Restructuring, RBI Review Or Court: Where The Tatas Go After RBI’s Rejection

The Reserve Bank of India’s rejection of Tata Sons’ request to surrender its Core Investment Company registration has put the holding company of the Tata group on the path to a public listing—something the group has been trying to avoid since 2022. Tata Sons now has only a few options to avoid listing on the stock market, according to experts.

They put forth three broad possibilities: seek reconsideration from the RBI, restructure the company sufficiently to move outside the UL-NBFC framework, or challenge the decision in court.

In the last two years, Tata Sons has done everything in its power to satisfy the Reserve Bank of India (RBI) that it does not function as a large non-banking financial company (NBFC) that might pose a systemic threat. Tata Sons repaid ₹21,813 crore of public loans to become debt-free. It listed its NBFC, Tata Capital, as a separate entity and later applied, in March 2024, to surrender its registration as an Upper Layer NBFC under the RBI’s Scale Based Regulation framework.

But on September 12, the central bank, in a letter to Tata Sons’ company secretary and chief financial officer, rejected its application, though no official communication has been released by either side.

The decision effectively meant that simply becoming debt-free was not enough to take Tata Sons outside the regulatory framework governing Upper Layer NBFCs. The issue dates back to October 2021, when the RBI introduced a four-tier NBFC regulatory framework.

In September 2022, it classified Tata Sons as an Upper Layer NBFC, triggering a three-year listing deadline. Even after the deadline expired, Tata Sons remained unlisted, waiting for the RBI’s direction. In June 2026, the central bank revised its Scale Based Regulation framework, narrowing Tata Sons’ chances of escaping the listing requirement. It replaced an earlier scoring-based approach with a single bright-line rule: any NBFC with assets of ₹1 lakh crore or more sits in the Upper Layer. Tata Sons’ standalone assets—reported at over ₹2 lakh crore as of March 2026—put it well above that threshold.

“(Now) the remaining possibilities are essentially threefold: seek reconsideration or a specific regulatory accommodation from the RBI; undertake a genuine structural reorganisation sufficiently fundamental to take the entity outside the regulatory perimeter; or invoke judicial review,” says Tushar Kumar, Advocate, Supreme Court of India.

A recent report by Bloomberg also claimed that Tata Sons’ outgoing chairman has been preparing the company for the possibility of a stock market listing. Meanwhile, the head of Tata Trusts, the majority owner of the company, Noel Tata, has been mulling plans to split the company into two or whittle down its balance sheet to avoid a public listing.

Meanwhile, the RBI has filed a “caveat” with the Bombay High Court, Reuters reported on Tuesday. A caveat allows the central bank to be heard if its decision is challenged or someone otherwise seeks a stay on it.

Tata’s Options

Tata Sons’ original strategy was based on the argument that it no longer resembled a leveraged NBFC. But now, the central issue is no longer simply whether Tata Sons borrows money; it is whether a company of its size and structure should remain under the regulatory framework applicable to systemically significant NBFCs.

“Tata Sons is no longer asking for regulatory relief that is merely pending; it is now confronting an adverse regulatory determination,” says Tushar Agarwal, Founder & Managing Partner, C.L.A.P. JURIS. He argues that Tata Sons cannot simply point to its debt repayment and expect the regulatory consequences to disappear. What does it mean?

“Under RBI’s Scale Based Regulation framework, an NBFC-UL is mandatorily required to list within three years of identification, and ordinarily remains subject to enhanced Upper Layer regulation for at least five years even if its subsequent metrics change,” Agarwal says.

The RBI’s framework provides that once an NBFC is classified in the Upper Layer, it remains subject to enhanced regulation for at least five years, even if it subsequently fails to meet the criteria. The framework also provides a route for an NBFC to move out earlier in certain circumstances through a voluntary strategic readjustment of operations. This is where restructuring becomes important.

“A cosmetic restructuring is unlikely to be enough—the substance of the company’s balance sheet, activities and access to funds would have to change,” says Agarwal. 

What does it mean? Megha Sharma, Advocate, Delhi High Court, explains. “The only bulletproof solution is buying back internal equity held by listed operating units (Tata Steel, Tata Power, Tata Chemical and others) to completely sever indirect public fund linkage under CIC norms,” she adds. Further, hive off equity assets into unlisted subsidiaries to reduce standalone asset size below the ₹1 lakh crore upper-layer threshold.

Then, petitioning the Ministry of Finance and RBI for a statutory waiver, though as per Sharma, it remains “a low-probability” option, as a fallback is rarely granted to mega-conglomerates.

Shanghvi Finance Precedent

The whole manoeuvre by the Tata group to reduce or erase all its debt and apply to RBI came from a 2022 ruling by the financial regulator. The 2022 RBI list of Upper Layer NBFCs that put Tata Sons in its current battle had also identified Shanghvi Finance, a private investment company and promoter entity fully owned by Sun Pharma’s Dilip Shanghvi, as an UL NBFC.

Later, Shanghvi Finance applied to the RBI to voluntarily surrender its NBFC registration, after repaying its borrowings. It had repaid ₹879 crore of debt. On May 17, 2023, RBI cancelled its registration. Shanghvi Finance therefore became an unregistered Core Investment Company (CIC). As an unregistered CIC, it could not access public funds and was outside the NBFC regulatory framework that carried the listing requirement.

Though RBI didn’t provide any reasoning for its decision.

