earlier report by Economic Times.

Several directors backed Chandrasekaran's reappointment, saying the losses were linked to greenfield projects, new ventures that typically take time to become profitable. They argued that such initial losses are normal during the early stages of expansion.

Noel Tata had laid out four broad conditions for supporting the extension. These included keeping Tata Sons unlisted in line with RBI guidelines for upper-layer NBFCs, maintaining low or no debt, keeping capital expenditure under control, and managing losses from acquisitions such as Air India and BigBasket, the report added.

Anita George, who heads the board's reappointment committee, reportedly supported the extension, noting that losses in new projects are expected and factored into long-term planning.

After discussions, some board members suggested putting the matter to a vote. However, Chandrasekaran recommended deferring the decision, saying that institutions like the Tata Group function best when Tata Sons and Tata Trusts remain aligned on key strategic matters.

Notably, even as the deferral has raised questions about the validity of the unanimous resolution passed last year, the PTI report cited a source asserting that the resolution "clearly stands".

The source added that Noel Tata's actions were within his authority as a director of Tata Sons and were not necessarily contrary to the trustees' resolution. The report further noted that the resolution would be implemented in due course.