Leader, Listing And Legacy: A Boardroom Rift Exposes The Fault Lines At Tatas

From the country’s perspective, it is hard to imagine a more consequential form of capitalism than the one practised by the Tatas. It has always been a conglomerate willing to gamble its wealth on new industries that India needs, while ensuring that the spoils of its victories flow back to society.

When Tata Sons was laying the foundations for India’s first airline or making its early forays into industries that would become critical to the country’s development, the Tata Trusts was building institutions in education, health care and scientific research. At the heart of this model was a carefully calibrated jugalbandi between Tata Sons, the holding company, and the Tata Trusts, the group of public charitable trusts that owns roughly two-thirds of the former.

But that century-old equilibrium is now under strain. And a rupture between the two, which was once unthinkable, is beginning to play out in public. It burst into the open last month in a high-decibel confrontation in the boardroom of Bombay House, when Noel Tata, chairman of the Tata Trusts, voted against extending N Chandrasekaran’s term as chairman of Tata Sons by another five years.

With the Trusts being majority shareholders, Noel’s vote carried considerable weight. But it was not enough to sway the board. Four directors—other Tata Trusts nominee Venu Srinivasan, group’s finance chief Saurabh Agrawal and independent directors Harish Manwani and Anita Marangoly George—voted in favour of Chandrasekaran.

However, this 4:1 vote was only one part of the larger contest for control. The board also cleared a resolution that puts Tata Sons on the path to listing despite Noel Tata’s firm opposition.

This was unprecedented. Never in the more than a century-old history of Tata Sons the board has deviated from the wishes of its majority shareholder, Tata Trusts.

There was a reason Noel’s vote was supposed to carry more weight than a single ballot. For decades, Tata Sons’ Articles of Association gave Trusts-nominated directors affirmative voting rights on key matters—a veto, in effect. It was upheld by the Supreme Court during the high-voltage Cyrus Mistry battle in 2021.

That was meant to guarantee the Trusts a decisive say, whatever the arithmetic on the board. On September 17, that guarantee seemed to be just on paper. “Tata Sons is not an ordinary company, and this is not an ordinary boardroom quarrel,” says former National Company Law Appellate Tribunal (NCLAT) member VP Singh.

“It is an unlisted holding company whose principal owner long ago made a deliberate choice: to hold the reins not through the rough-and-tumble of day-to-day management, but through carefully drafted rights embedded in the Articles of Association,” he adds.

This boardroom drama seems to be more than a promoter-management disagreement. It has brought into focus the unusual governance structure of a nearly $300bn conglomerate.

The episode brings forth the question over who ultimately calls the shots at Tata Sons.

Delicate Balance Unravels

For decades, the leaders of Tata Sons and Tata Trusts maintained a balance between the group’s charitable and commercial interests.

In fact, Noel Tata reminded board members of the group’s roots after the bitter fallout. “The commercial enterprise and the philanthropy are not adjacent to one another; they are one structure seen from two ends.”

He pointed out that the structure is more than a hundred years old, and “it has permitted this company to act, repeatedly, in ways that a purely commercial calculus would not have supported”.

Tata group has never been a conventional corporate house. Its structure is rather unique with the controlling ownership of the holding company resting with charitable trusts, while commercial value is created through an extensive network of operating companies.

“That intersection of trust law, company law and corporate governance gives the structure its rather singular character,” says Tushar Kumar, a Supreme Court advocate.

In 2022, this fine balance received its first shock. The Reserve Bank of India (RBI) categorised Tata Sons as an upper-layer non-banking financial company (NBFC), essentially making it a systemically important unit subject to strictest regulations and requirements, including mandatory listing.

Tata Trusts was concerned that a listing could eventually disrupt the group’s commercial-charitable balance achieved over decades—a concern shared by the late Ratan Tata, according to his biographer Thomas Mathew. “He [Ratan Tata] feared that if Tata Sons’ listing happened, its CEOs would chase quarterly profits to satisfy shareholders, particularly the foreign investors’ quest for profits, and the social underpinning of the group would be lost,” he says.

Now, with the board moving to comply with RBI mandates and potentially opening the doors for listing, the rift between the Tata Sons’ management and the Trusts is no longer contained to the Bombay House boardroom.

The showdown is out in public and has gained a life of its own.

