Tata Trusts Vice-Chairmen Venu Srinivasan and Vijay Singh challenge a proposed reorganisation of Tata Sons, alleging a lack of trustee consultation and raising concerns about its regulatory and financial implications.
Key Points
- Tata Trusts Vice-Chairmen Venu Srinivasan and Vijay Singh have written a letter raising governance concerns over the proposed reorganisation of Tata Sons.
- The reorganisation plan, aimed at preventing Tata Sons' stock exchange listing, was allegedly proposed without consulting the trustees of Sir Dorabji Tata Trust (SDTT) and Sir Ratan Tata Trust (SRTT).
- The vice-chairmen questioned whether the proposal reflects the collective institutional position of SDTT and raised concerns about its legal, financial, commercial, and governance implications.
- They also highlighted the risk of the communication being seen as a public charitable trust directing commercial decisions, potentially endangering the trusts' charitable status and asset value.
- The letter follows the RBI's rejection of Tata Sons' application to surrender its core investment company status, which would make listing mandatory.
Some two weeks after the Tata Sons boardroom battle on September 17, a letter to the trustees of Tata Trusts has raised governance issues that could lead to larger regulatory questions.
The reorganisation of Tata Sons, as proposed by Tata Trusts earlier this week to prevent a stock exchange listing of the holding company, was done without consulting the trustees, vice-chairmen of Tata Trusts Venu Srinivasan and Vijay Singh said in a letter dated September 30.
Tata Trusts did not comment.
Concerns Over Trustee Consultation
The joint letter by Srinivasan and Singh, addressed to the trustees of the two major trusts -- Sir Dorabji Tata Trust (SDTT) and Sir Ratan Tata Trust (SRTT) -- referred to the September 28 communication to the board of Tata Sons proposing a reorganisation of the group's 'holding' company.
'We were surprised to receive a copy of the letter and learn about the press release from public sources,' Srinivasan and Singh wrote.
One of the two key trusts, SDTT, chaired by Noel Tata, has five other trustees -- Darius Khambata, Neville N Tata (Noel's son), Bhaskar Bhat, Srinivasan and Singh.
The other major trust -- SRTT -- was frozen by the Maharashtra charity commissioner earlier this year over alleged violation of norms related to perpetual trustees.
Therefore, SRTT could not have been consulted for this proposal. The SRTT trustees are Noel, Srinivasan, Khambata, Jehangir H C Jehangir, and Jimmy N Tata (Ratan Tata's younger brother).
'To our knowledge, no meeting of the trustees of SDTT was held to discuss or deliberate on this issue before the letter was sent to Tata Sons. We were not consulted, and are not aware that the other trustees were consulted either. It is accordingly unclear whether the letter and the proposal it sets out have the support of all the trustees of SDTT," the letter by the vice-chairmen said.
Issued on behalf of Tata Trusts as the majority shareholder of Tata Sons, the September 28 letter called upon the Tata Sons board to consider a reorganisation that would merge Tata Electronics Systems Solutions and Tata Consulting Engineers into Tata Sons.
The stated objective of the proposed reorganisation is for Tata Sons to cease being a non-banking financial company (NBFC) or a core investment company (CIC), and in the process help it avoid going public.
Proposed Reorganisation and Regulatory Implications
Singh and Srinivasan said that they are equally concerned that press releases are being issued in the name of 'Tata Trusts' without the trustees of SDTT having been consulted on their content or authorisation.
'As no meeting of the trustees of SDTT authorised the letter or the press release, neither can be said to reflect the collective, institutional position of SDТТ,' they said in the September 30 letter.
The two trustees also questioned the manner in which the proposal was communicated to Tata Sons. They said a shareholder could express its considered wishes or propose a course of action to a company, but decision-making on such a proposal was entrusted to the company's board under law and its constitutional documents.
The Tata Sons board, they said, should independently evaluate the proposal -- including its legal, regulatory, financial, and commercial implications -- and discharge its responsibilities in accordance with the law.
Impact on Charitable Status and Asset Value
Given its implications, they said the proposal warranted consideration of its legal, financial, commercial, governance, and institutional consequences, along with the underlying material and analysis, before any position was expressed in the Trust's name.
Raising concerns about the implications for the charitable status of the trusts, they spoke about the risk of their communication being construed as an attempt by a public charitable trust to direct the commercial decision-making of a company, rather than exercising shareholder rights.
They questioned whether the current actions could endanger the position of the trusts and the underlying asset value of the trusts.
Srinivasan and Singh referred to the Reserve Bank of India's September 11 rejection of Tata Sons' application to surrender its certificate of registration as a core investment (CIC) company, thereby making listing of Tata Sons mandatory.
While the Tata Sons board had on September 17 backed listing of Tata Sons, Noel Tata, Tata Trusts chairman and nominee director on the Tata Sons board, opposed it.
Questioning the assertion that the proposed reorganisation would be in the best interest of the Tata group and its stakeholders, they said it may also have serious financial consequences for Tata Sons, SDTT, and other stakeholders affected by the amalgamation and a change in Tata Sons' regulatory status.
Previous Governance Disputes
This letter comes within days of the two vice-chairmen writing to the Maharashtra charity commissioner on issues related to governance at SDTT, including a circular resolution attempting to keep Srinivasan out of the board room deliberations on September 17 as his views clashed with that of the other nominee director -- Noel Tata.
Tata Sons Articles of Association grants veto power to the nominee directors along with rules on majority affirmative vote. Srinivasan fought back and voted in favour of N Chandrasekaran's third term.
Responding to that, a Tata Trusts spokesperson said: 'While it is reported in the media that Mr. Venu Srinivasan and Mr. Vijay Singh have filed complaint against SDTT with the Ld. Charity Commissioner, SDTT has not been served with a copy of any complaint filed by them.'
He added that if the media reports regarding this is correct, then the assertions as reported in the media are denied in their entirety as untenable.
Following the complaints, Tata Trusts filed caveats before the Maharashtra charity commissioner so that it could get a hearing before a decision is taken in this case.
