Cyrus Mistry ouster: Tata Trusts has powers to remove Tata Sons chairman2 min read . Updated: 26 Oct 2016, 02:56 AM IST
Tata Trusts gave itself special powers in nominating, approving and removing chairmen of Tata Sons in late 2012months before Cyrus Mistry took the top job
Mumbai: A reading of Tata Sons Ltd’s articles of association shows that Tata Trusts, its largest shareholder, gave itself special powers in nominating, approving and removing chairmen of the group holding company—just days before Cyrus Mistry took the top job in December 2012.
While the reasons for Mistry’s abrupt removal on Monday remain unclear, there is no doubt that the board of Tata Sons had the power to remove him.
Tata Trusts, which consists of a clutch of trusts such as the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust, owns two-thirds of Tata Sons, and has special rights in the holding company of the conglomerate, especially when it comes to the appointment and removal of chairmen, according to Tata Sons articles of association.
According to article 104B, as long as Tata Trusts has at least 40% shareholding, it can nominate one-third of the directors of the Tata Sons board. The quorum for a meeting of the Tata Sons board “shall include a majority of the directors who are appointed pursuant to Article 104B".
The Articles also say that the selection committee will consist of three people “nominated jointly by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust who may or may not be directors of the company", one person nominated by and among the board of directors and an independent outsider selected by the board.
More importantly, a majority of the directors nominated by the Trusts have to approve with affirmative voting the appointment and removal of chairmen. Affirmative vote items are those where, in the absence of participation by the concerned directors, the company cannot undertake an action.
Some of these special powers seem to have been added to the articles of association at the time of Mistry’s appointment as chairman and after that. To be sure, these may have also been added to protect the interests of Tata Trusts. Mistry’s appointment as chairman of Tata Sons was only the second time the trusts and the holding company had different chairmen—Ratan Tata and Mistry, respectively. The first instance was when J.R.D. Tata was the chairman of the Tata Trusts and Ratan Tata was chairman of Tata Sons for a few years in the 1990s.
The article relating to the selection process of chairman and the constitution of the selection committee was added by a special resolution passed at an extraordinary general meeting (EGM) held on 6 December 2012. The article relating to affirmative votes of a majority of directors nominated by the Trusts was passed at an EGM on 9 April 2014. Perhaps, because of these, a prominent Mumbai-based corporate lawyer said, on condition of anonymity, that it would not be advisable for Mistry to take the legal route.