It’s not the first time that a rift at Tata Sons has grabbed eyeballs. A decade ago, when Cyrus Mistry was removed as Tata Sons chairman, the fight was very public and dragged on for five years. The battle ended with the 2021 verdict by the Supreme Court in Tatas’ favour.

That verdict, along with tweaks in Tata Sons’ Articles of Association, barred the same person from heading both Tata Sons and Tata Trusts. It laid the groundwork for the dispute that’s unfolding now.

“This creates a dual-key system where major decisions require both board approval and Trusts’ concurrence,” says Alay Razvi, managing partner at Accord Juris, a boutique law firm.

A corporate structure with two centres of authority invites friction as difference of opinion is almost inevitable. However, few could have predicted such a public feud over an issue as consequential as the potential listing of Tata Sons.

Reports suggest that the rift intensified after Noel sought a commitment that Tata Sons would not be listed as a key condition for Chandrasekaran’s reappointment.

“Differences are common among leaders, whether at Tata or elsewhere. They must be sorted out through conversation and compromise, preferably in advance,” says R Gopalakrishnan, a former director of Tata Sons. However, a settlement through negotiation seems unlikely now as both sides have reportedly hired counsels to fight their positions.

The current dispute exposes the vulnerability of a structure that relies not only on formal rights, but also on institutional consensus.

Old Privilege, New Issues

The illiquidity of Tata Sons shares often left the Tata family starved of hard cash, forcing them to sell them off. Several of JRD Tata’s siblings sold off their shares in Tata Sons between the 1960s and 1980s simply because they needed the money.

Construction major Shapoorji Pallonji (SP) Group was the buyer. In 1996, the SP Group bought more shares, becoming the biggest minority shareholder of India’s most storied business house.

During Covid, as the SP Group ran into financial trouble, it pledged those very shares to raise debt, which has now ballooned to an estimated ₹60,000cr. To get out of this debt, the group has been pushing hard for the listing of Tata Sons so that it could offload its holding.

On the other hand, Tata Sons has been fighting to exit the upper-layer NBFC list for the past two years. Now, the recent diktat from RBI keeps it squarely inside a framework that could force a listing.

But this two-year delay has revived an older, thornier question: why does Tata get any exemption at all?

The charitable bodies in India receive tax exemptions under the Income-Tax Act, which restricts investments in shares of ordinary operating companies.

Tata Trusts, however, gets around this through a grandfather clause covering shares bought before June 1, 1973; its holding in Tata Sons predates the cutoff.

This exemption has been under scrutiny for years, including an audit in 2013 by the Comptroller and Auditor General of India, a tax inquiry for assessment year 2014-15 and the I-T Department’s 2019 attempt to strip three Tata Trusts of their exemption. The Trusts challenged these actions, and in December 2020, the tax-appellate tribunal ruled in its favour.

Most other corporate charitable trusts hold smaller portfolios or rely more heavily on donations.

India has no shortage of corporate philanthropy—the Azim Premji Foundation (backed by Wipro shares), Reliance Foundation, Shiv Nadar Foundation, Infosys Foundation, Bharti Foundation, Jindal Foundation. But none of them sit on a controlling, concentrated stake in the apex company of a major business group while claiming the same tax treatment.

What is “unusual” in Tata’s case, according to Kumar, is the combination of charitable trusts possessing a controlling stake in one of India’s largest corporate groups.

But some like Mathew argue that the RBI ought to weigh whether forcing Tata Sons to list actually serves the public interest.

He says that Tata companies are “socially oriented for-profit” entities, making them different from companies formed purely for profit.

A public listing wouldn’t strip the Trusts of their majority stake, but it would alter the environment they operate in by adding new layers of disclosure, minority-shareholder protection, related-party scrutiny and restrictions around special governance rights. It would effectively dilute the absolute control.

Quarterly earnings calls could put pressure to generate greater profits over having the patience for long-horizon philanthropy.

For a 158-year-old empire built on a good balance of commercial and charitable interests, the immediate hurdle is finding a fresh equilibrium between ownership, control, regulation and public good.

The fracture at Bombay House goes beyond the chair’s five-year tenure. The true question hanging over the group is whether Jamsetji Tata’s century-old bet—that a corporation could anchor its identity in both profit and public purpose—can survive the test of time.