The boardroom tussle at Tata has deepened further. Soon after the Tata Sons extended N Chandrasekaran’s term as the chairman, Tata Trusts issued a note calling it ‘illegal’. The obvious question is what happens next?
As per legal experts that Financialexpress.com spoke to, the board’s vote for the re-appointment is just a suggestion. As a result, if Chandra reconsiders seeking reappointment, it won’t be an easy task given how the board is divided.
Tata Sons’ chairman appointment: Exploring the ‘legality’ aspect
Noel Tata, Chairman of Tata Trusts, said in his statement on the September 17 meeting that the resolution to re-appoint N Chandrasekaran as Chairman of Tata Sons, is ‘illegal’. Noel Tata also mentioned that they took the opinion of DY Chandrachud which the board didn’t consider.
Legal expert Homi Ranina, however, said that there is nothing ‘legal’ or ‘illegal’ here even if Chandra and the board seek re-appointment. “The final decision lies in the hands of shareholders at the annual general meeting (AGM), which may be held by the end of December. If they reach a unanimous decision then Chandrasekaran may become the Chairman again.”
“However, this is also kind of impossible because Noel Tata, part of the Tata Trusts board nominee directors, is totally against it,” Ranina added.
Under the Articles of Association of Tata Sons, the two nominated trustee directors nominated by the trustees have to agree to the appointment of a CEO or chairman.
In this case, Venu Srinivas, another nominee director of the Tata Trusts has voted in the favour of re-appointment and listing of Tata Sons.
“So this is the legal position. Since there is no such approval, the decision of the nomination committee cannot be implemented because the Articles of Association are binding on all directors.”
“If board and shareholder remain divided. The matter closes here for Chandra as he himself said in August that he does not want to continue because there is no unanimity,” Ranina highlighted.
Tata Succession: Noel Tata’s statement and its implication
Noel Tata has said that Tata Sons Chairman N Chandrasekaran’s decision not to seek another term was “his own decision” and “It was freely taken and clearly expressed”. It had already been accepted by the company’s majority shareholder. He said the company should now move ahead with the process of selecting a successor.
Noel Tata also argues that a decision on Chandrasekaran’s reappointment as chairman is premature because his position as a Tata Sons director has not yet been settled.
“The chairmanship of this Company is an office held by a director of this Company. The Chairman’s own position as a director is presently uncertain, the general meeting at which that question falls to be determined not having been able to proceed for want of quorum. Until that question is resolved, a resolution upon the chairmanship rests upon a foundation which has not yet been laid. We cannot put the cart before the horse.”
He also warned that a decision on the chairmanship could face legal challenges if Chandrasekaran’s position as a director remained uncertain.
Former CJI DY Chandrachud’s legal opinion also supports the Tata Trusts’ interpretation of the Tata Sons Articles of Association. According to Chandrachud, Noel Tata’s dissenting vote could not be overridden by the board’s overall majority because the AoA requires the support of the Trusts’ nominee directors for appointing or reappointing the Tata Sons chairman.
What happens next
Experts believe that if a name is not decided upon in the next two months, the final decision would be the shareholders’. The annual general meeting (AGM) is scheduled to be held by the end of December. Till then it is a wait and watch situation.