Former Chief Justice of India DY Chandrachud has provided a legal opinion stating that the board proposal extending Tata Sons Chairman N Chandrasekaran’s term for five years requires the affirmative vote of nominee directors from Tata Trusts to be legally valid.
Of the two nominee directors of Tata Trusts – Venu Srinivasan and Noel Tata – Noel Tata voted against the resolution for reappointment while Srinivasan backed the proposal, making the board decision on reappointment invalid, as per the opinion of Justice Chandrachud. In other words, Tata should have supported the reappointment to make it legally valid as per the Articles of Association of the company.
“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,” said the legal opinion given to Tata Trusts.
On Thursday, Sir Dorab Tata Trust (SDTT) had asked Srinivasan not to vote in the Tata Sons board meeting, but he rejected this SDTT resolution and voted for reappointment and listing.
“Given that one of the two nominee directors has not voted in favour of the resolution, the requirement that a majority of nominee directors support the resolution has not been satisfied in the second scenario,” Chandrachud’s note says. “The resolution in the second scenario is 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,” it said.
“The casting vote of the Chairperson 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,” said the legal opinion
Justice Chandrachud said affirmative voting rights in the Articles of Association of a company are central to establishing control and safeguarding interests of the parties they are in favour of.”
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“Articles of Association cannot be interpreted to mean that the presence of both nominee directors is necessary but the affirmative voting rights of one nominee director can be superseded by the casting vote of the Chairperson,” it said.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 or group of directors, a casting vote exercised by the Chairman cannot supply that missing affirmative vote,” Justice Chandrachud opined. “This 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 constituency of directors.”
“It cannot be read so extensively as to enlarge the Chairman’s voting power to permit a circumvention of substantive governance protections,” the note said. “..even when if an incumbent was to be reappointed as Chairperson, their new term would be a fresh Chairmanship, not a continuation of an existing Chairmanship.”
According to Justice Chandrachud, if the process set out in Article 118 was not followed for the reappointment of the Chairperson of the Board, it would open the possibility that the Board of Directors would repeatedly reappoint the incumbent Chairperson, effectively circumventing the rights of the Querists to influence the selection of the Chairperson. 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, he said.
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“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,” according to the legal opinion.
