The dispute at Bombay House now turns largely on one question: can Tata Sons cease to be a Core Investment Company (CIC), and thereby escape the Reserve Bank's listing mandate, by merging operating businesses into itself?
Trustees aligned with Noel Tata have defended a proposal to amalgamate Tata Electronics Systems Solutions and Tata Consulting Engineers with Tata Sons. They describe it as a lawful alternative to listing. They say that the RBI's refusal to accept surrender of Tata Sons' CIC registration did not direct it to list, that the refusal made it necessary to explore a lawful alternative, and that keeping the holding company unlisted is a settled position. The opposing trustees, Venu Srinivasan and Vijay Singh, have questioned both the substance of the proposal and how it was taken forward.
The trustees' argument assumes that once Tata Sons ceases to be a CIC, it ceases to be an entity the RBI can direct to list. That assumption does not survive scrutiny. Shedding the CIC label may not take Tata Sons out of the NBFC net at all. Even if it does, the route lies through the RBI's own amalgamation directions, the NCLT and a minority shareholder holding about 18%, each of which can obstruct or defeat it.
The regulatory framework
A CIC is not a distinct species of company. It is a regulatory classification of a company that is already a non-banking financial company (NBFC), and the trustees' letter does not keep the two ideas apart.
The CIC tests. Under the RBI (Core Investment Companies) Directions, 2025, which carry forward the 2016 Directions, a CIC must meet four cumulative conditions on its last audited balance sheet:
At least 90% of net assets must be in equity, preference shares, bonds, debentures, debt or loans of group companies.
At least 60% of net assets must be in equity shares of group companies.
It must not trade in group investments, except through block sales for dilution or disinvestment.
It must not carry on other financial activity, apart from specified items such as bank deposits, government securities and loans to, or guarantees for, group companies.
The Upper Layer and the listing mandate. Under Scale Based Regulation, the RBI placed Tata Sons in the Upper Layer in September 2022. The Governance Directions require an Upper Layer NBFC to list within three years of identification, which made the deadline September 2025. The direction rests on Sections 45-JA and 45-L of the Reserve Bank of India Act, 1934 (RBI Act), and such directions are statutory and binding: Peerless General Finance and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343, and Nedumpilli Finance Co. Ltd. v. State of Kerala, 2022 LiveLaw (SC) 464. A 2026 amendment now defines the Upper Layer principally by asset size: NBFCs with assets of Rs 1,00,000 crore or more. Tata Sons' balance sheet sits well above that threshold.
Surrender. Tata Sons repaid its borrowings and applied to surrender its registration. The RBI refused. Section 45-IA of the RBI Act gives a right of appeal to the Central Government only against rejection of registration or cancellation of a Certificate of Registration, so Article 226 is the realistic remedy. The 2026 deregistration route for NBFCs that use no public funds requires a conscious, long-term business model of operating that way, supported by three years of audited accounts. A company that repaid its debt so that it could leave the regime may struggle to show that.
The trustees are right that the RBI did not order Tata Sons to list. No such order was needed, since the obligation flows from the Governance Directions themselves. Whether compulsory listing of a debt-free holding company serves the statutory purpose is a serious question, but it is a question for the courts, not one to be answered by restructuring.
The principal business test
The merger is designed to defeat the 90% test. Bringing two operating businesses, with their plant, receivables and working capital, into Tata Sons' balance sheet could push non-financial assets above the 10% residual allowance, and to that extent the plan may succeed. But the CIC tests decide only whether Tata Sons is a CIC. They do not decide whether it is an NBFC.
That question is governed by Sections 45-I(c) and 45-I(f) of the RBI Act and the RBI's two-limb principal business test, now in the 2025 Registration Directions: financial assets must exceed 50% of total assets, net of intangibles, and income from financial assets must exceed 50% of gross income. A company that satisfies both limbs is an NBFC whatever it calls itself, and the 2025 CIC Directions say as much. A holding company that fails the CIC criteria may have to register and operate as an ordinary NBFC.
