Tata Sons extends N Chandrasekaran’s term as chairman but a battle looms

Tata Sons said that N Chandrasekaran will be reappointed as chairman “for a further term of five years”, setting the stage for a showdown between the board and its majority shareholder.

Chandrasekaran had said last month that he would not seek reappointment when his term ended in February after the company’s board could not reach a resolution on his extension.

On Thursday, the board said in a statement that Chandrasekaran agreed to its “request to re-consider his decision” and would be reappointed after his term expired.

However, Noel Tata, chairman of Tata Trusts, which owns 66% of Tata Sons, called the reappointment “illegal”, indicating uncertainty ahead for the gigantic group.

News of Chandrasekaran’s reappointment sent shares of listed Tata companies soaring.

Tata Group, one of India’s most respected conglomerates, has a sprawling $300bn empire – it owns Air India, Jaguar Land Rover and Tata Steel and makes iPhones for Apple.

The group is uniquely structured with Tata Trusts, a charitable arm, owning 66% of parent company Tata Sons. This has given the group tax and regulatory advantages, and allows it to carry out charitable activities, but experts say that its dual non-profit and commercial objectives have sometimes led to governance issues.

Tata Trusts has three nominees on the Tata Sons board. For months, reports have said that the board members have disagreed over issues such as board nominations, funding approvals and the public listing of Tata Sons.

In Thursday’s board meeting, besides extending Chandrasekaran’s tenure, Tata Sons also agreed to comply with a recent Reserve Bank of India directive that effectively calls for a mandatory listing of the company, a move resisted by the group so far.

Earlier this week, the Reserve Bank of India had rejected the group’s application to deregister as a non-banking financial company (NBFC).

Experts say Chandra’s continued leadership would be crucial to the group going ahead with the listing process.

Noel Tata has opposed both the listing and Chandra’s continuation as chairman.

The differences within the board had come into the open with Chandrasekaran’s frank statement last month. When the proposal to extend his tenure had been brought before the board in February this year, he said one board member had not supported it.

While he deferred the decision “in the absence of unanimous support”, he said he chose to step down when there was no resolution even six months later.

Noel Tata’s statement on Thursday said that while four directors had voted in favour of reappointing Chandrasekaran, he was against it, making it “a legal nullity” as the company’s articles of association say a majority of the Trusts’ nominee directors have to back it.

“The Board, accordingly, cannot lawfully hold a meeting or pass a resolution on the Chairman’s appointment or reappointment unless both nominee directors are present, and cannot validly pass such a resolution unless both nominee directors vote in favour. Given that Mr Noel Tata, being one of the Trust nominee directors, voted against the proposal, it was rendered legally void and without any basis,” he said.

Additional reporting by Rachita Prasad