Mumbai: Tata Sons has begun reviewing its Articles of Association (AoA) ahead of a potential public listing that will seek to address changes related to board appointments, independent directors and special rights held by Tata Trusts, executives close to the matter said.

The review, aimed at becoming compliant with Sebi rules, could alter how the Trusts which exercises influence over Tata Sons, as its majority shareholding and ordinary voting rights remain intact.

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Any changes to the Articles of Association, which set out the rights and obligations of a company and its shareholders, would require approval through a special resolution at a general meeting, the executives said. The Tata Trusts, which owns about 66% of Tata Group's holding company, relies on Articles 104B and 121 to safeguard its influence, including board nomination rights and affirmative voting powers. A public listing would bring these special rights under Sebi Regulation 31B, which requires shareholder approval for such rights at least once every five years, with the approval of public shareholders playing a key role in determining their continuation.

ET Bureau

The review follows the Reserve Bank of India (RBI) rejecting Tata Sons' application to surrender its registration as a core investment company, requiring it to comply with regulations governing upper-layer non-banking financial companies. These rules require such entities to list their equity shares within three years of being classified as such.

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The proposed listing plan has exposed differences within the Tata Group over the future of its holding company. Tata Trusts chairman Noel Tata has favoured exploring alternatives, including restructuring Tata Sons, while the company's board has backed compliance with the RBI framework.

Tata Sons did not comment.

Under the existing Articles, the Tata Trusts can nominate up to a third of the board, while certain decisions require the affirmative vote of a majority of Trusts-nominated directors. A majority of these nominees must also be present for a board meeting to constitute a quorum.

These provisions could require changes to align with Sebi regulations governing listed companies, including rules on special rights and periodic shareholder approvals.

"If a decision is taken on listing, the preferential aspects in the AoA in favour of the Tata Trusts will have to be aligned to Sebi listing requirements," said Ashish K Singh, managing partner at Capstone Legal.

Listed companies are subject to higher governance standards intended to ensure independent day-to-day management and protect the interests of all shareholders, Singh said.

"The real issue is control, not compliance," said Harshal Anjaria, founder of Shreeyam Advisors.

A listing would not automatically dilute the Trusts' majority stake, but special rights under the AoA would need to be compliant with applicable securities regulations, including requirements for shareholder approval through a special resolution every five years.

"A listed Tata Sons would also need to meet board-independence requirements," Anjaria said. "If its chairman is an executive director, at least half the board must comprise independent directors."

The process for selecting the chairman could also be reviewed. The existing five-member selection committee includes three Trusts-linked nominees. Board committees would need to be aligned with listing conditions, while restrictions on share transfers could require amendments to accommodate public shareholding and stock-market trading.

The extent of the changes would depend on the proposed listing structure and applicable legal requirements, executives said.

The Trusts' majority ownership would continue to give them substantial influence over shareholder decisions. However, changes to nomination rights, voting provisions and board composition could constrain how that influence is exercised at the board level.

The review is at an early stage, and no final amendments have been approved, the executives said.