A day after Cyrus Mistry was replaced as Chairman of the Tata Sons board, there is little clarity on the why and what next. But the ‘how’ is down in black and white in the Tata Sons’ Articles of Association (AoA).
Articles of Association: The Fineprint
The AoA sets down the process of appointment and removal of the chairman.
Regarding the appointment process, the AoA says as long as the Tata Trusts own and hold at least 40 percent of Tata Sons:
- A Selection Committee shall be constituted to recommend the appointment of a person
- The Board may appoint the person recommended subject to the approval of a majority of the directors and subject to an affirmative vote of all directors appointed by the Tata Trusts.
The AoA specifies that two Tata Trusts – Sir Dorabji Tata Trust and the Sir Ratan Tata Trust – ‘acting jointly, shall have the right to nominate one-third of the prevailing number of directors on the board’.
The AoA says quite the same about removing a chairman of the board.
The same process shall be followed for the removal of the incumbent chairman.
That means, if there are nine members on the Tata Sons board, the removal of the chairman would require
- At least 5 directors to vote in favour of the removal.
- And the support of all 3 directors appointed by Tata Trusts.
Rajat Sethi, a partner at law firm S&R Associates confirms this interpretation.
Since the board of a company appoints the chairperson, it would also have the power to remove the chairperson subject to compliance with any voting requirements under the Articles of Association of the company – there appears to certain special voting requirements under the Articles of Association of Tata Sons.Rajat Sethi, Partner, S&R Associates
Meanwhile, a Tata Sons spokesperson said in a statement to BloombergQuint, “we have followed the process of law and the AoA.”
(The article was originally published on BloombergQuint.)
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)