Tata Sons clears changes to Articles of Association at AGM

Tata Sons unanimously passed all resolutions at its annual general meeting (AGM) on Tuesday, including the amendment of Article 118 of the Articles of Association as part of ensuring that the same person doesn't head the holding company of the group as well as its biggest stakeholder. The amended article stipulates that the appointment of a person as the chairman of Tata Sons requires the affirmative vote of all directors appointed pursuant to Article 104B and a selection committee shall be constituted to recommend both the appointment and the removal of the incumbent chairman.

ET had reported August 12 that the Tata Trusts - the largest stakeholders in Tata Sons - are consulting legal experts to examine the possibility of including a clause in the trust deeds to the effect that the same person cannot head them as well as holding company Tata Sons, while honouring the wills of the founders.

Following the amendment, the chairman of the committee will be selected by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust - the biggest of the Tata Trusts - from among nominees picked by the trusts. The quorum for a meeting of the selection committee shall be nominated jointly by the Sir Dorabji Tata Trust and the Sir Ratan Trust.


'Aimed at Improving Corp Governance Norms'
A resolution was also passed that a person who is the chairman of either the Sir Dorabji Tata Trust or the Sir Ratan Tata Trust or of both will not concurrently be eligible to be the chairman of Tata Sons. The selection committee would have three persons nominated jointly by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust and one person nominated from the board of Tata Sons and an independent director.

"Tata Group has been known for its high standards of corporate governance. The introduction of a formal rule barring the head of the Tata Trusts to also act as the chairman of Tata Sons is another step in this direction," said Sudip Mahapatra, partner at S&R Associate. "While legally the chairman of a board has a limited role, it will add another layer of checks and balances from a governance perspective in the long run."

Tata Sons did not comment.

The Tata Trusts, which hold a 66% stake in Tata Sons, are seen as exercising their dominance as shareholders to ensure that no one has unbridled authority, insiders said.

Splitting the position of the chairman of Tata Sons and the Tata Trusts between two different individuals is aimed at improving corporate governance norms and also for succession planning, said Ketan Mukhija, partner of law firm Link Legal.

"The Tata-Mistry dispute did expose the dominant position occupied by the promoters, that is, Tata Trusts, and created some sort of disrepute concerning the corporate governance norms within the Tata Group," said Mukhija. "This amendment would ensure that one person does not dominate the group, and that the group can function in a professional manner."

Minority shareholder Shapoorji Pallonji Group's demand for a higher dividend also came up at the AGM, although it wasn't clear how the query was resolved. The group however praised the performance of several group companies and commented on the challenges and potential of Air India and Tata Digital, sources said. The SP Group had said the dividend of 2.5% for fiscal 2022 is meagre against the industry norm of over 25%. Tata Sons posted a 164% rise in net profit at Rs 17,171 crore for the year.

Shareholders largely also approved the reappointment of Ajay Piramal, chairman of Piramal Enterprises, as an independent director for the third time on the board of Tata Sons, as well as the reappointment of Venu Srinivasan, the Tata Trusts nominee on the board. The SP Group, however, voted against the reappointment of Piramal and Srinivasan and abstained from voting on the reappointment of investment specialist Anita George as independent director.

The SP Group's Cyrus Investments and Sterling Investment Corp. holds an 18.4% stake in Tata Sons, some part of which has been pledged. Insiders said the holding company will be keen to reinvest profits in growth businesses.