Tata Sons vs Tata Trusts: Both sides explore insurance cover as legal battle looms

Tata Trusts vs Tata Sons

Tata Sons and Tata Trusts are in talks with insurance companies about cover for possible legal claims arising from their dispute over the future of the $185 billion Tata Group.Executives from both sides want to know how much of their legal costs would be covered under directors and officers liability insurance if the dispute goes to court, according to people familiar with the matter cited by Bloomberg.Possible claims could come from minority shareholders seeking compensation for losses linked to the boardroom dispute or from regulatory action.Tata AIG General Insurance Company Ltd. has issued insurance policies to both Tata Sons and Tata Trusts, the people said. The policies also allow the two sides to file claims against each other over valuation losses. However, neither side has filed any such claim so far, the people added.

September meeting exposes differences

Disagreement between Tata Sons and Tata Trusts intensified after a stormy board meeting on September 17, when the group's future direction came up for discussion.Noel Tata, chairman of Tata Trusts, opposed plans to list Tata Sons on the stock market and the proposed reappointment of Natarajan Chandrasekaran as chairman for another five years, Bloomberg reported. Other directors on the Tata Sons board overruled his objections, leaving the group's leadership increasingly divided.

The Tata Sons board wants to proceed with a public listing in line with guidance from India's banking regulator for systemically important shadow lenders. The holding company, in its current structure, would fall within this category.Noel Tata has opposed the move, arguing that a listing would dilute the philanthropic mission of Tata Trusts, expose the group to market volatility and undermine a governance model that has lasted a century.The disagreement over leadership has added to the tensions. Tata Trusts has called the board's decision to reappoint Chandrasekaran an “illegal” move.Although neither side has taken the other to court, both have engaged prominent lawyers ahead of a possible legal confrontation.

Insurance could cover legal costs

Directors and officers liability insurance is designed to protect senior executives against personal financial losses if they face lawsuits arising from their professional responsibilities.

The cover can also meet legal fees and other costs incurred by an organisation in connection with such proceedings.The ongoing discussions are focused on understanding the scope of this protection should the Tata Sons-Tata Trusts dispute lead to litigation, including potential claims involving shareholders or regulators.The insurance arrangements could become relevant if the disagreement results in legal proceedings, although no claims under the policies have been filed so far, the people familiar with the matter said.The Tata Group has previously used insurance coverage to pay legal expenses during a major corporate dispute. In October 2016, Tata Sons removed Cyrus Mistry as its executive chairman, prompting a legal challenge from the Mistry family and the Shapoorji Pallonji Group, which owns about 18.4% of Tata Sons.