Tata Sons merger to shed NBFC status
Tata Trusts has proposed a merger of operating companies Tata Electronics Systems Solutions (TESS) and Tata Consulting Engineers (TCE) into Tata Sons Private Limited (TSPL). The move aims to preserve TSPL as an unlisted private entity, with Tata Trusts holding a 66 per cent controlling stake.
The restructuring aims to change the asset composition of the group’s holding firm, removing its status as a Non-Banking Financial Company (NBFC). Advocate and corporate-law specialist HP Ranina says that once TSPL functions as an operating entity and no longer earns most of its revenue from investments, it will lose its NBFC label.
Ranina explained that once the merger takes place, TSPL will only have to inform the Reserve Bank of India (RBI) that it no longer falls within the RBI’s guidelines for an NBFC and should be deregistered. The RBI criteria classify a firm as an NBFC if over 50 per cent of its income derives from investments or if investment assets exceed total assets.
Following the consolidation, TSPL anticipates operating income of ₹1,05,043 crore by 31 March 2026, versus ₹40,072 crore generated from financial assets. These figures would place the company below the RBI’s limits that trigger NBFC status.
The plan comes after a tense dispute between Tata Trusts and the TSPL board. In September 2026, the RBI turned down TSPL’s appeal to relinquish its “Upper Layer” NBFC designation, after which the board, by a 4-1 margin, approved moving forward with a listing process and prolonging N. Chandrasekaran’s tenure as Executive Chairman. Noel Tata, speaking for Tata Trusts, opposed both proposals.
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Tata Trusts has officially sent a letter to the board requesting approval of the plan, coordination with the RBI, and adherence to trust mandates to retain TSPL as a private firm. Holding 66 % of the voting power, the trust can carry the resolution, whereas Tata Group companies own about 13 % of TSPL.
Ranina pointed out that a majority of shareholders has the final say on restructuring moves, rendering minority dissent ineffective. He stressed that directors lack authority over this matter; the choice rests with the shareholders.
Ranina explained the rules for appointing leaders, noting that the Articles of Association require a positive vote from most trustees who serve as directors. Without such approval from the directors nominated by Tata Trusts, the appointment cannot be confirmed.
The Supreme Court decided this point three years ago, holding that the affirmative vote requirement is entirely valid. This means that the appointment of N. Chandrasekaran as Executive Chairman requires the affirmative vote of the directors nominated by Tata Trusts.
