Tata Sons has reappointed N Chandrasekaran for a third term despite Tata Trusts’ opposition, setting the stage for a potential legal battle.
“Their legal options are wide,” says senior corporate and M&A lawyer Nitin Potdar”
The key legal question centres on Tata Sons’ Articles, which require affirmative votes from Trust-nominated directors
'Legal Options Are Wide for Tata Trusts, But Matter Best Settled Across a Table'
“Their (Tata Trusts) legal options are wide,” says Nitin Potdar, senior corporate and M&A lawyer. However, he suggests that “matters are best settled across a table at Bombay House.”
Tata Sons
Summary
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After the Tata Sons board decided to reappoint Chairman N Chandrasekaran for a third term despite opposition from its majority shareholder, Tata Trusts, the decision has raised the possibility of a legal battle between the two sides.
“Their legal options are wide,” says Nitin Potdar, senior corporate and M&A lawyer. However, he suggests that “matters are best settled across a table at Bombay House.”
At the centre of the dispute are Tata Sons’ Articles of Association, which give Trust-nominated directors affirmative voting rights on certain matters. The disagreement has raised questions over the balance between shareholder ownership and boardroom powers.
“The Articles are clear. Any matter placed before the board must carry the affirmative vote of a majority of the directors nominated by the two Tata Trusts, namely the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust. There are two such nominees on the board today, so both must vote in favour. Without that, the decision does not meet the requirement of the Articles,” Potdar told Outlook Business.
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Do Tata Sons’ Articles allow the board to appoint a Chairman against the Trusts’ opposition?
No. The Articles are clear. Any matter placed before the board must carry the affirmative vote of a majority of the directors nominated by the two Tata Trusts, namely the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust. There are two such nominees on the board today, so both must vote in favour. Without that, the decision does not meet the requirement of the Articles. This is not a formality. It is the mechanism through which the Trusts, holding about two-thirds of the company, exercise their rights as owners.
Has the Tata Sons board ever taken a decision that went against the wishes of Tata Trusts?
Not to my knowledge.
Now that the differences have become public, is there a way for the matter to be resolved?
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As a genuine admirer of the Tata Group and of what it has built in this country, I can only say that good counsel must prevail. I hope the differences are resolved amicably, in the larger interest of the purpose the Tata Trusts have served for over a century. At the end of the day, the Trusts hold 66% of the equity. They are the owners, and they will have the last word. Rightly so.
What options or steps can Tata Trusts take from here?
They are the majority owner of the holding company and they have special rights written into the Articles. Their legal options are wide. But I would hope they are not required to exercise them. These matters are best settled across a table at Bombay House.
Does the development have any implications for the group's operations or functioning?
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I would not like to comment on the operations. But when matters of this nature are debated in public, the reputation certainly takes a hit. That is the real cost here, and it is avoidable.