Renegotiation with RBI first; no immediate legal steps, say top sources

Executives of Tata Sons and Tata Trusts have convened meetings and roped in top legal firms to discuss various options following the Reserve Bank of India’s decision to reject Tata Sons’ application to surrender its NBFC licence, according to two top legal sources. The decision leaves Tata Sons facing the regulatory requirements applicable to its classification in the Upper Layer of non-banking financial companies (NBFC-UL), including the requirement to list.

In the immediate term, the holding company plans to present its counter views to the central bank before considering any legal move, said the sources.

“Renegotiations with the regulator are possible before taking any legal moves,” said a source involved in the matter.

The letter is the RBI’s response to Tata Sons’ request to withdraw its NBFC licence, but it does not shut the window for further discussions with the regulator, another person said.

The RBI on September 11 wrote to Tata Sons rejecting its application to surrender its registration as a Core Investment Company (CIC) and asked it to comply with the rules applicable to companies in the NBFC-UL category. Tata Sons’ application had sought to take the company out of the regulatory framework.

Tata Sons has assets of around ₹2.01 lakh crore on its books, putting it well above the ₹1 lakh crore threshold associated with the Upper Layer category.

Tata Sons’ options are now limited as the regulator has refused to remove it from the NBFC framework. “The submission of Tata's counter views is one aspect of it, explaining its points to prove it is not involved in any type of lending or borrowing business,” a source said.

Earlier, the RBI on August 6 retained Tata Sons in its latest list of NBFC-ULs while making it clear that the company’s application to surrender its registration as a CIC was still under examination. The wording had left the door open for Tata Sons to make another attempt to convince the regulator to allow it to exit the framework.

Tata Trusts chairman Noel Tata has been arguing that the holding company is not an NBFC and that the dividend from it is a cash resource for the philanthropic activities of the Trusts. In addition, a listing could make the process of transferring dividends to the Trusts difficult.

The listing has also been one of the core issues in the differences between Noel Tata and N Chandrasekaran. Chandrasekaran has decided not to pursue a third term as chairman, leaving the management to decide on a new chairman.

The minority shareholder in Tata Sons, Shapoorji Pallonji Group, has also wanted Tata Sons to be listed as it could monetise its 18.37% stake in the public market. Tata Trusts hold 66% stake in the company.

For now, Tata Sons is expected to focus on engaging with the RBI and presenting its case before deciding whether to challenge the regulator’s decision legally.