Bombay House, the headquarters of the Tata group in Mumbai. Tata Sons said its board felt that the move to turn into a private limited firm was in its best interest
In a notice to its shareholders ahead of the annual general meeting (AGM) scheduled for September 21, Tata Sons has sought approval to amend its memorandum of association and articles of association to convert itself from a public limited company to a private limited one.
It has also sought to change the name of the company from Tata Sons Limited to Tata Sons Private Limited.
The change in Tata Sons’ corporate structure will require to be cleared by a special resolution, needing at least 75 per cent votes.
Besides the shareholders’ approval, the change in its status will also need an approval from the National Company Law Tribunal.
Asked why Tata Sons was being converted into a private limited company, a spokesperson said, “The reinstatement of Tata Sons as a private company was considered by the board to be in its best interest.”
While two investment firms of the Shapoorji Pallonji family — Cyrus Investments and Sterling Investment — own 18.4 per cent in the company. Tata Trusts own 66 per cent of the share capital of the company, while the remaining shares are held mostly by the Tata family, some group companies
and a few individuals.
The Mistry family has objected to Tata Sons’ attempt to convert it into a private limited company. A letter from Cyrus Investments to the Tata Sons board said, “The proposal to convert Tata Sons from a public company to a private company constitutes yet another act of oppression of the minority shareholders of Tata Sons at the hands of the majority shareholders.”
Lawyers say that transfer of shares in a company can be restricted by way of adding necessary covenants in the Articles of the company which are in essence the company’s charter documents. “In the ordinary course, this restriction is exercised by the board to ensure the best interest of the company. In the case of public companies, however, this is a tenuous issue and several noted judgments have opined that any restriction on the free transferability of shares in a public company is not maintainable,” said Pallav Pradyumn Narang, partner, Arkay& Arkay.
Agreements between individual shareholders imposing restrictions are, however, kosher as the public company itself is not a party, he added.
Corporate law experts are divided over the impact of the move on minority shareholders. While the conversion into a private limited concern will entail less compliance, any restrictions on sale or transfer of shares is decided by clauses in the articles of association. However, there is no mandatory requirement for an independent director. "This could be construed as detrimental to minority share holders,” said a corporate law expert of one of the Big Four advisory firms.
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