N Chandrasekaran had majority backing. So why couldn't he continue as Tata Sons chairman?

N Chandrasekaran had the backing of the Sir Dorabji Tata Trust and Sir Ratan Tata Trust, which together hold a majority stake in Tata Sons. Three of the four Tata Trust nominees on the Tata Sons board also supported his continuation as chairman.

Yet Chandra will step down as Tata Sons chairman in February 2027 after his reappointment did not go through.

How can a chairman have majority backing and still not continue?

The answer lies in the governance structure of Tata Sons and the specific rights attached to the directors nominated by the Tata Trusts, according to corporate lawyer Mohit Saraf, Founder and Managing Partner of Saraf and Partners.

Speaking to CNBC-TV18, Saraf said the episode needs to be understood through the legal and governance framework governing Tata Sons rather than simply as a dispute between Tata Sons and Tata Trusts.

First, who controls Tata Sons?

Tata Trusts are not a single entity. Several trusts together hold about 66% of Tata Sons, making them the largest shareholder group in the holding company.

The trusts also have the right to nominate four directors to the Tata Sons board, according to Saraf.

On a 12-member board, four directors would ordinarily constitute a minority. That is why the outcome may appear difficult to understand if viewed simply as a question of how many directors supported Chandra.

The important distinction is between board strength based on numbers and specific rights attached to particular directors or shareholders.

So how could one dissenting nominee matter?

According to Saraf, the Tata Trust nominees have affirmative rights on certain matters. These rights can mean that a simple majority of directors is not necessarily sufficient for a decision to go through.

In Chandra's case, Saraf said the two major Tata Trusts backed his continuation and three of the four Tata Trust nominees on the Tata Sons board supported him. One nominee, however, did not.

"So, at Tata Sons level, nomination of Chandra had support of Dorabji Trust, it had support of Ratan Tata Trust, it had support of three of the nominees of the Tata Trust on Tata Sons, but did not have the support of one nominee of Tata Trust on Tata Sons," Saraf said.

The significance, therefore, was not simply that one director was outnumbered. It was that the governance framework gave the Tata Trust nominees specific rights that Saraf said prevented the proposal from being carried through without the required support.

"This is a legal provision, and therefore you should understand that basically his appointment had failed," he said.

In other words, the episode should not be viewed as a conventional boardroom vote in which one side had more directors than the other. The relevant question was whether the proposal had the support required under Tata Sons' governance arrangements.

Did one Tata Trust nominee have a general veto?

Not necessarily.

The distinction is important. The fact that one nominee's opposition could prevent Chandra's continuation does not mean that any one Tata Trust nominee can block every Tata Sons board decision.

The rights attached to the nominees apply to specified matters under the company's governance framework.

This is similar to arrangements seen in some closely held companies and private equity-backed businesses, where a shareholder may not have enough directors to control the board but may still have affirmative or reserved rights over important decisions.

That creates a system of checks and balances.

So, while four Tata Trust nominees do not form a majority of a 12-member board, their influence cannot be assessed simply by counting seats.

Why do the Tata Trust nominees have such influence?

The arrangement reflects the unusual ownership and governance structure of Tata Sons.

The Tata Trusts have a large economic interest in the holding company, but their influence is not exercised only through their shareholding. Their right to nominate directors and the rights attached to those nominees form another part of the governance framework.

This means the interests of different shareholder groups are built into the decision-making structure.

Saraf pointed to other provisions historically associated with the Tata Sons structure, including arrangements around keeping the holding company unlisted and providing a mechanism for an exit to the Shapoorji Pallonji Group.

The broader point is that Tata Sons' governance framework has evolved around the need to balance the interests and rights of its different shareholders.

Why did Chandra decide to step down?

The legal mechanism explains why his reappointment could not go through. But it does not, by itself, explain why Chandra chose to step down rather than continue amid differences on the board.

JN Gupta, founder and managing director of Stakeholders Empowerment Services (SES), offered a governance and professional perspective on that question.

Chandra has spent nearly four decades with the Tata Group. He joined TCS as an intern in 1987, became its CEO in 2007, joined the Tata Sons board in 2016 and became chairman in 2017.

Gupta said continuing as chairman without broad support could make it difficult for a professional manager to operate independently if the disagreement carried over into subsequent decisions.

"If you carry dissent to the heart and you put that dissent in each and everything in decision-making, that becomes a nightmare for a professional," Gupta said.

Boardroom dissent is not inherently a problem. In fact, independent challenge and disagreement can strengthen corporate governance.

The difficulty arises when a disagreement over the chairman's continuation begins to affect the functioning of the board more broadly.

Gupta's view is that Chandra may have concluded that stepping aside was preferable to continuing in a position where persistent differences could affect his ability to operate independently.

That is an interpretation of his decision, rather than a stated reason from Chandra himself.

Is this a Tata Trusts versus Tata Sons dispute?

The episode has naturally raised questions about the relationship between Tata Sons and the Tata Trusts.

However, Saraf cautioned against reducing the issue to a simple trust-versus-company dispute.

The Tata Trusts' ownership and their rights to nominate directors are part of the established governance architecture of Tata Sons. Their influence, therefore, is not necessarily evidence of a fresh power struggle.

The more important issue is how those rights operate when there is disagreement over a major decision such as the continuation of the chairman.

In Chandra's case, the fact that the two major Tata Trusts backed him while one of their four nominees did not illustrates the difference between shareholder support and the specific approval required under the company's governance framework.

What does this mean for the next Tata Sons chairman?

The episode has an important implication for Chandra's successor.

A prospective chairman may need more than a simple majority of board support. Understanding the rights of the Tata Trust nominees and maintaining a working relationship across the board could be critical to the functioning of the next chairman.

The lesson from Chandra's case is that Tata Sons cannot be understood like a conventional widely held listed company, where board decisions are generally assessed through straightforward majority voting.

Its ownership structure, shareholder arrangements and board rights create additional layers of decision-making.

For the next chairman, therefore, securing initial support may be only the first step. Maintaining consensus among the different stakeholders could be equally important.

What happens to Chandra now?

Chandra will remain Tata Sons chairman until February 2027, completing nearly a decade in the role.

During his tenure, the Tata Group expanded into businesses including aviation, semiconductors, electronics, batteries and digital businesses. The expansion has required substantial capital and has also resulted in significant losses in several newer businesses.

Collectively, the new-age businesses lost nearly ₹30,000 crore in the last financial year.

At the same time, established Tata Group businesses delivered substantial value creation. Tata Group companies added around ₹15 lakh crore in market capitalisation during Chandra's tenure, with TCS and Trent among the key contributors.

His departure therefore marks not just a change at the top of Tata Sons but also a test of how the group's unusual ownership and governance structure will work through its next leadership transition.

The central question for the succession process is no longer simply who can command a majority on the Tata Sons board. It is whether the next chairman can build and maintain the broad support needed to operate within a governance structure where shareholder rights and board rights do not always translate into the same thing.