Noel Tata, the half-brother of late industrialist Ratan Tata, has been appointed as a director on the board of Tata Sons, the principal holding company of the $156-billion Tata group.

Last month, Noel Tata was appointed as the chairman of all the Tata Trusts, including Sir Dorabji Tata Trust and Sir Ratan Tata Trust. There are 13 philanthropic trusts that own 66 per cent of Tata Sons.

They can nominate one-third of the directors on the Tata Sons board. This is the first time since 2012 that a Tata will be on the holding company’s board of directors.

Currently, there are three nominees of Tata Trusts on the board. Apart from Noel Tata, the other two nominees of the trusts are TVS group chief Venu Srinivasan and former defence secretary Vijay Singh.

An amendment in the Tata Sons’ articles of association in August 2022 ensures that no one can head Tata Sons as well as the Tata Trusts.

Noel was appointed as director at a virtual meeting of the Tata Sons’ board on the eve of Diwali.

The appointment assumes significance as speculation grows that Tata Sons may have to list on the stock exchanges by next September.

This is because of a Reserve Bank of India (RBI) rule that all entities categorised as upper layer non-banking finance companies (NBFC-UL) should be listed by that deadline.

Recent reports suggest that the banking regulator turned down a request from Tata Sons to waive that requirement. This, however, could not be confirmed with the banking regulator.

In 2021, the RBI had announced scale-based regulation for non-banking entities. As part of the process, the NBFCs were segmented into four layers. On September 30, 2022, the RBI came out with a list of 16 NBFCs in the upper layer list that included Tata Sons.

The Tatas are not in favour of listing because it would alter the philanthropic structure that the founders embedded in the group.

Last year, Tata Sons voluntarily surrendered its certificate of registration as a core investment company (CIC) to the RBI after repaying ₹20,000 crore in debt.

While the RBI’s decision on its application is not yet known, it is believed that by bringing down debt it could remain as a closely-held company.

Role of the Trusts

The Trusts exercise considerable influence over the Tata Sons board. For instance, the chairman of Tata Sons is appointed by a five-member selection committee, three of whom are nominated jointly by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust, which are named after the two sons of the group’s founder Jamsetji Tata.

Moreover, Article 104 of the Tata Sons’ Articles of Association says: “So long as the Tata Trusts own and hold in the aggregate at least 40 per cent of the paid-up Ordinary share capital…the Sir Dorabji Tata Trust and Sir Ratan Tata Trust, acting jointly, shall have the right to nominate one third of the prevailing number of directors on the Board and in like manner to remove any such person so appointed and, in place of the person so removed, appoint another person as Director.”

This clause may have to be amended if Tata Sons is forced to list. Corporate governance experts say that if Tata Sons is listed, its board structure would have to meet Sebi rules.

According to Clause 49 of Sebi’s listing agreement, the board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than 50 per cent of the board of directors comprising non-executive directors.

It says that if the chairman of the board is a non-executive director, at least one-third of the board should comprise independent directors. But if he is an executive director, at least half of the board should comprise independent directors.

An equity market research firm had earlier estimated the valuation of Tata Sons at ₹7.8 lakh crore on listing. A note from Spark Capital had said that the listing could simplify the complicated holding structure of the group.

“There are multiple levers of value available from the unlisted investments as the group is entering into new-age segments such as semiconductors (by Tata Electronics). Thus, we believe that the group could derive another ₹1-1.5 lakh crore of value from unlisted investments and step-down subsidiaries such as Tata Technologies, Tata Metaliks and Rallis. Together, this can value the holding company at ₹7-8 lakh crore on listing,” the report said.

The valuation was derived by including Tata Sons’ investments across all listed and unlisted companies, equities, preference shares and mutual funds, the report said. Tata Sons has 99 subsidiaries.