RBI’s decision reinforces equal rules as Tata Sons weighs listing or legal challenge
The Reserve Bank of India’s decision to reject Tata Sons’ proposal to surrender its NBFC licence and obtain a waiver from the public listing requirement upholds the principle of equality in the country and strengthens the Central bank’s image of professionalism and impartiality.
Tata Sons is a private limited company in which an 81.6 per cent stake is owned by charitable trusts collectively called Tata Trusts, while the remaining 18.4 per cent is held by the Shapoorji Pallonji Group. Despite being guided by charitable principles, Tata Sons is the country’s largest business conglomerate, as it is the promoter of over 100 companies, including 26 publicly listed entities.
Tata Sons is divided over the listing, with the heavily indebted SP Group backing the proposal and Tata Trusts opposing it. The principal opponent of the proposal is Noel Tata, the chairman of Tata Trusts, who believes that a listing would subject Tata Sons to market pressure to prioritise profits and valuation, contrary to the foundational principles of Tata Trusts.
The RBI’s stand is entirely fair, as large groups such as Tata Sons, with assets worth Rs 2 lakh crore and an estimated valuation of around Rs 10 lakh crore, must open themselves to public scrutiny. Similarly, Noel Tata’s argument is also plausible. Tata Trusts has an impeccable record of supporting India’s scientific community, while Tata Sons, under Ratan Tata, took long-term and risky bets — neither of these approaches is likely to find favour with the markets.
If Tata Sons accepts the RBI’s order, it will have to comply with SEBI’s listing rules. The rules make it mandatory to dilute at least a 2.5 per cent stake, worth Rs 25,000 crore, immediately. It must dilute a 15 per cent stake within five years and a 25 per cent stake within 10 years. Tata Sons, therefore, has only two options — either comply with the RBI’s regulations or challenge its order in court.