On the income limb, Tata Sons' position is clear. Its income consists overwhelmingly of dividends from listed group companies; its share of TCS dividends alone runs into tens of thousands of crores a year. Two operating companies of the size of Tata Electronics Systems Solutions and Tata Consulting Engineers cannot plausibly push non-financial income above that. The asset limb is closer, because Ind AS lets a holding company carry subsidiaries at historical cost, but the income limb on its own should keep Tata Sons financial in character.
The probable outcome, then, is not release from regulation but reclassification from a CIC to an ordinary NBFC. That brings prudential norms on capital, concentration and group exposure that CICs are largely spared, and under the 2026 asset-size threshold Tata Sons would still be an Upper Layer NBFC. The listing mandate would follow it into the new category.Courts have not allowed a company to step out of the NBFC definition by its own conduct alone. In Morgan Asia Ltd. v. RBI, (2024) 5 HCC (Del) 39, the Delhi High Court held that voluntarily refraining from taking deposits does not take a company outside Section 45-I(f). The same reasoning applies to a company that rearranges its balance sheet while its income remains financial. What matters is the real nature of the business, not the label.
Lawful alternative or colourable device?
Even if the merger took Tata Sons below every threshold, a further question would arise: will the law give effect to a restructuring whose declared purpose is to step outside a regulatory obligation?
Indian law looks to commercial substance. Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613, read with Union of India v. Azadi Bachao Andolan, (2004) 10 SCC 1, protects genuine corporate structures, and choosing a less burdensome lawful route is not unlawful merely because it is less burdensome. But a structure that is a sham, preordained or commercially artificial may be looked through; McDowell & Co. Ltd. v. CTO, (1985) 3 SCC 230, says colourable devices are not legitimate planning. Nor are these principles confined to tax.
In Sahara India Real Estate Corpn. Ltd. v. SEBI, (2013) 1 SCC 1, the Supreme Court held that a company cannot escape the investor-protection obligations of a public issue by calling it a private placement. The Court looked at substance and conduct, not labels.
In Integrated Finance Co. Ltd. v. RBI, (2015) 13 SCC 772, the Court refused to sanction a company-law scheme that would have defeated Chapter III-B of the RBI Act, holding that the Chapter is a self-contained code that prevails over inconsistent arrangements.
Here, the trustees have themselves stated the purpose of the merger: to enable Tata Sons to cease to be classified as a CIC and so remain unlisted. Regulators and tribunals rarely have so candid a statement of purpose before them. The transferor companies may have genuine reasons to integrate, but where the declared rationale is regulatory, Tata Sons will in practice have to show a commercial purpose that would justify the merger even without the listing mandate. Where that purpose is missing, Sahara and Integrated Finance allow the RBI and the NCLT to disregard the form of the transaction.
The wish to remain unlisted is not, in itself, improper. Tata Sons is a private company, and in Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, the Supreme Court upheld its constitution, including the affirmative-vote rights of the Trusts' nominee directors. The difficulty lies in the method, not the aim. A company may challenge the listing direction directly, for example on the ground that Sections 45-JA and 45-L do not extend to compelling a private company to list its equity. It may not use a merger designed to remove the trigger for that direction.
Hurdles on the merger route
Even a merger with a sound commercial purpose must clear three hurdles.
The RBI's no-objection. The RBI (Non-Banking Financial Companies – Voluntary Amalgamation) Directions, 2025 require an NBFC to obtain the RBI's NOC or prior approval before approaching a court or tribunal, and they assume that a surviving NBFC will continue to meet the principal business criteria. A scheme designed to take the NBFC out of those criteria does not fit that assumption. It is difficult to see the RBI that refused to accept Tata Sons' surrender granting a no-objection to a scheme whose stated purpose is to achieve the same result. Under Section 230(5) of the Companies Act, 2013, the RBI can also object before the NCLT as sectoral regulator.
The NCLT's scrutiny. The Tribunal does not simply endorse a scheme once the requisite majorities have voted. Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579, limits review of commercial wisdom, but keeps the duty to refuse a scheme that is unlawful or contrary to public policy. For NBFCs, the Delhi High Court in JVG Leasing Ltd., In re, (2008) 144 Comp Cas 780, refused a scheme designed to avoid regulatory consequences, and Integrated Finance holds that a company court must refuse a scheme that defeats mandatory RBI protections. Having sat on both the NCLT and the NCLAT, I would expect a Bench to ask a simple question: if the RBI has not cleared the scheme, and its stated purpose is to avoid an RBI direction, why should the Tribunal sanction it?
