Tata Group Faces Intensifying Boardroom Battle in India

A high-stakes boardroom battle is unfolding over control of Tata Group, the Indian conglomerate that owns Jaguar Land Rover and Air India and serves as a key supplier to Apple.

On Thursday, Noel Tata, heir to the Tata family and chairman of Tata Trusts, said the reappointment of N. Chandrasekaran as chairman of Tata Sons earlier that day was “illegal.”

Experts say Noel Tata wants to keep Tata Sons privately held to protect its existing ownership structure, while Chandrasekaran is seeking to expand the business through ambitious investments requiring substantial capital.

If the standoff continues for more than six months—as happened a decade ago—it could delay a potential Tata Sons listing, a central part of Chandrasekaran’s strategy to secure the funding needed for the group’s expansion.

“The deadlock could slow down capital-intensive bets in Air India, semiconductors and batteries, where leadership continuity and trust are as important as balance sheets,” Jaydeep Mukherjee, professor of economics at Great Lakes in Chennai, told CNBC. “Tata needs to split operational leadership from shareholder-trust politics.”

Under Chandrasekaran, Tata Group has committed significant sums to new businesses and expansion projects. In his latest letter to shareholders, he described those investments as building blocks for India’s goal of becoming a developed economy by 2047.

The commitments include Tata’s acquisition of the struggling national carrier Air India in 2022 and subsequent funding for its turnaround, a planned $11 billion semiconductor facility and investments in low-margin electronics assembly for Apple.

Tata Sons requires more than 290 billion rupees ($3 billion) each year to support loss-making operations including Air India, Tata Digital and Tata Electronics, as well as another 900 billion rupees to invest in the planned semiconductor facility, Deven Choksey, managing director of Mumbai-based DRChoksey Finserv, told CNBC.

The company generates just over 300 billion rupees in dividends, Choksey said, creating a substantial funding shortfall. A public listing could help close that gap, with Tata Sons potentially commanding a gross valuation of more than 12 trillion rupees, he added.

Tata Sons is the holding company for Tata Group businesses, although ultimate ownership rests with Tata Trusts. According to an August report from Jefferies, Tata Trusts is Tata Sons’ largest shareholder with a 66% stake, followed by the Shapoorji Pallonji Group with 18% and Tata Group companies with 13%.

Last month, Chandrasekaran voiced frustration over the delay in finalizing his reappointment and said he would not pursue another term. Tata Trusts accepted that decision and advised Tata Sons to begin forming a selection committee to identify his successor.

On Thursday, however, Tata Sons said in a release that its board had approved Chandrasekaran’s reappointment for another five years after his current term ends in February next year. The decision passed by a “majority vote.”

Four Tata Sons directors voted in favor, while Noel Tata opposed the reappointment, Tata Trusts said in a separate release. It argued that the Tata Sons chairman cannot be appointed without the approval of the Tata Trusts chair, making the board’s decision a “legal nullity.”

Tata Trusts has pushed back against calls from Indian regulators to list Tata Sons. On Thursday, it said it would “explore all avenues and possibilities to move out of the regulatory framework that requires mandatory listing.”

“If Tata Sons is publicly listed, the rights of Tata Trusts as majority shareholders stand to be seriously impaired,” the trust said in a release.

Still, Tata Sons may have limited ability to avoid a listing if it needs additional financing for its extensive investment plans.

For the financial year ending in March, Tata Sons reported a 35% decline in consolidated net profit to 266 billion rupees, or about $2.78 billion, according to its latest annual report. Losses at Air India, Tata Digital and Tata Electronics weighed on the results.

Although those loss-making businesses remain unlisted, the combined market capitalization of Tata Group’s listed companies fell 12% over the same period.

The decision to take bold bets, risking losses at a time when the group’s top money-spinning company, Tata Consultancy Services, grapples with the impact of artificial intelligence on the information technology sector has deepened the rift between Chandrasekaran and Noel Tata.

Tata Sons does not have “access to capital markets or debt markets right now” to raise funds for its unlisted ventures that generate losses, Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research Services, told CNBC.

The moment Tata Sons raises funds through debt, it will be qualified as a non-banking financial company, which would require it to be listed under the Reserve Bank of India’s Upper NBFC mandatory listing regulations, he added.

Last week, the Reserve Bank of India rejected Tata Sons’ application from 2024 to surrender its registration as a Core Investment Company, dashing hopes that the company could avoid the mandatory listing, Tata Trusts said.

The listing could pose a challenge to the Tata Trusts’ ownership of Tata Sons, and thus to Noel Tata’s sway over the company.

The Tata Trusts has legitimate concerns that the listing of Tata Sons could provide an entry to a new strategic minority investor who would buy the 18% stake owned by Shapoorji Pallonji, said Choksey, adding that this could weaken their hold on the century-old family business.

To protect the ownership of the business, Tata Trusts on Thursday proposed to acquire the stake from S.P. Group for 250 billion rupees over 18 months. It suggested that Tata Sons could fund this acquisition through internal cash flows, sale of listed shares, or by bringing an investor into some of the newer businesses, rather than listing. 

The dividend that Tata Sons earns from its companies is not enough to “pay for the losses and fund for expansion,” Choksey said, while monetizing loss-making assets like Air India or Tata Digital is next to impossible in India right now.