Public trustee regime and Tata Trusts: An old law, a contemporary question

When charitable trusts control a substantial stake in a major commercial enterprise, who should determine how that voting power is exercised? The question has acquired renewed significance in the dispute over Tata Sons’ proposed listing, where disagreements within the Tata Trusts have brought fiduciary obligations, boardroom independence and corporate control into sharp focus.

India once addressed a related concern through the erstwhile Section 187B of the Companies Act, 1956 (the “1956 Act”), which has since been replaced by the Companies Act, 2013 (the “2013 Act”). Inserted by the Companies (Amendment) Act, 1963 with effect from January 1, 1964, the provision transferred voting rights attached to certain trust-held shares from trustees to a government-appointed Public Trustee. It sought to prevent voting power held through trusts from advancing private interests but did so without requiring an individual finding of misconduct.

Parliament discontinued the regime in 2000, the same year Tata Sons, whose controlling shareholding has long been held by charitable trusts, amended its Articles of Association to give those trusts board-level rights. Does this history justify renewed public oversight of trust-held voting power, or would that revive the concerns that led to the provision’s removal?

The answer requires examining not only why Section 187B was introduced, but also why its design proved controversial and what its history reveals about accountability in corporate governance.

The Companies (Amendment) Act, 1963 inserted Sections 153A, 153B and 187B into the Companies Act, 1956, with effect from 1 January 1964. Section 153A allowed the Central Government to appoint a Public Trustee; Section 153B required trustees holding shares or debentures to make a declaration to that officer. Section 187B did the decisive work: voting rights and other powers exercisable at company meetings ceased to be exercisable by the trustee and became exercisable by the Public Trustee. The trustee kept the shares; the vote moved to a public official.

The displacement operated automatically, without an executive finding that a particular trustee had misused a vote. The regime nevertheless provided exemptions for specified categories of trusts and allowed the Public Trustee to abstain, appoint the trustee as proxy and consider the trustee’s written views. The Companies (Public Trustee) Rules, 1973 required consideration of the beneficiaries’ best interests before appointing a proxy.

The aim was to stop trust-held votes from serving the personal interests of donors or those controlling the trusts. The dissent to the legislative committee’s report objected that trustees could lose their votes without proof of misconduct or an appeal and proposed confining the power to cases of proven misuse. That safeguard was not retained.

For Tata Sons, incorporated in 1917, whose principal trusts date from 1919 and 1932, the provision reached into an arrangement decades old. It did not stop trusts holding shares, but it could change who voted them.

The dissent identified the central property-rights concern: the vote could be removed without proof of wrongdoing, a hearing or an appeal. This was not an objection to all regulation of shareholder voting, but to the means chosen.

A share is property and the vote one of its incidents. Section 187B left ownership intact but removed the vote, engaging Article 19(1)(f) (since omitted from the Constitution with effect from 20 June 1979), subject to reasonable restrictions under Article 19(5). Article 14 asked why shares held through a trust should be treated differently from those held directly.

The State could reply that trust-held shares posed a distinctive aggregation risk, an argument the exemptions, abstention power and proxy mechanism would have supported under the reasonableness standards of the period.

Nevertheless, a narrower alternative was available: establish misuse, hear the affected trustee and provide an appeal. The dissent proposed that approach, but Parliament did not adopt it. The historical lesson is not that the State may never regulate voting rights, but that a legitimate concern about fiduciary abuse does not by itself justify displacing private voting power by statutory class.

The Companies (Amendment) Act, 2000 rendered Sections 153A, 153B and 187B inapplicable from 13 December 2000. Its stated objective was to enable trusts to exercise voting rights directly.

The timing in Tata Sons is noteworthy. The discontinuation of Section 187B was first proposed in the Companies (Second Amendment) Bill, 1999, introduced in the Lok Sabha in December 1999. With the withdrawal already in prospect, Tata Sons amended its Articles on 13 September 2000, three months before the repeal took effect. As the Supreme Court recounted in Tata Consultancy Services Ltd v. Cyrus Investments Pvt. Ltd. (2021) 9 SCC 449, Article 104B let the two principal trusts jointly nominate one-third of the board. Article 121, as adopted in 2000, required board decisions to carry the affirmative vote of all those nominees; a 2014 amendment relaxed this to a majority of them.

