On Thursday, Tata Trusts Chairman Noel N Tata made clear that the Trusts, which owns approximately 66 per cent of Tata Sons, remains opposed to the listing of the holding company. On September 11, the RBI informed Tata Sons that it would not accept its application for deregistration as a core investment company and that it must comply with the norms governing upper-layer non-bank financial companies (NBFCs), which require stock exchange listing for entities with more than ₹1 trillion in assets.
One possible route would be to reduce Tata Sons’ relevant asset base below the ₹1 trillion threshold for classification as an upper-layer NBFC, according to a former regulatory official.
“If an entity is no longer classified as an upper-layer NBFC, then the listing requirement does not apply,” the person said, requesting anonymity. “There is a threshold for being classified as an upper-layer NBFC. If the relevant asset size comes below ₹1 trillion, then it would no longer fall within the upper-layer category.”
However, the scope for balance-sheet restructuring could be limited, said Abhishek Paliwal, partner at King Stubb & Kasiva, Advocates and Attorneys.
“On paper, there are several routes short of an initial public offering (IPO), but each one has already narrowed considerably,” Paliwal said.
Tata Sons has already sought to reduce its leverage, repaying about ₹21,800 crore of debt in 2024 before applying for voluntary deregistration. It argued that it was no longer a leveraged, systemically risky entity and had cited the RBI’s earlier treatment of Shanghvi Finance, Paliwal said.
But with the revised framework setting the upper-layer asset threshold at ₹1 trillion, further debt repayment may not be enough. Tata Sons’ assets are estimated at about ₹2 trillion, more than twice the threshold.
“No realistic further debt repayment gets it under that bar; only a divestment of core group holdings would, and that is not something a holding company built to hold controlling stakes in Tata operating companies can do without unwinding the group structure itself,” Paliwal said.
Shareholding restructuring
Tata Sons could also restructure its shareholding, Paliwal said. One proposal involves buying out the Shapoorji Pallonji group’s roughly 18 per cent stake through a selective capital reduction before the National Company Law Tribunal.
Such a move would not itself remove the listing requirement, but could alter the shareholder dynamics and potentially strengthen Tata Sons’ position in discussions with the regulator, he said.
Another option would be to seek more time to comply rather than an outright exemption. Noel Tata’s statement that all permissible options should be examined could provide scope for discussions over the compliance timeline, Paliwal said.
Tata Sons could also seek a policy-level exemption, potentially from the finance ministry, arguing that its ownership structure — with charitable trusts as its principal shareholders — distinguishes it from other NBFCs. Paliwal said this was likely to be a last resort.
Abizer Diwanji, founder of NeoStrat Advisors, said Tata Sons should not treat a listing as its only option.
“There are several alternatives that can be explored: Tata Sons could bring in a new investor, a private equity or sovereign investor, offer a partnership, or undertake structural share swaps involving more liquid listed Tata companies,” Diwanji said.
One possibility would be for the Shapoorji Pallonji group to swap its Tata Sons shares for stock in more liquid listed Tata companies, such as Tata Power or TCS. This could reduce the group’s holding in Tata Sons while giving it listed shares that could be monetised, he said.
“If commercially Tata Sons believes that listing is the best solution, then why not? But it should be a commercial decision, not simply the result of regulatory imposition,” Diwanji said.
Judicial review is another option. Tata Sons could challenge either the RBI’s classification or its rejection of the deregistration application. Litigation could keep other options open for longer, but would not necessarily provide a clear route out of the listing requirement, Paliwal said.
“None of these alternatives eliminates the listing obligation outright. At best, each either delays it, narrows its scope, or improves Tata Sons’ negotiating position before it happens,” he said.
Diwanji said Tata Sons could also challenge the RBI’s interpretation of public funds. “It has not taken public deposits. Public deposits in the context of an NBFC essentially relate to debt, and I don’t think equity has the same linkage,” he said.
Legal action, however, may not be Tata Sons’ immediate response, said H P Ranina, senior advocate at the Supreme Court.
“Tata Sons will probably first engage in a dialogue with the RBI to understand what exactly it wants the company to comply with and why its application for deregistration was rejected. I don’t think it will immediately take the legal route,” Ranina said.
The central legal question, according to Ranina, is whether the RBI has statutory authority under the Reserve Bank of India Act, 1934, to require an investment company to go public.
“I don’t think any such power has been given to the RBI. The RBI can regulate an entity, but regulation does not give it the power to change the ownership structure of an entity,” he said.
If Tata Sons ultimately challenges the matter, the courts would have to examine whether the RBI had the statutory authority to issue such a direction, Ranina said.
“The RBI can only do what it is empowered to do under the law. The RBI should clearly spell out the reasons for rejecting Tata Sons’ application and specify what regulations it expects the company to follow. Simply saying that Tata Sons is an upper-layer NBFC and therefore has to comply with the applicable regulations is not sufficiently specific,” he said.
For now, Ranina expects the listing issue to remain on the back burner as Tata Sons and the regulator seek to find common ground.
“Under the RBI’s core investment company framework, a CIC must hold at least 90% of its net assets in group companies, with 60% in group equity. RBI registration is triggered where a company has assets of ₹100 crore or more and raises or holds public funds. A company above that asset threshold which does not access public funds can remain unregistered, and a registered CIC meeting those conditions can seek voluntary deregistration. The regulations place such NBFCs having assets of ₹1 trillion or more in the Upper Layer and the Upper Layer NBFCs need to be mandatorily listed within three years of identification. So the question for Tata Sons is whether it can establish that it does not raise or hold public funds. That is complicated by the scale-based regulation framework, which treats public funds as including funds received indirectly through associates and group entities with access to public funds — and the RBI has already declined an earlier application. If Tata Sons remains a registered CIC in the upper layer, mandatory listing follows within 3 years of identification. The alternative is a genuine, board and shareholder approved restructuring that moves Tata Sons out of the upper layer and removes the listing obligation but not the CIC regulation,” said Parag Bhide, partner at Aquilaw.
“Judicial review under Article 226 is also available, but the process can be long and arduous, while the outcome is uncertain. Therefore, engagement with the RBI with restructuring examined in parallel, is the more immediate course for Tata Sons,” Bhide added.
