Tata Sons listing: ‘Trusts not adequately briefed on RBI talks’

Tata Sons’ extended engagement with the Reserve Bank of India (RBI) over its regulatory status has raised concerns within the Tata group over whether the Tata Trusts — the company’s controlling shareholder — were adequately kept informed of the discussions with the regulator and options considered during the process.

Sources familiar with the developments say the Tata Trusts were not given adequate updates on the submissions made to the RBI, hearings held with the regulator or the course that the regulatory process was taking. The question being raised is whether the Trusts, which hold about 66 per cent of Tata Sons, were kept informed of the representations being made on the company’s behalf and of the alternatives being discussed with the regulator.

Tata Sons and Tata Trusts did not respond to a mail from The Indian Express.

Tata Sons had sought to surrender its registration as a Core Investment Company (CIC), a move that would have allowed the group’s principal holding company to remain unlisted. The RBI had classified Tata Sons as an upper-layer non-banking financial company (NBFC-UL) in September 2022, a classification that carries a requirement to list within the prescribed timeframe. Tata Sons subsequently pursued deregistration as a CIC as a route to avoiding a public listing. In August this year, the RBI said the deregistration application was still under examination.

That effort, however, ended on September 12 when the RBI rejected Tata Sons’ application to surrender its registration and directed the company to take the necessary steps to ensure full compliance with the applicable regulatory requirements. The decision effectively put the company back on the path towards a stock market listing.

The issue now is not merely what decision the RBI ultimately took, but what transpired during the several years that Tata Sons was engaged with the regulator. “It appears the Trusts did not have a clue about the talks with the RBI,” said a source.

The concern, according to people aware of the matter, is fundamentally one of process. The Trusts apparently wanted Tata Sons to explore all possible regulatory and legal avenues that could reconcile compliance with the RBI’s requirements while preserving the company’s existing ownership and structure. That position did not necessarily amount to a refusal to engage with the regulator.

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Tata Trusts have opposed the listing of Tata Sons and have urged the company to examine alternatives. The Trusts had not agreed to a stock-market listing and wanted other options to be explored following the RBI communication.

The RBI’s decision has nevertheless changed the immediate regulatory landscape. Following the rejection of the deregistration request, the Tata Sons board on September 17 decided to proceed with a listing of the holding company in line with the RBI’s directive. The board’s decision was taken alongside a separate resolution extending N Chandrasekaran’s tenure as executive chairman for another five years.

The September 17 board meeting also brought the differences between Tata Sons and the Tata Trusts into the open. Tata Trusts chairman Noel Tata opposed Chandrasekaran’s reappointment, while Tata Trusts nominee Venu Srinivasan supported it. The Trusts have subsequently challenged the validity of the board’s decision and questioned the use of a casting vote to establish a majority.

The listing decision has similarly become a point of disagreement. The Trusts have said they did not agree to the listing and wanted the board to explore alternatives following the RBI’s communication. Tata Sons, on the other hand, has decided to proceed with the listing process to comply with the regulator’s directive.

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Against this backdrop, the central question concerning the earlier RBI engagement is one of disclosure and shareholder consultation: Were the Tata Trusts, as the majority shareholder, kept fully informed about what was being submitted to the RBI, the hearings and discussions with the regulator, and the alternatives being considered?

If the engagement with the regulator lasted five or six years, the question now being raised within the group is not simply why the RBI ultimately rejected Tata Sons’ request. It is also what options were explored during those years, what representations were made to the regulator, when those representations were made, and whether the controlling shareholder was adequately informed of the process.

The September 17 board decision has now moved the question into a new phase. Tata Sons has chosen to proceed with the listing, while the Trusts have maintained that alternatives should be examined.

The company’s next steps will therefore have to be viewed against both the RBI’s regulatory direction and the continuing differences between Tata Sons and its controlling shareholder over the future structure of the group.

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Venu Srinivasan was not prevented from voting on listing-related matters. Concerns were raised over his public support for listing while Tata Sons’ application for deregistration as a CIC was still pending with the RBI. “The issue should have been formally discussed by the Tata Sons and Trust boards. The Articles of Association require the affirmative votes of both Trust-nominated directors, since there are two such directors, and that a casting vote cannot substitute for a specifically required affirmative vote,” said the source.

The trusts say the Articles form the constitutional basis of Tata Sons and must be followed, particularly when decisions could fundamentally alter the company’s ownership and governance structure.