The sequence invites a question rather than proving an answer. As the statutory mechanism that had placed trust-held votes in the hands of a Public Trustee was being withdrawn, Tata Sons moved to entrench the trusts’ influence in its own constitution. The repeal, effective 13 December 2000, restored voting rights at general meetings to the trustees; the amended Articles extended the trusts’ reach into the boardroom, through nomination rights and an affirmative vote over board decisions. Statutory supervision of the trusts’ vote gave way, in effect, to privately drafted control.

The deliberations behind the September 2000 amendments are not on the public record, so the two events can be shown to be contemporaneous. Nor were the trusts left unsupervised: the Maharashtra public-trusts framework, tax law and company-law oppression remedies remain.

The trigger is the RBI’s classification of Tata Sons in September 2022 as an Upper Layer NBFC, which set a September 2025 listing deadline. Tata Sons sought to surrender its core investment company registration; the RBI reportedly rejected that application in September 2026.

The Tata Trusts collectively reportedly hold about 66 per cent of Tata Sons, with the Sir Dorabji Tata Trust holding 27.98 per cent and the Sir Ratan Tata Trust 23.56 per cent. The Shapoorji Pallonji Group holds about 18.4 per cent.

In September 2026, the Sir Dorabji Tata Trust issued Resolution No. 107 seeking to prevent its nominee director, Venu Srinivasan, from participating in deliberations or voting on matters concerning a public listing. Srinivasan questioned the resolution’s authority, pointing to his joint nomination by the two principal trusts and his duties under Section 166 of the 2013 Act. At a subsequent board meeting, four of five directors reportedly supported preparations for listing and the reappointment of N. Chandrasekaran; Noel Tata dissented; Mr. Chandrasekaran reportedly recused himself from the vote on his reappointment. The trusts disputed the validity of those decisions, invoking the requirements of the Articles.

Three questions must be distinguished. How should the trusts formulate their shareholder position? What duties govern a nominee director who disagrees with the nominating trust? And must Tata Sons list under the applicable RBI framework?

Section 187B would not directly answer any of them. It governed votes at meetings of members, not directors’ votes at board meetings, and did not authorise the Public Trustee to override a regulator.

The old regime moved the vote because shares were held in trust. A contemporary framework should target conduct and conflicts instead.

Trustees exercising decisive influence over a commercial company should document how material shareholder decisions relate to the trust’s objects and fiduciary obligations. Where a genuine conflict is alleged, the law should provide for disclosure and independent scrutiny through a fair process before a competent authority.

Intervention should be proportionate. An independent voting arrangement or court-supervised mechanism may be justified in an exceptional case of established misconduct but should not displace the votes of every charitable trust with a substantial holding.

The distinction between trustees and directors must also remain clear. Trustees exercise shareholder rights under trust law; directors, including nominee directors, owe duties under Section 166 of the 2013 Act and cannot treat a nominating trust’s preference as a substitute for independent judgment. Where several trusts nominate a director jointly, the instruments and Articles should clarify whether and how one trust may instruct or recall that director.

Finally, whether Tata Sons must list should be determined under the RBI framework and any judicial review, not by transferring voting rights to a Public Trustee.

Section 187B was an ambitious attempt to prevent trust-held shares from being used to aggregate private voting power. Its central weakness was that it displaced votes by statutory class, leaving the protection largely to an official’s discretion without requiring individual misconduct, a hearing or an appeal.

The repeal in 2000 restored voting rights to trustees. Tata Sons’ Articles were changed in the same year, but the record does not establish that one caused the other or conclusively show how Section 187B operated in relation to the Tata trusts’ shares.

The current dispute demonstrates why the underlying question persists. The answer is not necessarily to restore the Public Trustee, but to develop a framework that intervenes where conflicts are established, gives affected parties a fair hearing, preserves the distinction between trustees and directors, and leaves regulatory decisions to the regulator.

About the author: Charvi Devprakash is an Associate at Fox Mandal & Associates.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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