The Tata Sons board voted 4-1 to reappoint N Chandrasekaran as executive chairman. Yet, buried inside that emphatic majority was a tie that could determine whether the resolution was valid at all.
The tie was between the two Tata Trusts nominees on the board. Venu Srinivasan voted for Chandrasekaran’s reappointment; Noel Tata voted against it.
Four of the five participating directors thus supported the proposal — but the Trust nominees split 1-1. That split has produced the central legal puzzle in the escalating dispute between Tata Trusts and Tata Sons: can a resolution pass with a clear board majority when the two Trust nominees disagree?
Two of India’s most celebrated lawyers have offered diametrically opposite answers.
Abhishek Manu Singhvi, who is advising Tata Trusts, has invoked the Supreme Court’s 2021 verdict in the Cyrus Mistry case to argue that it recognised the Trusts’ primacy in its relationship with Tata Sons.
Harish Salve, who has acknowledged advising Tata Sons and Chandrasekaran, has warned that a global institution cannot be run by “three trustees”. His emphasis is on the authority of the Tata Sons board and the need for an enterprise of its size to be managed to professional, contemporary corporate standards.
But if the dispute reaches court, the judges will face a question substantially different from the one the Supreme Court decided in the Mistry case. That case was about whether the Tata Trusts nominees could possess special affirmative voting rights. The present dispute is about what happens when the two people possessing those rights vote differently. The answer turns on Article 121 of the Tata Sons Articles of Association.
Tata Trusts, which collectively owns about 66% of Tata Sons, has the right to nominate directors to the company’s board. Article 121 provides that matters approved by a majority of the Tata Sons directors must also receive the affirmative vote of a majority of the Trust-nominated directors.
Tata Trusts says this creates two separate tests. A resolution must first obtain a majority on the full board. It must then receive the required affirmative support among the Trust nominees. Chandrasekaran’s reappointment cleared the first test by 4-1. According to the Trusts, it failed the second, because Srinivasan and Noel Tata divided evenly.
The Trusts’ arithmetic is simple: a majority of two is two, not one. Since one of the two nominees voted against the resolution, the mandatory affirmative support was absent — and the overall 4-1 result, on this reading, cannot cure that failure.
Tata Sons’ announcement that the reappointment had been approved reflects the contrary position: the support of one Trust nominee, together with an overwhelming majority of the participating board, was sufficient.
This is not a conventional tie that can be settled by giving one person an additional vote. There was no equality of votes on the Tata Sons board; the 1-1 division occurred inside the smaller category created by Article 121 — the Trust-nominated directors. That is why the debate over a casting vote may be important, but the real issue is whether Article 121 demands concurrence between both Trust nominees when there are only two of them.
Singhvi’s argument draws strength from the history of the Mistry litigation. In that case, Tata Sons itself defended the affirmative voting provisions when the Mistry side sought to have them removed or restricted as oppressive to minority shareholders. The Supreme Court accepted Tata Sons’ position and reversed the National Company Law Appellate Tribunal’s finding against the special provisions, recognising that the Trust nominees carried responsibilities not only to Tata Sons but also to the charitable trusts and their beneficiaries.
The Trusts now argues that Tata Sons cannot defend these rights before the Supreme Court when they are under attack and disregard them when their exercise blocks a board proposal. The Articles, they say, cannot be binding only when convenient.
But the 2021 judgment does not automatically settle the present controversy. It upheld the validity of the affirmative rights; it did not explain how a majority should be calculated when there are two nominees and they split 1-1.
Salve’s argument highlights the practical consequences of the Trusts’ interpretation. If both nominees must agree, either can block a proposal even when the other nominee and every remaining director support it. A protection intended for Tata Trusts as an institution could effectively become a veto exercised by one individual.
The Trusts’ answer is that this is not paralysis but the company’s constitution operating as intended. If Article 121 requires a particular level of affirmative support and that support is not forthcoming, the proposal fails. A board majority cannot override a separate condition written into the Articles.
A court may, therefore, have to decide whether Article 121 creates a collective right exercisable only when both nominees concur, or whether one affirmative nominee vote suffices when the resolution also commands a clear majority of the full board. It may also have to examine the purpose and historical working of the provision. Singhvi has said that unanimity among the nominees and the veto provisions have operated for decades. Salve’s position raises the counter-question: is that interpretation still compatible with the effective governance of a global corporate institution?
Neither “primacy” nor “professional management” answers the legal question by itself. The Trusts’ controlling shareholding does not automatically give it supremacy over every decision. But concerns about boardroom efficiency cannot displace an express requirement in Tata Sons’ binding Articles.
The irony is that Article 121 was meant to ensure that Tata Trusts spoke decisively in the governance of Tata Sons. The crisis has arisen because its two voices spoke differently.
The Mistry judgment decided whether the Trust nominees could have affirmative rights. If the new dispute reaches the courts, the judges may have to decide who breaks the tie when those nominees disagree.