Tata Sons reviews AoA to meet Sebi listing norms

Mumbai: Tata Sons is currently assessing its Articles of Association (AoA) in preparation for a potential public listing, with the aim of aligning with Securities and Exchange Board of India (Sebi) regulations, according to executives familiar with the matter. The review seeks to address modifications related to board appointments, independent directorship, and the special rights held by Tata Trusts, which still retains its majority shareholding and voting rights.

Any changes to the AoA, which outlines the rights and duties of the company and its shareholders, would necessitate approval through a special resolution at a general meeting. The Tata Trusts, controlling approximately 66% of Tata Group's holding company, utilizes Articles 104B and 121 to maintain its influence, including board nomination rights and affirmative voting powers.

The review is a response to the Reserve Bank of India (RBI) rejecting Tata Sons' application to relinquish its registration as a core investment company. This decision necessitates compliance with regulations governing upper-layer non-banking financial companies, including a requirement to list equity shares within three years of such classification.

The proposed listing plan has revealed internal disagreements within the Tata Group regarding the future of its holding company. Tata Trusts chairman Noel Tata advocates for exploring alternatives, including restructuring Tata Sons, whereas the company's board supports compliance with the RBI framework.

Under the current Articles, the Tata Trusts can nominate up to one-third of the board, with specific decisions requiring the affirmative vote of a majority of Trusts-nominated directors. A quorum for board meetings also requires the presence of the majority of these nominees. To comply with Sebi regulations governing listed companies, the Trusts' special rights and periodic shareholder approvals would need alignment with the proposed changes.

While a listing would not automatically dilute the Trusts' majority stake, modifications to the AoA would need to meet securities regulations, including shareholder approval through a special resolution every five years. The listed Tata Sons would also have to meet board-independence requirements, meaning at least half the board must consist of independent directors if the chairman is an executive director.

The process for selecting the chairman could also be reviewed, as the existing five-member selection committee includes three Trusts-linked nominees. Board committees would need to align with listing conditions, and restrictions on share transfers might require amendments to accommodate public shareholding and stock-market trading.

The extent of the changes depends on the proposed listing structure and relevant legal requirements, executives noted. The Trusts' majority ownership would continue to exert significant influence over shareholder decisions; however, alterations to nomination rights, voting provisions, and board composition could limit how that influence is exerted at the board level. The review is in its early stages, with no final amendments approved.