MUMBAI: The Tata Trusts is on a strong legal footing in opposing the reappointment of Tata Sons chairman Natarajan Chandrasekaran.
Chandrasekaran, in an unprecedentedly controversial manner, exercised the chair’s casting vote for his own appointment, as both his own and that of the trust nominee Venu Srinivasan’s votes are invalid under the bylaws governing the holding company, according to former Chief Justice of India DY Chandrachud.
Not just that, Chandrachud’s casting vote had a mouthful from Chandrachud saying the same amounted to circumventing the legal position and that “chairperson’s casting vote cannot replace a missing majority.”
"It cannot be read so extensively as to enlarge the chairman’s voting power to permit a circumvention of substantive governance protections and that even when an incumbent was to be reappointed as chairman, the new term would be a fresh chairmanship, and not a continuation of an existing chairmanship,” Chandrachud said in the legal opinion given to Noel.
Ironically, Noel had informed the Board prior to the meeting on Thursday that the legal opinion was against Chandra’s reappointment primarily because of the absence of a joint representative/director from the Sir Ratan Tata Trust due to the regulatory ban on its Board meeting.
What is more ironic is that Venu Srinivasan was also told by Noel that he cannot vote in favour of the Board resolution on reappointment, a source told TNIE Friday.
"Tata Trusts nominee directors must affirmatively back the resolution and a chairperson’s casting vote cannot replace a missing majority,” Chandrachud told Noel in his detailed legal counsel.
"Therefore, Chandra’s proposed five-year extension is invalid as Noel voted against the resolution,” Chandrachud said, adding that for the Board proposal to extend a new term to Chandra requires the affirmative vote of the trust's nominee directors.
"Stated differently, for the Board resolution to be legally valid, Noel should also have voted for the proposal."
“The affirmative vote of the nominee directors of the querists (Tata Trusts) is an independent and standalone requirement and operates on a wholly different plane from the chairperson’s casting vote which is designed to resolve a tied vote amongst all directors of the Board taken cumulatively,” Chandrachud said.
On Venu Srinivasan backing the proposal by breaking away from the advice of the Sir Dorabji Tata Trust, where he is a vice-chairman, Chandrachud said, “Given that one of the two nominee directors has not voted in favour of the resolution, the requirement that a majority of the nominee directors support the resolution has not been satisfied in the second scenario."
"The resolution in the second scenario is also invalid, irrespective of the chairperson’s casting vote resolving the deadlock between the nominee directors; the affirmative vote of a majority of the nominee directors was not secured,” he added.
This means that, Chandrachud said, “the chair’s casting vote is only applicable where there is an equality of votes amongst two functions of the Board as a whole, and not amongst two specific directors, whether they be nominee directors or not.”
The former CJI further opined that affirmative voting rights in the articles of association of Tata Sons or any other company are central to establishing control and safeguarding interests of the parties they are in favour of.
“The articles of association cannot be interpreted to mean that the presence of both nominee directors is necessary or the affirmative voting rights of one nominee director can be superseded by the casting vote of the chairperson,” he said.
"If the articles provide that a resolution shall not be validly passed unless it commands the affirmative vote of a specified majority of a particular class/group of directors, the chair’s casting vote cannot supply that missing affirmative vote,” Chandrachud opined.
Such a legal position “is consistent with the well-settled principle that a casting vote cannot be used to create a majority where none exists under the governing provision, or to defeat a veto right held by a particular group of directors,” he added.
“It cannot be read so extensively as to enlarge the chairman’s voting power to permit a circumvention of substantive governance protections,” he said, noting that even if an incumbent was to be reappointed as chairman, the new term would be a fresh chairmanship, and not a continuation of an existing chairmanship.
According to Chandrachud, if the process set out in Article 118 is not followed for reappointment, it would open the possibility that the Board will repeatedly reappoint the incumbent, effectively circumventing the rights of the querists to influence the selection process.
"This would be contrary to the scheme of the articles of association as a whole, which seeks to protect the interests of the querists as majority shareholders.“
"It would not be reasonable to interpret the articles of association in a manner that allows for a circumvention of an important protection granted to the querists given that the querists, as the key parties who drafted the contract, could never have had such an intention,” he concluded.