The minority shareholder. The Shapoorji Pallonji group holds about 18% of Tata Sons.
Fast-track route. Section 233 of the Companies Act allows a merger without the NCLT, but Section 233(1)(b) requires approval by members holding at least 90% of the shares. At about 18%, the group alone can block it. The Regional Director may also refer a fast-track scheme to the NCLT on public-interest grounds.
NCLT route. Under the proviso to Section 230(4), members holding at least 10% may object. The group clears that threshold comfortably. An objection is not a veto, but it brings the group's concerns before the Tribunal and gives it real bargaining leverage, particularly after the 2025 Trust resolutions authorised talks on its exit.
There is also an internal gate. A board decision of this significance falls within the affirmative-vote matters under Tata Sons' Articles, which Cyrus Investments upheld. The Trusts' nominee directors are themselves divided, and under Section 166 each must exercise independent judgment rather than vote as the nominating Trust directs.
Consequences for the Trusts and for Tata Sons
The trustees maintain that the restructuring will not affect the Trusts' charitable status. On that narrow point they are probably right. The exemption turns on Sections 11 to 13 of the Income-tax Act, not on what kind of company Tata Sons is. But a scheme that cancels or replaces shares, or changes the Trusts' percentage holding, calls for a fresh analysis under the permitted-investment rules, year by year. A general assurance does not answer that question.
The Charity Commissioner and the trustees' split. Dilution of a shareholding through a merger or a listing is ordinarily outside the prior-sanction requirement of Section 36 of the Maharashtra Public Trusts Act, 1950. The Commissioner's power under Section 41-A is administrative, not a general power to adjudicate disputes between trustees: Damodar Jairam Sao v. Charity Commr., 2011 SCC OnLine Bom 1251. Section 48 of the Indian Trusts Act, 1882 does not apply directly to public charitable trusts, so the trust deeds govern. Even so, Shanti Vijay & Co. v. Princess Fatima Fouzia, (1979) 4 SCC 602, cautions that where the deed is silent, an extraordinary act affecting the trust estate should be taken unanimously. Whether a split vote can bind the Trusts on a restructuring of this size is far from settled.
The cost of success. If the plan worked and Tata Sons ceased to be an NBFC altogether, it would lose the Section 186(11) exemption available to an NBFC whose principal business is acquiring securities, and may also lose the exemption under the Companies (Restriction on Number of Layers) Rules, 2017. Group investments, loans and guarantees would then face the Section 186 limits, board approvals and special resolutions, and the layer limit would constrain its subsidiaries. A plan intended to protect the Trusts' patient-capital model could end up restricting how Tata Sons supports group companies, which is the very flexibility Noel Tata says listing would endanger.
The merger may well take Tata Sons out of the CIC framework. Whether it also takes Tata Sons out of the NBFC regime, and so out of the listing mandate, is a harder question, and the principal business test suggests that it does not. The merger is neither as lawful nor as much of an alternative to listing as the trustees suggest.As an ordinary NBFC, Tata Sons would still meet the 2026 asset-size test for the Upper Layer, and the listing mandate would continue to bind it. The route needs the RBI's prior no-objection and the NCLT's sanction, and it exposes the scheme to an 18% shareholder with every reason to bargain or object. The RBI has already refused to release Tata Sons from the regime, and the trustees' own statement that the purpose is to escape CIC classification invites exactly the substance-over-form scrutiny that Sahara and Integrated Finance require.
The proper course lies elsewhere. Tata Sons can ask the RBI to reconsider, seek a reasoned order and, if necessary, test the listing direction under Article 226. That would raise an important question that no court has yet decided: whether Sections 45-JA and 45-L allow the RBI to compel a private company to list its equity. That question deserves a judicial answer. Restructuring the balance sheet to avoid it is no substitute.
Author is an Advocate practicing at Supreme Court of India, a former District Judge, former Member (Judicial) National Company Law Tribunal, and former Member, National Company Law Appellate Tribunal. Views are personal.