Noel Tata Seeks Board Votes on Tata Sons Restructuring and Rs 25,000 Crore SP Group Payout

Two proposals put Tata Sons' structure and cash in focus

Noel Tata has asked the Tata Sons board to vote on two proposals at its November 26 meeting: merging operating businesses into the holding company to address Reserve Bank of India requirements, and paying minority shareholder Shapoorji Pallonji Group Rs 25,000 crore through the cancellation of some of its shares.

The Tata Trusts chairman set out the requests in two letters dated October 29, addressed to Tata Sons Company Secretary Suprakash Mukhopadhyay and copied to all directors. Each letter contains a draft resolution. Tata said he would make presentations on both proposals.

The restructuring follows the RBI's September 11 rejection of Tata Sons' request to voluntarily surrender its Certificate of Registration. The central bank instead directed the company to comply with requirements applicable to non-banking financial companies in its Upper Layer category, including the listing requirement at the heart of the dispute over Tata Sons' regulatory status.

The proposed SP Group payment addresses a separate issue: how the minority shareholder could turn part of its investment into cash. Rs 25,000 crore is equivalent to Rs 250 billion. The draft calls for payment in two or more instalments over 18 months, without fresh borrowing or access to public funds.

Neither proposal has board approval. Together, they would require decisions about Tata Sons' business structure, the use of its investments and cash, and the terms on which SP Group shareholders would surrender shares and settle claims.

How the proposals reached the board

The correspondence follows several steps during September and October. The regulatory proposal came from Sir Dorabji Tata Trust and Sir Ratan Tata Trust, while the SP Group request was first placed before the board by Noel Tata on September 17.

• September 11: The RBI declined Tata Sons' request to surrender its registration and directed compliance with NBFC Upper Layer requirements.
• September 16: Noel Tata asked management for details and information about the RBI letter and requested that the board be briefed on the available options.
• September 17: The Tata Sons board decided to consult the Trusts about the RBI letter. Noel Tata also placed the SP Group request before directors.
• September 28: The two Trusts submitted their restructuring proposal to the board.
• October 29: Noel Tata sent the two letters seeking votes on draft resolutions.
• November 26: The board meeting is scheduled to consider the proposals.

The September 28 proposal followed the board's decision to consult the Trusts. It sought a reorganisation within the regulator's current guidelines and in line with Tata Sons' existing resolution dated March 21, 2024, with the aim of the company ceasing to be both an NBFC and a CIC.

The letters bring both matters to a decision point, although a board vote would be only the first stage of the approvals needed to carry them out.

Why merge two businesses into Tata Sons?

The Trusts propose merging Tata Electronic Systems Solutions, known as TESS, and Tata Consulting Engineers, or TCE, into Tata Sons. Both are wholly owned subsidiaries.

Tata Sons holds investments in group companies. The proposed merger would also give it businesses that directly carry out commercial activities. The aim is to change the nature of the company sufficiently for it to leave the regulatory categories of non-banking financial company, or NBFC, and core investment company, or CIC.

An NBFC is a financial company regulated by the RBI rather than a conventional bank. A CIC is a category focused on holding investments in group companies. The Trusts' plan rests on moving Tata Sons beyond that investment holding role by bringing operating businesses into the company itself.

HP Ranina, a senior advocate at India's Supreme Court, described the reasoning behind this approach:

we have to reorganise ourselves and we cease to be an investment company by becoming a manufacturing company or industrial company.

The merger proposal says no new Tata Sons shares would be issued because it already owns both subsidiaries outright. Its existing shareholding structure would therefore remain unchanged by that merger.

The draft would have the board consider the Trusts' September 28 proposal and management's evaluation before approving the reorganisation in principle. Tata Sons would continue as the Tata group's holding company while carrying on operating businesses, with the stated aim of no longer meeting the principal business criteria of an NBFC or the conditions applicable to a CIC. Its shares in TESS and TCE would be cancelled, leaving Tata Sons' share capital and each member's shareholding unchanged.

RBI clearance would come before the merger process

Tata Sons would first seek the RBI's clearance before taking the merger scheme through the relevant company law approval process. The draft identifies Sections 230-232 or Section 233 of the Companies Act as possible routes, depending on legal advice.

The draft specifically requires a prior no-objection certificate under the Reserve Bank of India (Non-Banking Financial Companies – Voluntary Amalgamation) Directions, 2025 and any other directions applicable to Tata Sons. The scheme could not be filed with the NCLT or the Central Government until that certificate had been received. The scheme's appointed date remains unspecified.

Those routes provide different procedures for approving company mergers. The proposal allows for an application to the National Company Law Tribunal, known as the NCLT, or the Central Government, depending on the route selected.

The scheme would be subject to approval by the boards of TESS and TCE; the RBI's no-objection; approval by the members and creditors of each company concerned, or dispensation of their meetings, as required by law; and sanction by the NCLT's Mumbai Bench or confirmation by the Central Government through the Regional Director, depending on the route selected. It would also require other applicable approvals, consents and permissions, including those from the Registrar of Companies, income-tax authorities, and TESS and TCE's counterparties and lenders.

Once the merger takes effect, Tata Sons would apply to surrender its CIC registration and take the steps needed to leave its NBFC classification. Regulatory acceptance is therefore central to the plan, alongside approval of the merger itself.

The draft would authorise two people, one whose name remains blank and the other Suprakash Mukhopadhyay, to act severally in consultation with representatives of the Tata Trusts as shareholders. They would appoint legal, tax, accounting and other advisers; prepare the scheme, pro forma financial statements of the amalgamated company and the RBI application; engage with the regulator; and carry out related steps. Both the RBI application and the scheme would have to return to the board for approval before filing.

