Internal dispute has also affected Tata Sons' leadership
MUMBAI: Weeks after Reserve Bank of India directed Tata Sons to comply with upper-layer NBFC-CIC norms, Tata Trusts chairman Noel Tata has proposed merging two subsidiaries, Tata Electronics Systems (TES) and Tata Consulting Engineers (TCE), with the 109-year-old holding company to take it outside the RBI's regulatory ambit and avoid a public listing. The proposal comes barely 11 days after the Tata Sons board expressed its preference for a listing to comply with RBI's upper-layer regulations for a core investment company (CIC) or non-banking financial company (NBFC). At the board meeting, Noel representing the majority shareholders had opposed a listing, arguing that alternative options should be explored. Noel's present plan marks a departure from past restructuring moves, such as the demerger of TCS in 2004 into a separate entity. It would also shut the door on minority shareholder Shapoorji Pallonji Group's hopes of monetising its Tata Sons stake through an IPO. Noel has submitted the proposal to Tata Sons and RBI; their stance on the plan was not immediately clear. F N Subedar, adviser to Tata Trusts and former Tata Sons company secretary, described the plan as a return to Tata Sons' historic structure. Tata Sons had housed operating businesses such as TCS alongside being the group's holding company in the past, Subedar said. Tata Sons assumed NBFC-CIC status only after TCS was demerged. Binoy Parikh, partner at Katalyst Advisors, said the proposal may not permanently resolve Tata Sons' regulatory status. If Tata Sons were to later list Tata Electronics Systems or Tata Consulting Engineers, or induct external investors into either business, it could be forced to demerge them. That could reduce operating revenues and potentially push Tata Sons back into the NBFC-CIC category, reviving the listing obligation. "The structure is essentially a toggle that can be switched on and off depending on the regulatory outcome sought at a given point," he said. The proposal marks the group's second attempt to avoid a listing. In 2024, Tata Sons sought to exit RBI's upper-layer NBFC-CIC rules after substantially reducing debt. Earlier this month, the regulator rejected the request for deregistration and directed the company to comply with its norms. RBI's principal business criteria for an NBFC require financial assets and financial income to account for more than 50% of a company's total assets and income respectively. The proposed merger would tilt Tata Sons' income mix towards operating revenue, causing it to fail one of the two tests and thus fall outside the NBFC framework, according to a restructuring expert. The transaction could also take Tata Sons outside the definition of a Core Investment Company (CIC), which requires at least 90% of net assets to comprise investments in group companies. Tata Sons' net assets are Rs 2 lakh crore. With operating assets from the merged entities coming onto its balance sheet, investments would fall below the 90% threshold, the expert said. According to Tata Trusts, the merged entity would have had an operating revenue of Rs 1.05 lakh crore as of March 31, 2026, far in excess of its income of Rs 40,072 crore from financial assets. Operating revenue would constitute 64% of the total income of the merged entity. Subedar said the latest proposal is significantly different from Tata Sons' earlier attempt to exit the RBI's regulatory framework. "Earlier, we said we would remain a CIC. Now we are saying we would be neither an NBFC nor a CIC. That is the change," he said. Noel did not require fresh approval from the Tata Trusts boards to pursue the proposal, Subedar said. He was acting on a unanimous July 2025 resolution directing that all efforts be made to preserve Tata Sons' status as an unlisted private company. People familiar with the matter, however, disputed that interpretation. They said the July 2025 resolution cannot be automatically carried forward because the trustees' positions have since diverged, with the Trusts' two vice-chairmen backing a public listing of Tata Sons. They also said that when the resolution was passed, RBI had not yet ruled on Tata Sons' March 2024 application seeking an exit from the NBFC-CIC framework, materially altering the circumstances under which the mandate was given. The scheme would require RBI's no-objection certificate before it is placed before the National Company Law Tribunal (NCLT) for approval. It would also need shareholder approval, including the backing of at least 75% of votes cast.
