Even as the opinion of Justice D Y Chandrachud, former Chief Justice of India, suggested that a majority vote of the nominee directors was a must to support a resolution like in the case of N Chandrasekaran’s reappointment at the Tata Sons board meeting on September 17, some other top legal luminaries have a different viewpoint in interpreting the Articles of Association (AoA) of the holding company.
Tata Trusts had submitted Chandrachud’s opinion on affirmative voting rights to the Tata Sons board on Thursday, stating that reappointment of Chandrasekaran as chairman of Tata Sons for a third term was invalid without a majority vote of the nominee directors. Bypassing the Trusts’ affirmative vote through a casting vote was a violation, according to that opinion. At the board meeting, the two nominee directors — Noel Tata and Venu Srinivasan — voted against and in favour of the reappointment respectively. Against that verdict, the casting vote of the chairman of the meeting — Harish Manwani, an independent director — was used to get a 4:1 result. Manwani was chairing the meeting for this discussion as Chandrasekaran recused himself to prevent conflict of interest.
A day before the board meeting, Tata Sons got a legal opinion from Sudipto Sarkar, a barrister and senior advocate with extensive experience in corporate law on a range of issues such as the technicalities around Article 104B and Article 115 — the key clauses of the Tata Sons AoA, a source told Business Standard. Among other things, he advised specifically on the provisions around casting vote and the definition of ‘chairman’ in a situation where the board chairman may have to be out of the discussion. “On a plan reading of Article 121, it can be said that the chairman’s casting vote can be invoked in either of these cases,’’ he said while elaborating on the scenarios, the source who had read the opinion told this newspaper.
According to Sarkar, casting vote can be invoked when there’s an equality of vote either amongst the nominee directors or the board as a whole after taking into account votes cast by all directors. He added that the language of Article 121 does not distinguish between “equality of votes’’ in the two cases. Further, he pointed out replying to a query posed by Tata Sons that if required, the chairman presiding over a meeting can be eligible for the casting vote. He reasoned that Article 121 mentions “chairman” and not “chairman of the board”.
On reappointment of a chairman, Sarkar said that Article 118, that deals with corporate governance structures and internal management rules, would not apply. It would however apply in the case of appointment of a new chairman. He clarified that Chandrasekaran’s August letter to the board of directors, saying he would not offer himself for a third term, would have no bearing on his reappointment resolution at the Tata Sons board.
After the board meeting, Tata Sons sought another legal opinion on the contentious issues, this time from B N Srikrishna, former Supreme Court judge, it is learnt. The queries of Tata Sons were more pointed now. Does Article 118 of the AoA on appointment of chairman apply in the case of Chandrasekaran’s reapppointment? Srikrishna agreed with Sarkar that Article 118 was about a new chairman and that it had no application in the present case. “There was no question of following the procedure prescribed for the appointment of the selection committee as contemplated under Section 118.’’
Referring to the Tata Sons board meeting on February 11, 2022, when Chandrasekaran was given a second term as chairman, Srikrishna said at that point also the extension was given without the selection committee’s recommendation. “A mere reference to Article 118 in the resolution for the board meeting of February 11, 2022, for renewing the chairmanship does not make Article 118 applicable,’’ he said. In any case, no selection committee was constituted to recommend the term extension for the incumbent chairman in 2022, he’s learnt to have added in his advice.
On the issue of casting vote by the chairman of the board meeting due to equality of votes of the nominee directors, Srikrishna said that even if assuming that Article 118 applies to the case, the procedure followed by the chairman and the board is ‘’perfectly valid’’. He said that in the present situation, it was impossible to determine the majority of the votes cast by two jointly nominated directors under Article 104B. ‘’In my opinion, this was clearly a situation in which the last portion of Article 121 would come into play to resolve the deadlock.’’
Article 121 is in two parts. First, it provides that board matters must be decided by a majority of directors and a majority of the affirmative votes of the directors appointed pursuant to Article 104 B shall be required. The second or the last part states that in the case of an equality of votes, the chairman shall have a casting vote.