The draft also asks management to examine a possible merger of Tata Electronics Products and Solutions into Tata Sons once TESS's holding in that business reaches 100%. If the main merger encounters difficulty, management would consider another group company or other compliant options in consultation with the Trusts.

Management would report to the board on those further options. The RBI application would have to be placed before the board within a number of days left unspecified in the draft, and progress on the amalgamation would be reported at every board meeting.

Noel Tata seeks a formal decision from directors

Noel Tata invoked Article 121B of Tata Sons' Articles of Association, the company's internal governance rules. That provision allows a director to place a matter before the board with at least 15 days' notice.

Tata is making the requests in his capacity as a director, while the restructuring proposal itself comes from the two Trusts. His letters ask directors to consider specific draft resolutions, giving the board concrete proposals on which to vote.

Ranina said Tata, as a nominee of the two Trusts, was entitled to bring forward his position:

has a right to put his point of view and to ask for certain reorganisation.

Noel Tata has also asked management to present the legal advice it has received and its assessment of the restructuring plan. That would allow directors to examine both the proposed business changes and the legal basis for seeking a different regulatory status.

Abizer Diwanji, founder of Neostrat Advisors, said the RBI had shown willingness to consider gradual routes to compliance. He described the regulator's approach in these words:

has generally been open to glide paths

A glide path means a sequence of agreed steps towards meeting regulatory requirements. Any such approach for Tata Sons would still depend on the RBI's response to the company's actual proposal.

How the Rs 25,000 crore payment would work

The SP Group proposal would use a selective capital reduction. In simple terms, Tata Sons would pay selected shareholders for shares that would then be cancelled, reducing the company's share capital.

The capital-reduction draft cites Article 10 of Tata Sons' Articles of Association, Section 66 of the Companies Act, 2013 and the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016.

The draft proposes cancelling enough ordinary shares held by SP Group shareholders to deliver gross consideration of Rs 25,000 crore. The number of shares would depend on their valuation. The proposal concerns monetising part of the SP Group investment, with the size of the reduction determined by the price assigned to each share.

The number of shares to be cancelled would be rounded down to a whole number of shares.

A merchant banker or registered valuer would assess fair market value under Rule 11UA of the Income-tax Rules. The draft sets out the proposed valuation framework but leaves the valuation details and certain regulatory timelines to be finalised.

Payment would be made in two or more tranches within 18 months. Gross consideration is the stated transaction amount before any applicable deductions or taxes, so the figure describes the proposed size of the payment rather than an individually calculated net receipt.

Lenders and shareholders would also have a say

The proposed capital reduction would need a special resolution of shareholders and NCLT sanction. A special resolution requires a higher level of shareholder support than an ordinary resolution, making it an important approval stage beyond the board.

The draft also requires lenders to consent to the release of pledges on the SP Group shares involved. A pledged share is used as security for borrowing. Releasing that security requires agreement from the lender holding it before the transaction can proceed on the proposed terms.

Definitive agreements would include a full and final settlement of claims by SP Group entities against Tata Sons, its directors and shareholders. The proposed payment is therefore tied to a wider legal settlement as well as the cancellation of shares.

Farokh Subedar, senior adviser to Sir Dorabji Tata Trust, worked on the SP Group proposal at the request of Tata Sons Chairman N Chandrasekaran, according to Noel Tata's letter. Noel Tata has sought a management presentation covering valuation, payment arrangements, the capital reduction and its conditions.

Where Tata Sons could find the money

The funding plan rules out fresh borrowing and access to public funds. Instead, the draft lists four possible sources of money:

• Internal cash flows.
• Sales of part of Tata Sons' holdings in listed companies.
• Investment by outside investors in newer businesses.
• Listings of some businesses through offers for sale.

Each route would affect a different part of the group. Internal cash would be used directly for the payment. Selling listed investments would turn part of Tata Sons' existing portfolio into cash. Bringing outside investors into newer businesses would require decisions about ownership and valuation in those companies.

An offer for sale allows an existing shareholder to sell shares to investors through a listing. The proceeds go to the shareholder selling the shares. Under this proposal, that could provide money for the SP Group payment.

The two plans also involve different listing choices. The restructuring seeks a regulatory route for Tata Sons to retain its unlisted status, while the funding proposal allows listings of some businesses as a possible source of cash.

What directors must decide on November 26

The board will be asked to consider initial approval for the restructuring and the proposed terms of the SP Group capital reduction. Management's legal assessment and financial presentations would help determine the next steps for each.

The restructuring would move through RBI clearance, the relevant merger approval process and a subsequent application to surrender CIC registration. The capital reduction would require valuation work, agreements with SP Group entities, lender consent, shareholder approval and NCLT sanction.

Both draft resolutions prohibit public announcements without board approval. That gives directors control over communication as well as over the proposals themselves.

The restructuring draft also bars submission to the RBI of any other plan or commitment for compliance with its September 11 letter unless approved by the board in accordance with Tata Sons' Articles of Association.

The immediate issue is whether the board authorises work on these two routes. One would change the businesses housed directly inside Tata Sons; the other would use company resources to cancel some SP Group shares and settle claims.

Key Points

• Noel Tata has requested votes on two draft resolutions at Tata Sons' November 26 board meeting.
• The restructuring would merge TESS and TCE into Tata Sons, with no fresh share issuance.
• The plan seeks RBI clearance before the merger approval process and a later application to surrender CIC registration.
• The SP Group proposal targets gross consideration of Rs 25,000 crore through a selective capital reduction, paid in two or more instalments over 18 months.
• The payment would require valuation, lender consent, shareholder approval, NCLT sanction and settlement of claims.
• The funding plan excludes fresh borrowing and access to public funds. Neither proposal has been approved.