Amid Ongoing Tussle, Tata Trusts Proposes 'Strategic' Plan to Merge Tata Sons With Two Other Firms

New Delhi: Tata Trusts, the majority shareholders with a 66% stake in Tata Sons Private Limited, have announced a plan for strategic reorganisation of the company to avoid losing its private status, so that it neither becomes a ‘Non-Banking Financial Company’ (NBFC) nor a ‘Core Investment Company’ (CIC), as per the Reserve Bank of India (RBI) guidelines. 

The proposed plan comes amid an ongoing tussle over the Reserve Bank of India’s (RBI) treatment of Tata Sons as an “upper-layer” NBFC, and the re-appointment of N. Chandrasekaran as executive chairman.

Tata Sons had in March 2024 applied to surrender its NBFC/CIC registration. The company’s stated position was that it would comply with all applicable laws but did not wish to remain classified as an NBFC and therefore sought de-registration to avoid the listing obligation.

However, earlier this month, that is after nearly 30 months, the RBI rejected that surrender application, forcing the company to comply with the associated listing requirement. 

Almost simultaneously, on September 17, the board of Tata Sons voted to reappoint N. Chandrasekaran as executive chairman for five years, inviting a quick response from the Tata Trusts, saying the appointment was "illegal".

In its press release issued on Monday (September 28), the Trusts stated that the reorganisation essentially entailed the merger of Tata Electronics Systems Solutions Private Limited (TESS) and Tata Consulting Engineers (TCE) with Tata Sons. 

Also read: Why the Tata Tussle Should Worry Every Majority Shareholder in India

“The proposed strategic reorganization of the business and operations of TSPL is not a new pathway,” it noted, adding that Tata Sons has, “for almost 80 years out of its 100-year existence, always had operating businesses and operating revenues, which enabled it to fund its other, newer business ventures.” 

It noted that as recently as 2004, Tata Consultancy Services was a business division of Tata Sons before it was demerged into a separate subsidiary. “This was also the case with other operating businesses of TSPL.”

“Accordingly, the proposed reorganization will result in TSPL reverting to its previous operating model, with its own operations and revenues, in addition to being a holding company for the Tata Group. This will also be in line with the previous classification (after 2004) by RBI of TSPL as a ‘non-banking, non-financial company’,” the statement read.

The Trusts have asked the Tata Sons board to consider and approve the proposal, and take all necessary steps, including applying to the RBI for the required no-objection certificate for the proposed merger and reorganisation.

According to the statement, the amalgamated entity, with the merger of TESS and TCE with Tata Sons, shall have operating revenues of Rs 105,043 crores, “far in excess of its income from financial assets (INR 40,072 crores) constituting 64.3% of the total income of the amalgamated entity”.

The proposal now rests with the Tata Sons board and, ultimately, with the RBI, on whose approval the companies can proceed with the proposed restructuring and merger.

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