Tata Sons vs Tata Trusts Explained: 5 Key Questions on Chandrasekaran’s Reappointment and Board Powers

The Tata Sons board has reappointed N Chandrasekaran as its executive chairman for another five years, but the decision has triggered a dispute with Tata Trusts, which holds about 66% of Tata Sons. Tata Trusts chairman Noel Tata voted against Chandrasekaran’s reappointment at the September 17 board meeting and has questioned the validity of the resolution.

The disagreement is not only about Chandrasekaran’s continuation as chairman. It involves the special rights available to Tata Trusts under Tata Sons’ Articles of Association (AoA), the use of the chairman’s casting vote and, separately, the future of Tata Sons as a listed company.

Here is what the dispute is about.

Why is Tata Trusts opposing Chandrasekaran’s reappointment?

Chandrasekaran’s current term as executive chairman of Tata Sons ends on February 20, 2027. Although he had earlier indicated that he would not seek another term, the Tata Sons board subsequently asked him to continue.

At the September 17 board meeting, the resolution for his reappointment received four votes in favour and one against. Noel Tata voted against it, while the other Tata Trusts-nominated director, Venu Srinivasan, supported it. Chandrasekaran did not vote.

Tata Trusts has now challenged the validity of the resolution, arguing that the voting requirements under Tata Sons’ AoA were not satisfied.

What do Tata Sons’ Articles of Association say?

The dispute centres on Article 121 of Tata Sons’ AoA.

According to Tata Trusts, the provision requires the affirmative support of a majority of the directors nominated by the Trusts for specified decisions. Tata Trusts currently has two nominee directors on the Tata Sons board.

Since Noel Tata voted against the resolution and Srinivasan voted in favour, Tata Trusts maintains that the required majority of its nominee directors was not obtained. It argued that majority of the two is two, not one.

The Trusts has therefore said that the resolution reappointing Chandrasekaran was not validly passed and has no legal effect.

The precise interpretation of Article 121 is likely to be one of the central issues if the dispute reaches court.

What is the dispute over the casting vote?

The other issue is the use of the chairman’s casting vote.

Tata Trusts has argued that a casting vote can be used when there is an equality of votes at the board level, but cannot be used to overcome a separate requirement under the AoA that a majority of Tata Trusts-nominated directors must support a decision.

In simple terms, the Trusts' position is that the board could not use a casting vote to cure the failure to obtain the required support from its nominee directors.

Whether a casting vote can operate in these circumstances is yet to be decided by a court.

Why is the Cyrus Mistry case relevant?

The dispute also brings back into focus the Supreme Court’s 2021 judgment in the Cyrus Mistry-Tata Sons case.

The Mistry litigation involved, among other issues, special rights given to Tata Trusts-nominated directors under Tata Sons’ AoA. The Supreme Court ultimately rejected findings that the exercise of these rights amounted to oppression or mismanagement.

Tata Trusts is now relying on the treatment of these provisions in that litigation. Its position is that Tata Sons had defended the validity of these special rights before the Supreme Court and cannot now disregard them when they affect the present board decision.

The 2021 judgment and the relevant AoA provisions could therefore become important if the present dispute is litigated.

What is the dispute over Tata Sons’ listing?

The disagreement over Chandrasekaran’s reappointment has also emerged alongside a separate dispute over whether Tata Sons should be listed on the stock exchanges.

Tata Sons had sought to surrender its registration as a core investment company with the Reserve Bank of India. The RBI rejected that application on September 11.

Tata Sons is classified as an upper-layer non-banking financial company and is subject to regulatory requirements relating to listing. Following the RBI's decision, the Tata Sons board has decided to move towards listing.

Tata Trusts, however, has opposed treating listing as the only possible course and has argued that other regulatory and restructuring options should be considered.

What happens now?

The dispute is expected to move towards legal proceedings, with both sides consulting senior lawyers, as per media reports.

The immediate legal issue will be whether Tata Sons’ AoA required the support of a majority of Tata Trusts-nominated directors for Chandrasekaran’s reappointment and, if so, whether the chairman’s casting vote could validate the resolution despite Noel Tata’s opposition.

For now, Tata Trusts has stated its legal position, while the validity of the board resolution remains to be adjudicated if the matter is brought before a court.