Tata Sons chairman N Chandrasekaran resigned on Wednesday, saying he would not seek another term after his tenure ends on February 20, 2027. His departure sets the stage for the search for the next chairman of Tata Sons, the principal holding company of the Tata group.

Tata Sons’ Articles of Association provide for a formal selection committee, with the final appointment made by the company’s board. The Tata Trusts, which collectively own about 66 per cent of Tata Sons, have significant influence over the process through their ownership and governance rights. This makes succession at Tata Sons a carefully structured process rather than a conventional corporate appointment.

How is the Tata Sons chairman selected?

The key provision is Article 118 of the Tata Sons Articles of Association, which provides that as long as the Tata Trusts collectively hold at least 40 per cent of Tata Sons’ paid-up ordinary share capital, a Selection Committee has to be constituted to recommend a person for appointment as chairman of the board. The Tata Sons board can then appoint the person recommended by the committee, subject to Article 121, which grants voting rights to the nominee directors of Tata Trusts on board decisions.

The five-member committee comprises:

• Three members nominated jointly by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust
• One member nominated by and from the Tata Sons board
• One independent outside member selected by the Tata Sons board

The chairperson of the selection committee is also chosen by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust from among the three Trust-nominated members. The Articles further state that a majority of the members jointly nominated by the two Trusts must be present for the committee to conduct business.

But the committee's job is to recommend a candidate and not itself appoint the chairman. The formal appointment is made by the Tata Sons board.

Can the Tata Trusts chairman also head Tata Sons?

Tata Sons amended its Articles in 2022 to formally separate the top positions. Under the change, the chairman of either the Sir Dorabji Tata Trust or the Sir Ratan Tata Trust cannot simultaneously serve as Tata Sons chairman. The amendment creates a clearer line between ownership and management. The Trusts remain Tata Sons’ dominant shareholders, but the company’s chairman must be separate from the person heading the Trusts.

While Ratan Tata headed Tata Sons until 2012 and later continued as chairman of the Tata Trusts, his successors, Cyrus Mistry and N Chandrasekaran, did not hold the Trusts’ top post.

Now Noel Tata is chairman of Tata Trusts, and therefore cannot also become chairman of Tata Sons.

How previous Tata Sons successions worked

When Ratan Tata was preparing to retire, Tata Sons set up a five-member selection committee to find his successor. Cyrus Mistry was eventually chosen after a search that lasted more than a year. In November 2011, Tata Sons announced that Mistry had been appointed deputy chairman and would work with Ratan Tata for the following year before taking over as chairman when Tata retired in December 2012. His selection was described as the unanimous recommendation of the selection committee.

Mistry was a Tata Sons director and the managing director of the Shapoorji Pallonji Group when he was selected.

In October 2016, the Tata Sons board replaced Mistry as chairman and appointed Ratan Tata as interim chairman. The board simultaneously constituted another five-member Selection Committee to find a permanent successor. The committee included Ratan Tata, Venu Srinivasan, Amit Chandra, former diplomat Ronen Sen and economist Lord Kumar Bhattacharyya.

The committee was given four months to complete the selection process. It eventually recommended N Chandrasekaran, then chief executive and managing director of Tata Consultancy Services. On January 12, 2017, the Tata Sons board appointed Chandrasekaran as executive chairman, explicitly stating the appointment followed the unanimous recommendation of the Selection Committee. He took charge on February 21, 2017.

Why Article 118 became important in the Cyrus Mistry case

The chairman-selection mechanism later became a significant part of the legal battle between Cyrus Mistry and the Tata group. After Mistry's removal in 2016, the dispute in the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) eventually reached the Supreme Court. In its March 2021 judgment in Tata Consultancy Services Ltd v Cyrus Investments Pvt Ltd, the Supreme Court examined the Tata Sons Articles, including Article 118 and the provisions dealing with the appointment and removal of the chairman.

The judgment reproduced the relevant provisions of Article 118. It noted that the article provided for a Selection Committee to recommend the appointment of a chairman and that the board could appoint the person recommended by the committee, subject to the relevant voting requirement under Article 121.

The Supreme Court ultimately upheld the Tata Sons board’s decision in the Mistry dispute, reversing NCLAT’s order that had restored Mistry as chairman.

What to watch next

Chandrasekaran’s current term as executive chairman of Tata Sons ends on February 20, 2027. With him choosing not to seek another term, Tata Sons will now have to begin the formal succession process.

The succession process will be the same as the framework laid out in Article 118. A five-member selection committee will be constituted that will consider candidates and recommend one for chairman. The Tata Sons board will then make the formal appointment, subject to the voting requirements under Article 121.