Inside the boardroom drama rocking India’s Tata empire

A Tata Trust board dispute has rocked India’s corporate world – and its ripples have reached Delhi.

Tata Trusts is the charitable trust that controls 66% of Tata Sons – the holding company for the 26-company Tata Group which has a combined market capitalization of $368 billion.

On Tuesday evening, television channels in India broadcast footage of Noel Tata, Chairman of Tata Trust, meeting with Home Minister Amit Shah at his residence.

local Media reports Finance Minister Nirmala Sitharaman, Tata Sons chairman N Chandrasekaran, secretaries Darius Khambatta and Venu Srinivasan were also present in the meeting, he said.

While Tata Sons and Tata Trusts have not issued any official statement on what happened at the minister’s residence, it is widely said that there is a power tussle. Brewing within one of India’s most powerful business empires.

The Tata Group, which also owns iconic brands including Taj Hotels, Jaguar Land Rover and Tetley Tea, is not just a business powerhouse. It also actively supports several government investment directives – most recently an $11 billion investment in India settingThe first semiconductor manufacturing unit.

In addition, he is a Crucial part Many of the country’s supply chains — it makes Apple’s iPhones in India, for example — employ more than a million people.

Tata logo in Mumbai, India.

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So, when Tata Trusts’ board meets later on Friday for the first time since reports of an internal power struggle first emerged, many investors – and the government – will be hoping for a resolution of the board battle.

“One hopes that the trustees will see that the basic philosophy and glide path for the Tata funds is to continue their philanthropic efforts and allow Tata Sons to contribute financially to these efforts,” said Shriram Subramanian, founder of corporate governance research and proxy advisory firm InGovern Research Services.

CNBC has contacted Tata Sons, Tata Trust and India’s Ministry of Finance for comment but has not yet heard back.

Trustees ‘feel their powers have been curtailed’

At the heart of the current dispute, according to a source, is the fact that Tata Sons is supposed to obtain prior approval from the Tata Trusts for any major financial investments. The source says that this approval is not required.

“There is a clause that stipulates that any investment made by Tata Sons of more than INR 100 crore ($11 million) requires approval from the Tata trustees,” an industry source, speaking on condition of anonymity due to the sensitive nature of the topic, told CNBC. “This has not been the case for several years, and some trustees feel their powers have been curtailed.”

This rising discontent It is said The crisis came to a head last month, when four Tata Trust trustees, including Mohli Mistry, opposed the reappointment of trustee Vijay Singh to the Tata Sons board.

Tata Trusts has three seats on the board of Tata Sons.

After Singh’s ouster, the other two members of the Tata Sons board opposed Mistry’s appointment to the third seat, according to an industry source.

“As the dominant shareholder, Tata Trusts has the right to nominate two directors to the Tata Sons board, as one seat currently remains vacant,” Hetal Dalal, head of Mumbai-based India Institutional Investor Advisory Services, which monitors corporate governance and ESG issues, told CNBC.

Not the first time

There is also concern about the extent of influence the fund seeks to exert over Tata Sons’ capital allocation decisions, according to Dalal. “While such decisions fall squarely under the purview of the Tata Sons board, the imbalance between the board and its major shareholder (Tata Trust) does not bode well.”

This is the second time in less than a decade that India’s oldest conglomerate has witnessed a power battle related to Tata Trust’s influence over Tata Sons.

The last time was when Tata Sons chairman Cyrus Mistry was unceremoniously removed from his position in 2016, and was replaced by Ratan Tata, the then chairman of Tata Trusts, to also serve as interim chairman of Tata Sons.

Ratan Tata (centre) and Cyrus Mistry (right) meet with then Commerce and Industry Minister Anand Sharma (left) in 2011.

Hindustan Times | Hindustan Times | Getty Images

Days after his dismissal, Mistry shared a five-page letter with… Mediaalleging that he had become a “lame duck” chairman due to the constant interference of Tata Trusts in the business decisions of Tata Sons.

Tata Sons followed this with Equally detailed A press release accuses Mistry of managing the business poorly and even trying to usurp control of the operating companies.

Both sides of the argument denied the other’s allegations.

It has now been a year since Ratan Tata’s death and three years since Cyrus Mistry died in a car accident, but the controversy over the influence of Tata Trusts over Tata Sons has not stopped yet.

“The group must establish a formal mechanism governing information exchange, board nominations, and the role of trust funds in influencing capital allocation,” Dalal said.

Exit

Another way the issue might be resolved is if the Reserve Bank of India enforces its mandate, which requires Tata Sons to list publicly under its scope-based regulatory framework introduced in 2022.

Tata Sons was required to list by September 30, but the company was given a shot Temporary respite By the central bank.

The listing of Tata Sons will deepen the red lines between Tata Trusts and Tata Sons, an industry source told CNBC, adding that after Tata Sons goes public, he will run the entire company and Tata Trusts will be reduced to “mere shareholder.”

Under the current structure, the chairman of Tata Sons serves as chairman of all Tata Group companies, while the chairman of Tata Trusts, which holds a 66% stake in Tata Sons, can exercise control over the affairs of Tata Sons, including selecting the chairman, the source said.

“I don’t think the group wants to list Tata Sons, but they will need to find a way to provide an exit for the SP group,” Dalal said.

The Shapoorji Pallonji Group or SP Group has a stake of just over 18% in Tata Sons, making it its largest private investor. The group is owned by the family of the late Cyrus Mistry and is headed by his brother Shapoor Mistry.

The ties between the Shapoorji Pallonji Group and Tatas run deep, not only on a business level but also on a personal level.

Mohli Mistry is Cyrus Mistry’s cousin, but he supported Ratan Tata during Cyrus’ removal as Chairman of Tata Sons. Meanwhile, Noel Tata, the current chairman of Tata Trust, is married into the Pallonji Mistry family, which owns SP Group.

The SP group was seeking to exit Tata Sons, but was unable to do so due to the illiquid nature of its shares.

“They want to sell their stakes in Tata Sons to settle their indebtedness,” said Ajay Ruti, founder of regulatory consulting firm TaxCompass, referring to ongoing debt concerns at SP Group.

Its investments in Tata Sons are large and could run into billions of dollars. Finding a buyer if it is listed will be easier, due to better liquidity.

SP Group’s exit will come as a relief to Tata Sons after relations between the two companies soured due to Cyrus Mistry’s sudden sacking.

Tata’s concern is that selling the 18% stake could leave Tata Sons vulnerable to takeover attempts, increasing its reluctance to list, TaxCompass’s Ruti said.