Tata Sons' reappointment of Chandra may not hold over time, says IiAS' Hetal Dalal

A Tata Sons board decision to reappoint N Chandrasekaran as chairman despite opposition from one of the Tata Trusts' nominees is unlikely to hold over time, according to Hetal Dalal, President and COO of proxy advisory firm Institutional Investor Advisory Services (IiAS).

"This is not a solution which is going to hold in, I mean endure, largely because of the fact that all these decisions require a shareholder vote, and the trusts will eventually vote their shares," Dalal said.

The comment follows a Tata Sons board vote to reappoint N Chandrasekaran for a third term as chairman. Noel Tata and Venu Srinivasan, the two board nominees of Tata Trusts, split their votes on the decision. Tata Trusts hold roughly 66% of Tata Sons' voting rights and later issued a statement opposing the reappointment.

The dispute adds to two other issues facing the group. The Reserve Bank of India (RBI) has declined a request from Tata Sons to exit its classification as a non-banking financial company (NBFC), a status that requires the firm to list its shares on a stock exchange within a set timeframe. Separately, Tata Trusts face an issue before the Charity Commissioner that has already delayed a Tata Sons board meeting.

Shiju P V, Senior Partner at IndiaLaw LLP, said Tata Trusts have two paths to contest the chairman's reappointment. "Basically, Tata Trusts has multiple avenues. One is definitely going to NCLT and seeking an injunction, or also calling an EGM, because the reappointment of Chandra as the director comes for the EGM," he said. Tata Sons' articles of association reportedly give trust nominees an affirmative voting right over certain board decisions, which could support a case at the National Company Law Tribunal (NCLT).

On the RBI matter, Sandeep Parekh, Managing Partner at Finsec Law Advisors, said the central bank is unlikely to grant an open-ended delay. "Without a stay, RBI is going to push them to list in a time-bound manner. They're not going to give them hundreds of years," Parekh said. He added that a private company structure lets the Trusts retain rights that fall away once Tata Sons lists, which is one factor behind their resistance.

The listing question is linked to a long-standing dispute with the Shapoorji Pallonji (SP) Group, which holds about 18% of Tata Sons and has sought an exit for close to a decade. Parekh said SP Group cannot currently sell its stake to an outside buyer under the company's private structure, leaving a partial buyback by the Tata Group or a public listing as the two routes available for an exit.

Dalal said Noel Tata's proposal to fund an SP Group buyout through an offer-for-sale of Tata Sons' holdings in listed group companies is workable. She pointed to the role Tata Consultancy Services (TCS) has played in generating cash for the group through dividends and buybacks, calling the OFS route a reasonable conclusion for the company to draw given Tata Sons' preference to stay unlisted and its limited alternative funding options.

Dalal cautioned that repeated governance disputes carry a cost for the Tata brand, even though the current dispute has not affected listed Tata Group company shares, since Tata Sons itself remains unlisted and Chandrasekaran's term runs until February. "There have been small scrapes which have happened, and at some point, it's all chipping away at the brand," she said, adding that consolidated leadership and clear direction matter for how foreign and domestic investors view the group going forward.

Shiju said the situation touches three separate fronts at once: the Charity Commissioner proceeding at the trust level, the board-level conflict within Tata Sons, and the unresolved SP Group stake. He said shareholders should track two developments in particular — progress on a listing and whether Tata Trusts move to the NCLT.

For the full interview, watch the accompanying video



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