“The Shanghvi Finance precedent is undoubtedly Tata Sons’ strongest point, but it is not an exact precedent…The critical distinction is that deregistration is not an automatic consequence of deleveraging. The RBI retains regulatory discretion, informed not merely by outstanding debt but by size, complexity, interconnectedness and potential systemic risk: the very considerations underpinning the SBR framework,” says Supreme Court lawyer Kumar. 

Tata Sons is the apex holding company of an exceptionally large and interconnected conglomerate. Kumar points that Tata Sons can ask why two debt-free entities were treated differently. But the RBI can respond that the two companies were never equivalent in terms of scale, interconnectedness and potential systemic impact. That makes Tata Sons’ position considerably more difficult than Shanghvi’s.

The Legal Path

A court challenge is likely to be Tata Sons’ most important remaining weapon, but legal experts disagree sharply over its chances. A writ petition would be legally maintainable, but legal experts warns against treating it as a conventional appeal against the RBI’s decision.

Tata Sons could argue that the regulator failed to apply its own framework consistently, failed to adequately explain why the Shanghvi precedent did not apply, or did not properly consider Tata Sons’ changed financial circumstances after its debt repayment.

However, “courts traditionally accord substantial latitude to specialised financial regulators on questions involving systemic risk and prudential supervision,” says Kumar.

Experts believes a challenge based on the absence of explicit statutory language compelling an Initial Public Offer (IPO) would face difficulties because the RBI’s regulatory powers under the RBI Act and the Scale Based Regulation framework provide the broader legal basis for the listing requirement.

There is, however, another reason why litigation may still make strategic sense even if Tata Sons does not expect an outright victory. A court challenge could force the RBI’s reasoning into the public domain. It could also buy Tata Sons time while the legal process runs its course.

Therefore litigation is seen as “strategically useful”, as per Kumar, particularly if it compels greater examination of the RBI’s reasoning or provides interim breathing space, even though he cautions that treating it as a guaranteed route to permanently avoid listing would be optimistic.

That may ultimately be the most realistic legal objective: not necessarily to win immediately, but to test whether the RBI has treated Tata Sons consistently with its own regulatory precedent.

Tatas have fought this battle before. As a holding company, Tata Sons was set up in 1917 as a private limited company. But, under Section 43A of the Companies Act, 1956, Tata Sons was deemed to become a public company because its turnover crossed the statutory threshold. It remained a deemed public company for decades.

Changes to the Companies Act in 2000 removed the automatic mechanism under which private companies could become deemed public companies. But Tata Sons continued to be treated as a public company because of its existing status. Later, the Supreme Court held that, under the new definition of a private company, Tata Sons' Articles of Association (AoA) satisfied the requirements to be a private company from September 12, 2013.

After the removal of Cyrus Mistry as the Chairman of Tata Sons in 2016, the Mistry family, led by Shapoorji Pallonji Group, challenged this deemed status. In the next shareholders’ meeting in 2017, Tata Sons' shareholders passed a resolution inserting “Private” into its name, effectively changing Tata Sons Limited to Tata Sons Private Limited.

A court battle ensued after that, claiming Tata Sons had improperly converted itself from public to private without following the procedure under Section 14 of the Companies Act. In the end, the Supreme Court in 2021 allowed the company to remain a private limited company, dismissing demands from the minority shareholders of Tata Sons.

Tata Trusts Power

That fight in 2016 was essentially over the special governance architecture embedded in Tata Sons’ Articles of Association.

Article 104B gives the Tata Trusts, which owned over 66% of the shares of the company, the right to nominate one-third of the prevailing number of directors. Article 121 provides for affirmative voting by a majority of the Trust-nominated directors on matters requiring a majority vote of the board. Article 121A covers specific matters affecting the Trusts’ shareholding and other governance issues.

The Supreme Court, while deciding the long-running Cyrus Mistry case, recognised this structure. It noted that the Trusts’ shareholding itself gives them a greater say at general meetings, while Article 121 provides a more limited affirmative-voting mechanism at the board level.

Listing, however, changes the legal environment in which these rights operate. SEBI’s Listing Obligations and Disclosure Requirements framework contains specific provisions governing special rights available to shareholders of listed companies. Regulation 31B requires special rights granted to shareholders of a listed entity to receive shareholder approval through a special resolution every five years.

The market regulator has also previously indicated that, when a company comes to market, existing shareholder agreements containing special rights may need to be terminated or modified before listing. Nomination and information rights can continue, but are subject to shareholder approval after listing.

This could prove to be an even bigger governance issue than the IPO itself. “Listing would not, by itself, dilute Tata Trusts’ majority shareholding or automatically extinguish every contractual or constitutional right attached to that shareholding,” says Agarwal. “The more difficult question is whether the special vetoes embedded in the Articles can continue indefinitely once Tata Sons becomes a listed company. Those rights would have to be tested against SEBI’s regime on special shareholder rights and equitable treatment of shareholders.”

It also creates a new dynamic with the Shapoorji Pallonji Group. The Shapoorji Mistry-led engineering and infrastructure firm had been in talks with Tata group to monetise its 18.37% stake. The group has been cash-strapped for a long time and has pledged its entire Tata stake for private credit at higher yield rates.

Last week, it was reported that the Mistry family was mulling a plan to sell part of its stake to the group for about ₹25,000 crore. But now, with a looming public listing, that may have to be reconsidered.