Tata Sons to begin IPO groundwork as Noel Tata knocks on legal doors

Tata Sons is preparing to initiate the groundwork for an initial public offering (IPO), including consultations with investment bankers, auditors and legal advisers, as the battle between Noel Tata and N. Chandrasekaran over the future of the Tata Group takes a legal turn.

Sources said Tata Sons chairman N. Chandrasekaran and chief financial officer Saurabh Agrawal are expected to lead the initial discussions to understand the legal and regulatory steps required for the IPO. The executives will subsequently assess valuation methods, potential equity dilution, the timeline for filing a draft red herring prospectus (DRHP) and a possible IPO timeline, said a source in the know.

"The apex bank has repeatedly directed Tata Sons to comply with the rules. In this context, resisting the IPO may only be a short-lived strategy," said an executive.

The preparations follow the Reserve Bank of India’s (RBI) rejection of Tata Sons’ request to surrender its registration as a core investment company (CIC) and its direction to comply with the requirements applicable to upper-layer non-banking financial companies (NBFC-UL). At its September 17 meeting, the Tata Sons board discussed the potential listing and decided to form a committee to evaluate the views of all stakeholders. The same board meeting also approved a five-year extension for Chandrasekaran, despite dissent from Noel, who chairs Tata Trusts.

Noel, whose trusts control about 66% of Tata Sons, has since proposed an alternative restructuring to avoid a mandatory listing. The proposal, submitted to Tata Sons and the RBI on September 28, involves merging Tata Electronics Systems Solutions and Tata Consulting Engineers into the holding company. The proposed reorganisation is intended to alter Tata Sons’ financial and business profile so that it no longer falls under the relevant NBFC and CIC classifications.

However, the proposal is yet to secure a clear path forward. Tata Sons has sought a legal opinion on its validity, and the board has not formally taken it up for consideration, according to sources. Tata Sons will have to submit the restructuring proposal to the RBI to take it forward and avoid listing. There is no sign of such a move yet from the Chandrasekaran-led board.

The listing dispute is unfolding alongside a bitter contest over Chandrasekaran’s leadership. Noel opposed the chairman’s third term, but the Tata Sons board backed his reappointment, with Tata Trusts vice-chairman Venu Srinivasan supporting Chandrasekaran. Noel subsequently questioned the process in two letters to the board, raising concerns over the interpretation and application of the company’s Articles of Association.

Noel is also seeking to prevent Chandrasekaran from continuing as a director at the forthcoming annual general meeting (AGM), a move that would undermine his position as chairman. However, the effort has encountered a hurdle at the trusts level. The Maharashtra Charity Commissioner has intervened in the affairs of the Sir Ratan Tata Trust (SRTT), blocking a meeting amid complaints by Srinivasan.

Srinivasan and Vijay Singh have separately approached the Charity Commissioner over Noel’s appointment as chairman of the Sir Dorabji Tata Trust (SDTT) and the induction of his son Neville as a trustee. The commissioner has sought SDTT’s response, and the trust has received an extension until October 19 to submit its reply.

Noel and Neville have also filed caveats before the Bombay High Court and the Mumbai City Civil Court to ensure they have an opportunity to be heard before any adverse orders are passed.