Mumbai: Tata Sons Ltd has sought to retain the characteristics of a public firm even though it has proposed converting itself into a private limited company, its notice to shareholders shows.
Among other things, the firm has sought to amend its articles of association so that they align with the Companies Act, 2013. For instance, Tata Sons is seeking permission to introduce the definition of an independent director and norms pertaining to related-party transactions, two things typically required of only public companies.
Unlike a public limited company, a private limited firm doesn’t mandatorily have to appoint independent directors or female directors and constitute a remuneration and audit committee.
The Tata Sons board is also seeking approval for the appointment of an “Alternate Director” who will fill in for independent directors during their absence for a period not less than three months.
“The key requirement as a public limited company will be followed by Tata Sons even as private company,” said a Tata Sons spokesperson. Among other things, the notice clarifies the definition, role, appointment and qualification of an independent director in line with the Companies Act.
The annual general meeting notice specifies that an independent director should be unrelated to the promoters or directors of Tata Sons, or its holding, subsidiary or associate companies. It also specifies that the independent director should have no pecuniary (money related) relationship with Tata Sons or its holding, subsidiary or associate firms, or their promoters or directors, during the (two) immediately preceding fiscal years or during the current fiscal year.
Independent directors have been at the epicentre of boardroom battle between Tata Sons and its former chairman, Cyrus Mistry, who was ousted in a boardroom putsch last year. The Mistry family firms questioned the independence of independent directors at Tata Sons Ltd who voted to remove Cyrus Mistry as chairman in only the second board meeting they attended, Mint reported on 27 January citing an affidavit filed with the National Company Law Tribunal (NCLT). The investment firms—Cyrus Investments Pvt. Ltd and Sterling Investments Pvt. Ltd—accused them and a trustee director of collusion.
The fact that they are not saying that “the crisis is behind us” and addressing the issue is good, said Amit Tandon, managing director at Institutional Investors Advisory Services (IiAS), a proxy advisory firm. “It would be good to understand the consequence of these amendments two years from now.”
Earlier, there was a concept of a “deemed public company”, but the new Company Act doesn’t have any such classification. Tata Sons has the choice of being either a public company or a private company, said J.N. Gupta, founder at Stakeholder Empowerment Services (SES), another proxy advisory firm.
Considering all its ingredients are that of a private limited company, it seems to have chosen to go back to their previous status of private limited company, said Gupta.
“Even as they are seeking to change the status, they want to ensure highest corporate governance standards, by voluntarily following what is applicable to the public listed company,” he said.