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One vote, two readings: The 2021 Supreme Court ruling at the heart of Tata’s latest boardroom battle
A casting vote reappointed Chandrasekaran as Tata Sons chairman. The Trusts chairperson calls it invalid. Tata Sons disagrees.
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The latest Tata Sons boardroom battle over N Chandrasekaran’s reappointment has revived legal questions that were examined in detail by the Supreme Court five years ago in the Cyrus Mistry case, particularly the interplay between Articles 104B, 118 and 121 of the company’s Articles of Association (AoA).
Tata Trusts chairperson Noel Tata has assailed the September 17 resolution reappointing Chandrasekaran for another five years, arguing that the board used a different constitutional route from the one followed when Chandrasekaran was reappointed in 2022. The Trusts contend that the affirmative support of a majority of their nominee directors was a condition for a valid resolution and that a chairman’s casting vote could not overcome the failure to meet that condition.
Tata Sons, on the other hand, has relied on a different reading of the Articles, including the provision for a casting vote in case of equality of votes. Legal opinions obtained by the two sides have also taken divergent views on whether Article 118 applies to the reappointment of an incumbent chairman and on the operation of the casting vote.
The legal significance of the Supreme Court's 2021 judgment in Tata Consultancy Services Ltd vs Cyrus Investments Pvt Ltd lies in the fact that the court expressly examined the validity and scope of the special rights conferred on the Trust-nominated directors. But the judgment needs to be read for what it actually decided, -- and not as a ruling on the current dispute now before the Tata Sons board.
Also read: Ratan Tata had doubts about Cyrus Mistry's leadership, reveals new book
Article 118 and the chairman’s office
Article 118 deals specifically with the appointment of the chairman. In the form considered by the Supreme Court, it provided for a selection committee to recommend a person for appointment as chairman, with the board empowered to appoint the person so recommended “subject to Article 121”.
The Article also said that “the same process shall be followed for the removal of the incumbent Chairman”.
The Supreme Court’s interpretation of this language is particularly relevant to the current debate. It held that the reference to the “same process” for removal did not mean that a fresh selection committee had to be constituted to remove an incumbent chairman. “The necessity for taking recourse to the affirmative voting right under Article 121 is what is meant by the expression ‘the same process’,” the three-judge bench had noted at the time.
The court therefore connected Article 118 with Article 121, rather than treating the selection committee procedure as applicable in the same manner to the removal of an incumbent chairman.
That distinction matters in the current controversy because the 2021 case was about the removal of then chairperson Cyrus Mistry, whereas the present dispute concerns the reappointment of an incumbent chairman. The judgment did not have to decide whether a reappointment of the same incumbent necessarily has to proceed under Article 118, nor did it decide whether the 2022 renewal of Chandrasekaran’s term was correctly routed through that provision.
That leaves room for the opposing interpretations.
The Trusts chairperson Noel Tata’s position is that Article 118 is the operative constitutional provision for the chairmanship and that the 2022 board minutes themselves recorded Chandrasekaran’s reappointment under Article 118.
Tata Sons has obtained legal advice taking the contrary view that Article 118 concerns the appointment of a new chairman and does not govern renewal of the term of an incumbent. That dispute is one of the questions that will have to be resolved by interpreting the present Articles and the facts surrounding the 2022 and 2026 resolutions.
Also read: Tata Sons board resolution on Chandrasekaran reappointment invalid, says Tata Trusts
Article 121 and Trust nominees at the heart of dispute
The 2021 judgment examined the special voting architecture created by Articles 104B and 121 in some detail.
Article 104B gave the two Tata Trusts, acting jointly and subject to their shareholding meeting the stipulated threshold, the right to nominate one-third of the directors. Article 121, in turn, required an affirmative vote of the majority of directors appointed under Article 104B for matters otherwise requiring a majority decision of the board.
The Supreme Court rejected the challenge to this arrangement.
It described the affirmative voting right as “only a limited right” and said Article 121 in turn, required an affirmative vote of the majority of directors appointed under Article 104B for matters otherwise requiring a majority decision of the board.
The Supreme Court rejected the challenge to this arrangement.
It described the affirmative voting right as “only a limited right” and said Article 121 dealt with “the manner in which matters before any meeting of the Board shall be decided”. It also pointed out that the Trusts, because of their approximately 66% shareholding, had greater voting strength in a general meeting than they exercised through their special board rights.
The court went further. It said: “So long as these special rights are incorporated in the Articles of Association and so long as they are not in contravention of any of the provisions of the Act, the same cannot be attacked on these grounds.”
This is the part of the judgment that the Tata Trusts are now emphasising.
