Questions over Ratan Tata's estate as charity commissioner highlights share transfer conditions

Mumbai: A question mark conservatively worth more than Rs 10,000 crore has emerged over the estate of Ratan Naval Tata (RNT), the long-serving erstwhile chairman of Tata Sons, as a recent ruling by Maharashtra charity commissioner has served to highlight a crucial condition under which his father Naval Hormusji Tata had acquired the shares originally — that he and his sons would only bequeath the shares down the family lineage or return them to the Navajbai Ratan Tata Trust (NRTT).

In his ruling dated September 2, Maharashtra charity commissioner Amogh Kaloti empowered trustees of NRTT “to take appropriate steps, if it is found that late Ratan N Tata has bequeathed his shares equally to some other charitable institutions in breach of the conditions attached to the transfer of shares and the express undertaking by Naval H Tata that his children would transfer or bequeath the shares to their own relatives and not to a third party.”

The ruling brings to focus shares amounting to 0.83% equity stake in Tata Sons that Ratan Tata had bequeathed equally to two charities structured to remain independent of Tata Trusts — Ratan Tata Endowment Trust and Ratan Tata Endowment Fund.

The cumulative value of the publicly traded holdings of Tata Sons alone exceed Rs 12 lakh crore, making a 0.83% equity stake worth more than Rs 10,000 crore. Public holdings are only a part of the Tata empire, which also own a number of privately held companies, making a valuation of the group a complex exercise.

The charity commissioner’s ruling, based on the submissions of documents by Tata Trusts of deliberations and transactions dating back to 1989, found that the sale of shares by NRTT to Naval Tata was on the condition that those shares would remain within the Tata family. These conditions were based on a legal opinion by eminent jurist Nani Palkhivala, who said three conditions should be imposed to avoid the transaction from being challenged later.

“(a) Naval H Tata will not alienate the shares to any party during his lifetime. If he wants to dispose of the shares at any time, he will resell them to the Trust or to a person nominated by the Trust;

(b) Naval H Tata will not bequeath, by his Will, the shares to anyone other than his own wife and children. He will have no right to bequeath the shares to any other party;

(c) even when Naval H Tata bequeaths the shares to his own wife or children, it should be on condition that they would again transfer or bequeath the shares only to similar relatives of their own and not to a third party”

He also laid down the benefits of imposing these restrictions:

“If the above conditions are imposed, the benefits would be as follows: (i) The price of the shares transferred cannot be questioned since the shares would not be unconditionally transferred; (ii) It would have the further advantage that some shares of Tata Sons Limited would remain in the Tata family. This would be a very laudable objective which would be taken into account by any court of law in the event of the transfer being challenged by any party.”

Following the charity commissioner’s order, the NRTT trustees may therefore take up the matter with the executors of Ratan Tata’s Will and seek to enforce the conditions attached to the original transfer of the shares, officials close to the matter said.

The trustees of NRTT include Noel Tata, Venu Srinivasan, Vijay Singh and JN Mistry.

Naval Tata’s Will and codicil are understood to specifically provide that these conditions would continue to bind the family and be adhered to in any subsequent transfer or bequest of the shares.

Against this backdrop, Ratan Tata’s bequest of the shares to the two entities — Ratan Tata Endowment Trust (RTET) and Ratan Tata Endowment Foundation (RTEF) — appears to be at variance with the conditions under which the shares were originally transferred by NRTT to Naval Tata.

This has resulted in an apparent conflict between the provisions of Naval Tata’s Will and those of Ratan Tata’s Will, people familiar with the matter said.

Given that the issue concerns a family arrangement and the interpretation of the respective Wills, the matter is expected to be addressed through discussions and deliberations among the concerned parties rather than through a legal route, they added.

Tata Trusts did not comment.

Ratan Tata had named Darius Khambata, Mehli Mistry, Shireen Jejeebhoy and Deanna Jejeebhoy as executors of his Will. Shireen and Deanna Jejeebhoy are children from their mother Soonoo’s second marriage to Sir Jamsetjee Jejeebhoy.

Ruchi Khatlawala, partner at Little & Co, said the charity commissioner’s order is significant because it recognises that the 1989 transfer of the Tata Sons shares to Naval H Tata was not an unconditional transfer. The order records that Naval Tata expressly accepted these conditions and that they are binding on him and his family.

“The charity commissioner has not held that Ratan Tata’s bequest is invalid. Rather, the order expressly leaves it open to the trustees of NRTT to take appropriate steps if it is found that the bequest of the shares to charitable institutions was contrary to the conditions attached to the original transfer and Naval Tata’s undertaking that the shares would remain within the Tata family,” said Khatlawala. “The ultimate enforceability of such a restriction would therefore depend upon the precise terms of the original transfer, the nature and legal effect of Naval Tata’s undertaking, the Articles governing the shares, and the applicable law relating to restraints on alienation and testamentary dispositions,” she added.

“If both the father and son are deceased, the executors of their respective Wills do not acquire a power to rewrite, amend, or disregard the terms of those Wills,” said Khatlawala. “An executor is responsible for administering the estate in accordance with the Will and applicable law; the executor cannot simply substitute his or her own intention for that of the testator,” she added.

A lawyer who drafted the Will for Ratan Tata said, “Will is a Will and cannot be challenged. No one can contest that Ratan Tata transferred his shares into his personal trust for the sake of charity purposes only, it has not been sent to an outside entity or person. He is also understood to have taken a legal opinion from Tata Sons then if it was permissible under the AoA and had received a go-ahead.”

Dimple Merchant, managing partner of law firm IV Merchant & Co, said “a father’s Will can be superseded by his son’s Will only if the father has absolutely bequeathed his entire right, title and interest in the property to the son, vesting full ownership in him upon inheritance.

NRTT is part of the family of trusts that comprise Tata Trusts, and is named after Navajbai, the wife of Sir Ratan Tata, the younger son of Tata group founder Jamsetji. The couple adopted Naval Tata, a member of the extended Tata clan.