Tata Trusts pads up for legal battle in Chandrasekaran reappointment

Noel Tata wrote two letters to Tata Sons board members on September 18, a day after the board reappointed N. Chandrasekaran as executive chairman for a third five-year term. According to sources in Tata Trusts, the letters are yet to receive a response, with the matter now moving towards a potential legal battle over the validity of the reappointment.

Sources in Tata Sons, however, said Noel Tata’s letters will receive a response from company secretary Suprakash Mukhopadhyay and that the response is under preparation.

Noel Tata’s first letter questioned the process followed for Chandrasekaran’s reappointment, while the second was a follow-up communication arguing that the procedure prescribed under Article 118 of the Articles of Association (AoA) should be followed.

The legal challenge centres on the voting rights of Tata Trusts’ nominee directors. At the September 17 meeting, Noel Tata voted against Chandrasekaran’s reappointment, while fellow Trusts nominee Venu Srinivasan voted in favour. Four directors backed the resolution, after which chairman of Nomination Remuneration Committee (NRC) Harish Manwani used his casting vote. The Trusts have argued that the affirmative support required from their nominee directors under the AoA cannot be substituted by a casting vote.

Noel Tata had also presented a legal opinion from former Chief Justice of India D.Y. Chandrachud at the meeting. The opinion said the affirmative voting rights of Trust nominee directors were an independent requirement and operated separately from the chairman’s casting vote.

Senior lawyer Harish Salve will defend the reappointment of Chandrasekaran in court, while Abhishek Manu Singhvi will represent Tata Trusts and Noel Tata. According to sources, Tata Trusts is preparing to file the case, but they have not yet decided whether to file it in the NCLT or the Bombay High Court.

The September 17 boardroom discussion went beyond the succession issue. Tata Sons agreed to begin the process for an IPO after the Reserve Bank of India rejected its request to surrender its core investment company registration. Noel Tata argued that the company should explore alternatives, including restructuring.

Another major item was the proposed exit of the Shapoorji Pallonji (SP) Group, which holds 18.37% of Tata Sons. Noel Tata placed before the board an SP Group proposal for phased monetisation of its stake. The proposal envisaged Tata Sons buying shares held through Sterling Investments Corporation and Cyrus Investments in two tranches over 18 months, with gross consideration of at least ₹25,000 crore. 

“The board, in principle, agreed to form a special group for dealing with RBI's order, but we don't know how they are going to do it,” said an executive.