Tata Sons Opens Review Of Articles To Meet Sebi Norms, Trusts’ Nomination Powers May Change

Tata Sons has begun going through its Articles of Association clause by clause, and the provisions that give Tata Trusts a firm grip on the board are likely to get the closest scrutiny, the Economic Times reported.

The review is groundwork for a possible stock market listing and is meant to make the company compliant with Sebi norms. The way Tata Sons currently handles board appointments, independent directors and special privileges for shareholders sits uneasily with listing rules, so the wording may have to change. The Trusts’ stake of about 66% and their ordinary voting rights are not up for revision, according to the report.

What Set This In Motion

The trigger was the Reserve Bank of India’s refusal to let Tata Sons surrender its registration as a core investment company. The holding company therefore stays under the tighter rules for upper-layer NBFCs, which give such entities three years from classification to list their shares.

Views within the group are not uniform. Tata Trusts chairman Noel Tata has preferred looking at other routes, including a restructuring of Tata Sons, while the Tata Sons board has argued for following the RBI framework, the report said.

The Trusts’ influence rests on Articles 104B and 121. Under them, the Trusts can name as many as one-third of the directors. Certain board decisions cannot go through without the backing of most of those nominees, and a board meeting is not valid unless most of them are present.

Listing would bring these privileges under Sebi Regulation 31B, which asks shareholders to re-approve such rights at least once every five years. That gives public investors a real say in whether the rights continue. The provisions may therefore need reworking to sit alongside the rules for listed companies, including those on special rights and periodic approvals.