Tata Sons to Shed NBFC Status via Merger, Says Expert
Tata Trusts proposes merging TESS and TCE into Tata Sons to transform it into an operating entity and avoid NBFC classification.
In a strategic move to maintain its status as an unlisted private entity, Tata Trusts has proposed a major restructuring of Tata Sons Private Limited (TSPL). By merging operating companies Tata Electronics Systems Solutions (TESS) and Tata Consulting Engineers (TCE) into the holding company, the group aims to fundamentally alter its asset structure and shed its classification as a Non-Banking Financial Company (NBFC).
The Shift from Investment to Operating Model
The proposed reorganization is designed to transform TSPL from a primarily investment-driven entity into an operating company. Currently, the classification of an NBFC is determined by specific financial thresholds set by the Reserve Bank of India (RBI). A firm is classified as an NBFC if more than 50% of its income is derived from investments or if its investment assets exceed its total assets.
According to projections, the merger will significantly shift the company's revenue profile. By March 31, 2026, TSPL's projected operating revenues are expected to hit Rs 1,05,043 crore, accounting for 64.3% of its total income. This stands in stark contrast to the Rs 40,072 crore expected from financial assets, effectively moving the company outside the regulatory thresholds for NBFCs and Core Investment Companies (CICs).
Regulatory Compliance and Deregistration
Corporate law expert HP Ranina noted that once the merger is finalized and the company's primary income no longer stems from investments, it will naturally cease to be an NBFC. "Once the merger takes place, the company will only have to inform the RBI that it no longer falls within the RBI’s guidelines for a non-banking financial company and, therefore, should be deregistered," Ranina explained.
While the expert clarified that prior permission from the RBI is not required for this change in status, the transaction must still adhere to the RBI’s Non-Banking Financial Companies – Voluntary Amalgamation Directions, 2025. This includes the necessity of obtaining a prior No-Objection Certificate (NOC).
Internal Friction and Governance Battles
The proposal emerges amidst significant tension between Tata Trusts and the TSPL board. This friction intensified in September 2026 after the RBI rejected a request to drop TSPL's "Upper Layer" NBFC status. Following that rejection, the board voted 4-1 to move forward with listing procedures and to extend the term of Executive Chairman N. Chandrasekaran—a move that Noel Tata, representing Tata Trusts, voted against.
The legal battleground also extends to leadership and decision-making powers within the group:
- Leadership Appointments: Ranina emphasized that under the Articles of Association, appointments require an affirmative vote from the majority of trustees nominated as directors. Without the support of Tata Trusts' nominees, such appointments cannot proceed, a point upheld by the Supreme Court three years ago.
- Shareholder Supremacy: Regarding the power to restructure, the expert highlighted that shareholders hold the ultimate authority. Since Tata Trusts holds a 66% controlling stake, they can pass resolutions at an Annual General Meeting (AGM) regardless of minority objections.
Tata Trusts has formally approached the board to approve this merger proposal, engage with the RBI, and uphold trust resolutions aimed at keeping Tata Sons a private entity.