Tata Sons, the holding company of Tata Group, one of the largest business houses of the country, has taken a big turn in the matter of listing in the stock market. The board of Tata Sons has sought a legal opinion on the restructuring proposal sent by Tata Trusts. According to sources, the board is currently in no mood to hold any formal meeting to consider the proposal. The whole reshuffle is aimed at keeping Tata Sons out of the ambit of compulsory listing i.e. IPO.

The real reason for seeking a legal opinion

The board of Tata Sons believes that this proposal of Tata Trust cannot yet be considered as a formal decision of the shareholders. The main reason is that the proposal has not been passed by any formal resolution and signed by the two major shareholder trusts – Sir Ratan Tata Trust (SRTT) and Sir Dorabji Tata Trust (SDTT).

The Reserve Bank of India (RBI) has issued a strict directive to Tata Sons to comply with ‘upper layer’ non-banking finance company (NBFC) norms. Under these rules it has become necessary to list the company in the stock market. The holding company has started preparations to comply with this RBI instruction. An expert privy to the matter said that any alternative proposal from shareholders does not automatically change the RBI’s decision. The regulator itself will independently examine whether the proposed restructuring meets its conditions.

Merger of two companies, formula to stop listing

Tata Trusts has prepared a special plan to keep Tata Sons as an unlisted private company. The trusts have suggested to the board that the group’s two operating companies—Tata Electronics Systems Solutions and Tata Consulting Engineers—be merged into Tata Sons.

The trusts argue that the restructuring will help Tata Sons generate adequate operating income. With this the company will come out of the core business scope of NBFC. In addition, its investment in other companies of the group will also be reduced, thereby not falling within the definition of a core investment company. Let us tell you that Tata Trust owns 66 percent stake in Tata Sons. Of this, SDTT and SRTT alone account for a major share of 51.54 percent.

View of Trust, Rule 121A

A senior executive close to Tata Trust chairman Noel Tata has expressed his opinion on the whole matter. He says that the proposal has been put before Tata Sons only as an option, so that the company can evaluate it and modify it if necessary.

According to the source, in the last board meeting, Tata Sons itself sought Tata Trust’s help to find ways to comply with RBI instructions. This proposal was prepared in this context. The official also clarified that in order to comply with the rules or make any change in shareholding under Section 121A of the Articles of Association, the approval of the shareholders would be required. Therefore, the Trusts suggested this other way to avoid listing. This proposal has also been sent to RBI.