The Reserve Bank of India has directed Tata Sons Pvt. Ltd. to go for an IPO after rejecting its two-and-a-half-year-old application to surrender its registration as a core investment company, marking a new challenge for Tata Trusts chairman Noel Tata, who had lobbied hard to keep the group’s holding company private.
In a letter dated 11 September, the RBI told Tata Sons that it cannot accept its application, made in March 2024, for voluntary surrender of its CIC licence, potentially triggering outcomes including listing of Tata Sons—the holding company of India’s largest business group by revenues.
Three executives privy to the development confirmed the central bank’s communication and likely outcomes.
Saturday’s development came against the backdrop of Tata Sons chairman N. Chandrasekaran’s of his decision to not continue beyond his current term, which ends on 20 February next year.
The RBI communication prompted the top brass of Tata Trusts, which owns 65.9% of Tata Sons, to huddle on Saturday evening and evaluate the options before the group. According to one group executive and two lawyers, Tata Group is “most certainly” expected to challenge the RBI’s decision in court.
“I am sure the Tata Group may want to challenge the RBI’s decision to force them to go public in court,” said Nitin Potdar, a Mumbai-based independent corporate lawyer. “This is especially because RBI has previously allowed NBFCs, including Shanghvi Finance, to surrender their core investment company licence. So, on what grounds can the RBI direct Tata Sons to get listed?”
Shanghvi Finance Pvt. Ltd is the privately owned firm of billionaire Dilip Shanghvi, founder of Sun Pharmaceutical Industries Ltd. It got an exemption from the RBI in 2023 to continue as a CIC.
“Secondly, under the Companies Act, no regulatory body, either Sebi or RBI, has the legislative power to force any company to go public. In fact, globally, no country or regulator has a law that forces any company to go public,” Potdar said.
“On the one hand, we invite global MNCs to operate in India irrespective of their size and allow them to delist by buying shares from Indian shareholders. So how can the RBI force the country’s largest conglomerate to go public? The sequence and timing of events suggest factors outside the law drove the entire episode.”
Tata Sons board meeting
The RBI’s decision comes less than a week before Tata Sons’s board meeting scheduled for 17 September. The options and road ahead for the group would be the focus, according to one executive.
This means Noel Tata, , two days after the death of his half-brother, Ratan Tata, faces three immediate challenges: first, finding a successor to Chandrasekaran.
This process can start only once a five-member selection panel is in place.
Constituting the panel, however, remains stalled because an important trust, the Sir Ratan Tata Trust (SRTT), . That’s because a 15 May order of the Maharashtra Charity Commissioner prevents SRTT from holding board meetings or making decisions.
This follows allegations by one of its trustees, , and a complainant of wrongdoing in the trust’s composition. Three of the six-member SRTT are permanent trustees in alleged violation of the Maharashtra Public Trusts Rules that stipulate not more than a fourth of trustees can be lifetime members.
“I am not surprised. It was coming,” said the founder and managing director of a Mumbai company, which does business with the Tata Group. “If you read the statements of the RBI over the last one year, it was clear that [it was] in favour of Tata Sons going public. So I would say it is a setback for Noel, who has repeatedly favoured the company to remain private. But, most certainly, I expect Tatas to contest this decision in the Bombay High Court.”
Biggest shareholder of Tata Sons
The Shapoorji Pallonji Group, which owns an 18.37% stake in Tata Sons, stands to gain from a possible listing, as it could then sell shares to service its estimated ₹55,000-60,000 crore of debt.
“Yes, SP Group gets an upper hand once Tata Sons gets listed, because in related party transactions, when Tata Trusts cannot vote on resolutions, the SP Group could decide on decisions taken by the group,” Senior Supreme Court lawyer H.P. Ranina said. “However, until now, SP Group has always backed all decisions of the Tata Group so there is no reason to believe it may not support the Tata Group going forward.”
Ranina added that the SP Group could also get a board seat when Tata Sons goes public “as a minority investor would like to have representation on the board”.
RBI had classified Tata Sons as an upper-layer non-banking financial company (NBFC) in September 2022 and .
Requests for comments sent to SP Group and Tata Trusts did not receive a response as of publishing this story.
In early 2024, Tata Sons repaid all its debt and had a cash surplus, and sought the central bank’s permission to be removed from the list of so-called upper layer core investment companies, or large shadow banks.
Earlier this year in April, RBI stating that shadow banks with assets exceeding ₹1 trillion needed to be listed. Tata Sons’s standalone assets of ₹1.75 trillion exceed the central bank’s new rules.
Lawyer Ranina called the decision a setback for Noel Tata, saying that he has few options other than to contest it in court. “But holistically speaking, a listing would bring more accountability, better corporate governance, and a mother of all IPOs.”