Tata Trusts Calls Chandrasekaran's Reappointment Invalid, Cites AoA: 'Condition Failed, So Did The Resolution'

Tata Trusts has challenged the validity of Tata Sons’ September 17 decision to reappoint N Chandrasekaran as chairman, arguing that the resolution failed to secure the mandatory affirmative support of its nominee directors under the company’s Articles of Association (AoA).

The Trusts, which hold approximately 66 per cent of Tata Sons, said the overall 4:1 board vote in favour of Chandrasekaran’s fresh five-year term could not override a separate condition in the AoA concerning directors nominated by Tata Trusts.

“There are two Tata Trusts nominees on the Board of Tata Sons. Majority amongst the two is two and not one,” the Trusts said in a statement.

At the September 17 board meeting, Tata Trusts chairman Noel Tata voted against Chandrasekaran’s

reappointment, while the other Trust-nominated director, Venu Srinivasan, supported it.

Tata Trusts said this meant the required affirmative support from its nominee directors was not available.

“The condition failed, and so did the resolution,” the Trusts said, adding that the overall vote count was irrelevant because the requirement under the AoA was a separate condition.

“Whether the result of the vote was 4:1, or any other figure, is irrelevant. A condition is either met, or it is not. In this case the condition was not met,” the Trusts said.

Casting Vote Argument Rejected

Tata Trusts also rejected the contention that Noel Tata’s opposition created a deadlock that could be resolved through the chairman’s casting vote.

According to the Trusts, such a casting vote is available only when there is an equality of votes at the overall board level. It argued that the provision could not be used to overcome the separate requirement relating to Tata Trusts’ nominee directors.

“The Chairman’s casting vote is available only where there is equality of votes at the overall board level. It does not apply amongst Tata Trusts’ Nominee Directors,” the Trusts said.

It further said there was neither paralysis nor a deadlock at the meeting.

“There was no paralysis, and there was no deadlock. The Board put a question, and the AoA answered it in the negative,” the Trusts said.

Based on this interpretation, Tata Trusts said the September 17 resolution “was not validly passed and has no legal effect” and described it as “void ab initio” – legally void from the outset.

Tata Sons, meanwhile, proceeded on the basis that its board validly approved Chandrasekaran’s reappointment.

Tata Trusts Cites Cyrus Mistry Case

The Trusts also invoked Tata Sons’ earlier legal position in proceedings surrounding the removal of former Tata Sons chairman Cyrus Mistry.

Tata Trusts referred to Articles 104B and 121 of Tata Sons’ AoA, saying the company had previously defended the affirmative voting rights of Trust-nominated directors before the Supreme Court.

According to the Trusts, these provisions had been challenged during the Mistry litigation, with the National Company Law Appellate Tribunal having held the rights to be oppressive.

Tata Sons subsequently defended the provisions before the Supreme Court, which set aside that finding, according to the Trusts’ statement.

“The Company cannot now disown the protection it went to the Supreme Court to preserve. They are either in the Articles, or they are not. Tata Sons has already told the highest court in the country that they are,” the Trusts said.

The Trusts argued that Tata Sons could not treat its Articles of Association as provisions that could be invoked when convenient and disregarded when they became relevant to the current dispute.

Listing Debate Also Part Of Dispute

The disagreement over Chandrasekaran’s continuation comes alongside a separate dispute over the future structure of Tata Sons.

The company’s board on September 17 also approved steps towards a potential listing of Tata Sons after the Reserve Bank of India rejected its application to surrender its registration as a core investment company.

Tata Trusts has opposed listing and has urged the company to consider alternatives.

The Trusts also rejected the argument that listing Tata Sons would be required to improve corporate governance.

It pointed to governance provisions that it said Tata Sons had voluntarily adopted, including those relating to independent directors, audit and nomination and remuneration committees, related-party transactions, retirement of directors by rotation and prevention of insider trading.

“It is also suggested that listing is to be welcomed because it will bring enhanced corporate governance. That argument assumes a governance gap which does not exist,” the Trusts said.

It argued that Tata Sons had already chosen to follow standards applicable to public companies and said the existing framework did not require listing merely to introduce such governance mechanisms.