RBI files caveat in Bombay High Court after rejecting Tata Sons' deregistration application

MUMBAI: Anticipating a legal showdown with Tata Sons, Reserve Bank of India has lodged a caveat in Bombay high court after rejecting its application for deregistration as a core investment company, a status that would have exempted it from a stock market listing. The central bank has asked to be heard before any order is passed and has served a copy of the caveat on Tata Sons, according to people familiar with the matter, reports Reeba Zachariah. The caveat and RBI's Sept 11 letter - informing Tata Sons its request for voluntary surrender of its registration certificate could not be acceded to, and that it must comply with upper-layer NBFC rules - will be taken up at the company's board meeting on Thursday. "These two items, along with other matters, are part of the board agenda," said people in the know.

Tata Trusts to seek reasons for rejection of application

Tata Trusts, Tata Sons’ principal shareholder, favours seeking an explanation from RBI for rejecting the application and asking it to reconsider, rather than rushing to challenge the decision. RBI’s Sept 11 letter did not spell out its reasons for the rejection. Tata Trusts chairman and Tata Sons director Noel Tata is expected to convey this to the board. RBI’s action is not unusual. Regulators including Securities and Exchange Board of India (Sebi) and Insurance Regulatory and Development Authority of India (Irdai) often file caveats in high-stakes matters to ensure they are heard before courts pass interim orders against them. Legal experts said courts generally do not pass interim orders in regulatory matters without hearing the regulator’s side. “The RBI’s preemptive action of filing a caveat indicates its position in the Tata Sons matter,” said a lawyer familiar with such proceedings. Apart from RBI-related matters, the board agenda includes an update from the company’s nomination and remuneration committee (NRC). People said the update could address Sir Dorabji Tata Trust’s letter calling for a selection committee to be formed, under Tata Sons’ Articles of Association, to recommend a new chairman after incumbent N Chandrasekaran said he would step down at the end of his five-year term in Feb 2027. Or, given the fluid situation, the NRC could instead recommend that Chandrasekaran continue. Tata Trusts had unanimously resolved last year to recommend extending Chandrasekaran’s term by another five years. But when the recommendation reached the Tata Sons board on February 24, it did not receive unanimous backing — Noel Tata did not support it. Excluding Chandrasekaran, Noel Tata and Tata Sons executive director and chief financial officer Saurabh Agrawal, the rest of the board sits on the NRC, namely Tata Trusts vice-chairman Venu Srinivasan and independent directors Anita George and Harish Manwani. The chairman selection process faces a procedural hurdle, though. The Sir Ratan Tata Trust (SRTT), the other key shareholder, cannot currently hold a meeting because of a restraining order from the charity commissioner. Under Tata Sons’ articles, SDTT and SRTT must “jointly” choose three members of the five-member selection panel. The remaining two will have to be selected — one an existing Tata Sons board member, the other an outsider. SRTT had asked the Maharashtra charity commissioner to lift the restraining order but is yet to hear back. People said Tata Trusts would rather wait on the commissioner’s office than challenge its order in the Bombay High Court, a process that would take months. Their confidence stems from a recent favourable order involving the Navajbai Ratan Tata Trust, holding that its 1989 Tata Sons share transfer was lawful. Under RBI rules, upper-layer core investment companies with assets exceeding Rs 1 lakh crore, or access to public funds, directly or indirectly, are required to list. Tata Sons’ assets stood at over Rs 2 lakh crore, double the threshold. RBI’s Sept 11 decision requiring Tata Sons to comply with upper-layer NBFC rules carries far-reaching implications for the company and its shareholders, among them Tata Trusts, the Shapoorji Pallonji Group and Tata group companies.