N Chandrasekaran's real vote test: Tata Sons AGM, not boardroom

Tata Sons board resolution on Chandrasekaran reappointment invalid, says Tata Trusts

MUMBAI: Even as Tata Sons' board has reappointed N Chandrasekaran for a third five-year term, his position hinges on another vote for his reappointment as a director. The chairmanship itself does not require shareholder approval.

But director reappointment does, through an annual general meeting where majority owners will hold sway.Tata Sons has to decide on a new AGM date as the Aug meeting was adjourned for want of quorum. The company has an extension from the Registrar of Companies to hold the AGM by Dec this year.When it does, a circular resolution will go to all six directors, who will have seven days to respond with a 'yes' or 'no'. If Chandrasekaran succeeds in winning reappointment as director, the chairmanship extends to Feb 21, 2032.

Failure to do so, and his term at Tata Sons ends immediately.However, the quorum problem that sank the Aug meeting has not gone away. Tata Sons' Articles of Association require a joint nominee from controlling shareholders, Sir Dorabji Tata Trust and Sir Ratan Tata Trust, as part of the five-shareholder quorum (the other four can be nominees of minority shareholder groups such as the Tata group companies, Shapoorji Pallonji, members of the Tata family who hold shares, etc).

With SRTT under a regulatory ban, the trusts which hold a majority stake cannot nominate anyone, and hence the roadblock that forced the adjournment remains.

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But any Tata Sons shareholder, holding even one share, can now move National Company Law Tribunal, seeking a court-ordered AGM under Section 97 of the Companies Act that would override the company's quorum requirement. The move need not even wait on Tata Sons fixing a new date, or on a second AGM failing for want of quorum.But even a court-directed meeting would not change the arithmetic. Chandrasekaran's reappointment as director needs a majority of votes cast in favour.Unlike the quorum requirement, there is no Articles provision requiring SDTT and SRTT to vote jointly. SDTT and other Tata Trusts entities, holding about 42% of Tata Sons, are expected to vote against. SRTT, at 24%, cannot vote as Maharashtra charity commissioner's restrictions bar it from holding board meetings, and hence also from deciding how to vote.The Shapoorji Pallonji Group, at 18%, is expected to back the resolution or abstain. How Tata group companies, holding about 13%, will vote is unclear, given Chandrasekaran chairs several of them. Trusts have discounted the Tata companies bloc in their reckoning, nor do they expect Shapoorji Pallonji's support. Even if both groups vote in favour, they fall well short of Trusts' 42% against, given a scenario where only 76% of votes are cast.Whatever Shapoorji Pallonji or the Tata companies decide, Chandrasekaran's fate rests with the Trusts bloc led by Noel Tata.