Their argument, broadly, is that the special affirmative-voting mechanism was not an informal convention but a constitutionally embedded corporate right that the Supreme Court had already recognised as valid. Therefore, they contend, the ordinary numerical majority of board directors cannot simply be used to bypass a separate condition attached by Article 121 to decisions requiring the affirmative support of Trust nominees.
Tata Sons’ response turns on a different reading of how that condition interacts with the final part of Article 121 dealing with equality of votes. The legal issue is thus not simply whether the Trust nominees possess affirmative voting rights — since the Supreme Court clearly recognised those rights, but how those rights operate when the two nominees themselves split and the board as a whole is not evenly divided.
That question was not decided in the 2021 judgment.
Did 2021 ruling give Trusts primacy over Tata Sons?
This is where the competing public readings of the judgment by senior advocates Abhishek Manu Singhvi and Harish Salve acquire significance.
Singhvi, now advising the Trusts and Noel, has argued that the 2021 judgment recognised the special constitutional position of the Trusts and that the Supreme Court’s ruling cannot now be selectively read to dilute those rights. His emphasis is on shareholder rights and the special Articles that Tata Sons had at the time defended before the Supreme Court.
There is substantial language in the 2021 judgment explaining why the Trust nominees occupy a special position. The court noted that Tata Sons was a principal investment holding company and that around 66% of its equity was held by philanthropic Trusts. It said the Trust-nominated directors were therefore “not like any other Directors” appointed at a general meeting.
The judgment also recognised the dual fiduciary position of a Trust nominee. Such a director, it said, has a fiduciary relationship both with the shareholder that nominated the director and with the company whose board the director joins. The court described this as requiring a balance between the interests of the company and the Trust.
Most importantly, the court observed that a majority shareholder can reserve affirmative voting rights: “a shareholder or a group of shareholders who constitute majority, can always seek to be in the driving seat by reserving affirmative voting rights”.
But that statement stands alongside another important part of the judgment: Article 121 was described as a limited right governing the manner in which board decisions are taken, while Tata Sons remained a board-managed company.
The court consequently rejected the argument that the affirmative rights themselves made the Articles oppressive or invalid. It also rejected the broader challenge to the Trusts’ involvement in board decision-making.
This provides ammunition for both sides, but it does not establish that the Trusts have an unqualified veto over every board decision. Nor did the Supreme Court decide that the Trusts’ nominees could override the board whenever they disagreed with it.
The legal proposition established in 2021 was narrower –that special affirmative rights written into the AoA are legally enforceable, subject to the Companies Act; their existence by itself does not make the governance structure oppressive.
The question now: Affirmative right versus casting vote
The moot legal question in the present dispute is what happens when the two Trust nominees do not vote together.
The position emerging from the September 17 meeting is that Noel Tata opposed Chandrasekaran’s reappointment while the other Trusts’ nominee Venu Srinivasan supported it. Chandrasekaran recused himself from the discussion and Harish Manwani, who chaired that part of the meeting, exercised a casting vote after the other directors backed the reappointment. The resolution was consequently announced as having been approved by a majority.
The Trusts’ argument is that the affirmative-vote requirement under Article 121 is a separate condition precedent. If there are two Trust nominees, majority support means two; a 1-1 split means the required affirmative support is absent. The September 20 statement consequently said a casting vote could not “revive” what they described as a stillborn resolution.
The contrary legal position is that Article 121 also contains a mechanism for an equality of votes and that, where the Trust nominees split, the situation amounts to a deadlock capable of being resolved by the chairman's casting vote. A legal opinion obtained by Tata Sons is believed to have taken this view, while another opinion obtained after the meeting reportedly maintained that the casting vote could resolve the situation even assuming Article 118 applied.
The 2021 Supreme Court judgment does not provide a direct answer to that question. It established the validity of the Trust nominees’ affirmative voting rights, explained their limited scope and connected Article 118’s reference to the “same process” for removal with recourse to Article 121. It did not decide whether a casting vote can override the absence of the required affirmative votes of two Trust nominees in a reappointment of an incumbent chairman.
That is why the present dispute cannot simply be described as a question of whether the Trusts have rights or whether the board has a majority. The 2021 judgment recognised both the special constitutional rights embedded in the Articles and the board-centric structure of Tata Sons. The present contest is over how those provisions operate together when they collide.
The eventual legal examination is likely to turn on the precise text of the current Articles, the distinction between appointment and reappointment, the legal effect of the 2022 resolution, the construction of Article 121’s affirmative-vote requirement and its casting-vote provision, and whether one provision can be used to overcome a condition imposed by another.
Those are questions of corporate constitutional law on which the competing legal interpretations can now be tested against the Articles and, potentially, before a court. The 2021 judgment supplies important principles, but it does not pronounce an answer to the September 17 resolution.
