Former Supreme Court judge Justice R.F. Nariman has said that a proposed protocol requiring Tata Trusts’ nominee directors on the board of Tata Sons to vote in accordance with the guidance of the trustees would be contrary to the Companies Act, 2013 and a March 26, 2021 judgment of the Supreme Court.
In a legal opinion dated April 13, 2025, Nariman examined a proposed protocol flowing from an October 17, 2024 resolution of the trustees of Sir Dorabji Tata Trust and Sir Ratan Tata Trust.
Protocol guides Trust-nominated directors’ votes
The protocol contemplated that directors nominated by the Trusts to the Tata Sons board would consult the trustees before voting on resolutions concerning certain provisions of Tata Sons’ Articles of Association. It further provided that nominee directors should vote or abstain in accordance with the guidance received from the trustees and should raise or propose matters requested by them.
Crucially, the protocol also contemplated consequences where a nominee director did not follow such guidance. In such an event, the trustees would immediately review and consider whether that director’s nomination should be withdrawn.
Nariman’s opinion finds that these requirements collide with the statutory duties imposed on directors by Section 166 of the Companies Act.
Section 166 requires a director, among other things, to act in good faith in the interests of the company and its stakeholders and to exercise his duties with due and reasonable care, skill and diligence and “independent judgment.”
Nariman’s opinion gains significance given the recent debate around Venu Srinivasan’s comments and stand regarding key Tata Sons issues like the reappointment of the holding company’s chairman N Chandrasekaran, and its future as a listed entity.
It was reported that the Trusts instructed Srinivasan regarding the stand to take, which the Tata Trusts board member, and nominee director on Tata Sons board refuted.
Nominee directors face fiduciary balancing act
People close to the Tata Trusts ecosystem maintain that the philanthropic body only raised concerns over the matter, but did not direct Srinivasan on which way to vote.
Nariman’s opinion acknowledges the inherent tension in the position of a nominee director: while such a director has been nominated by an institution whose interests he must consider, he simultaneously owes fiduciary duties to the company on whose board he serves.
Nariman relies in particular on the Supreme Court’s March 26, 2021 judgment in Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd. and Others. The passages reproduced in his opinion discuss the position of directors nominated by the Tata Trusts and the competing fiduciary responsibilities that arise from such nominations.
The distinction Nariman draws is significant. In his reading of the Supreme Court judgment, there is nothing impermissible about trustees discussing an upcoming board meeting with their nominee directors or communicating the position they would like those directors to take.
But consultation cannot be converted into a binding direction that eliminates a director’s independent judgment.
Nariman specifically addresses paragraph 19.35 of the 2021 Supreme Court judgment, which observed that when an institution is a shareholder and receives notice of a board or general meeting, it is normal for the institution to have an idea about the stand to be taken at that meeting.
According to Nariman, that observation cannot override the earlier portions of the judgment dealing with Section 166 and the fiduciary duties of directors.
He says the reference to knowing the shareholder’s position cannot be stretched to mean that a nominee director is permitted only to voice the trustees’ stand without independently considering the matter.
A nominee director can convey the trustees’ opinion, Nariman says, but must also apply his own mind to the other relevant considerations, including the fiduciary obligations he owes to the company of which he is a director.
It is against this legal test that Nariman finds the proposed protocol untenable.
Under the draft protocol, he notes, a nominee director could only vote or abstain in accordance with guidance received from the trustees and could face the possibility of removal if he failed to do so.
That requirement, according to the opinion, is inconsistent with the independent judgment demanded of directors under Section 166.
Nariman’s conclusion is categorical: “It is my opinion therefore that this Protocol would be contrary to the law, i.e. the Companies Act 2013 and the aforesaid Supreme Court Judgement dated 26 March 2021.”
The opinion therefore draws a clear legal boundary between a nominating shareholder communicating its views to its representatives and a protocol that requires those representatives to vote according to instructions. While the former is contemplated in the Supreme Court passages discussed by Nariman, his opinion is that the latter conflicts with the independent fiduciary obligations imposed on directors by company law.