Tata companies face a tough call on Chandra vote at AGM

Tata operating companies, which will have to vote at the upcoming annual general meeting (AGM) of Tata Sons, are wary of being forced to take sides in the increasingly public differences between Tata Trusts chairman Noel Tata and the holding company’s board, over N Chandrasekaran’s reappointment as a Tata Sons director.

The likes of Tata Motors, Tata Steel, Indian Hotels Company, Tata Consumer Products, Tata Power and Tata Chemicals face a difficult choice — vote and risk being seen as backing one side, or abstain from a dispute that could otherwise have wider implications for the group.

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About 10 operating companies collectively own 12.86% in Tata Sons, making their votes significant in a complex shareholder arithmetic.

Chandrasekaran, who joined the board of Tata Sons in October 2016 before being elevated as chairman in January 2017, requires reappointment as director. His role as executive chairman of Tata Sons is legally contingent on him retaining his board position.

The Tata Sons board passed a resolution on September 17, reappointing Chandrasekaran as executive chairman for another five years, after his current term ends officially in February next year.

Noel Tata has opposed Chandrasekaran’s reappointment.

Tata Trusts has a majority stake in Tata Sons.

“It is unfair that the operating companies are being dragged into a matter that essentially concerns the Trusts and Tata Sons. This is a situation that could have ramifications for everyone involved, for a long time,” said an official close to the matter.

The group’s intricate crossholding structure means several operating companies and shareholder interests could form part of the voting arithmetic, potentially pulling them into a governance dispute they would prefer to avoid.

“It’s a very complex matter, and I feel companies could also consider abstaining from the vote if their decision is ultimately going to be viewed as a perception game,” said the founder of a large consulting firm.

The companies must ultimately act in their own business and shareholder interests. A vote for or against Chandrasekaran’s reappointment could, therefore, be interpreted as a broader position on the relationship between Tata Trusts and Tata Sons.

“There will be one shareholder, one vote, but there is no clarity on how that vote will be perceived. Any decision could be seen as taking sides in the dispute,” said Uday Ved, partner at KNAV, a tax and advisory firm. “At the same time, the company has to keep its own interests, growth and shareholders in mind and remain accountable to its own board and stakeholders.”

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For the companies, the issue is also about precedent. Taking a position could establish expectations about how operating companies should respond to future differences between Tata Trusts and Tata Sons.

Their preference is understood to be for the matter to be resolved within Tata Sons’ governance framework, rather than requiring individual companies to choose sides.

“It would be quite embarrassing for companies to be seen taking sides here—supporting one side at the risk of upsetting the other. Some companies may, therefore, even consider abstaining from the vote,” said another highly placed executive.

Tata Sons has received a three-month extension from the Registrar of Companies to hold its annual general meeting, after the one on August 18 was deferred for want of a quorum.

That meeting could not be held as the Maharashtra Charity Commissioner did not lift restrictions on Sir Ratan Tata Trust (SRTT), one of the two principal trusts that together own a majority stake in Tata Sons, to hold meetings or make decisions.

As a result, a jointly appointed nominee of SRTT and Sir Dorabji Tata Trust (SDTT) could not take part, resulting in the lack of quorum.

Tata Sons can also explore ways to convene its delayed AGM at the earliest, including whether to approach the National Company Law Tribunal (NCLT) to allow the meeting to proceed despite the unresolved issue over representation of the Tata Trusts.

Under Section 97(1) of the Companies Act, NCLT has the power to direct that an AGM be held and can, in doing so, override the company’s normal quorum requirements.

Such a move could allow Tata Sons to proceed without the participation of the SRTT-SDTT nominee at the AGM.