RBI Faces Legal Heat Over Tata Sons’ IPO

The whole point for RBI to bring in regulations is to ensure that there are no further shockers to the economy of the nation, after the IIFL and IL&FS debacle. It is now shocking to see that they are trying to evade regulators by seeking to de-register - Mohith Reddy Pasham, Advocate

Mumbai: A legal notice issued by a concerned citizen has raised serious issues related to Tata Sons and the Reserve Bank of India (RBI). The notice sent by one Suresh Tulshiram Patilkhede to the RBI on November 24 claimed that Tata Sons is attempting to evade regulatory scrutiny and mandatory public listing requirements while highlighting a potential conflict of interest within the RBI. Bizz Buzz broke this story in its November 25, 2024 edition.

The notice alleges that Tata Sons, classified as a Core Investment Company (CIC) and a systemically important Non-Banking Financial Company (NBFC-UL) under the RBI’s Scale-Based Regulation (SBR) framework, is making deliberate attempts to bypass its obligation to go public by 2025. It accuses the conglomerate of applying for deregistration from its CIC status on March 28, 2024, despite regulations stipulating enhanced oversight and mandatory listing for entities in this category. “However, it is pertinent to note that even as on such date, Tata Sons was still continuing to conduct its business as an NBFC admittedly and was reaping benefits from public funds,” the notice read.

The complainant asserts that Tata Sons’ financial dealings, including liabilities exceeding Rs 4,00,000 crore, present risks to its subsidiaries and the nation’s economic stability.

Mohith Reddy Pasham, the advocate representing Patil who issued the legal notice, said, “The whole point for RBI to bring in regulations is to ensure that there are no further shockers to the economy of the nation, after the IIFL and IL&FS debacle. The regulations were put in place and Tata Sons had entered the sphere with their eyes open. It is now shocking to see that they are trying to evade the law-enforcing agencies by seeking to de-register. The regulations are clear that the entities should be listed publicly and there is no other go. These regulations have come in post these bodies being in the place that they are, i.e. in a position to affect the economic fabric of the nation.”

A significant part of the notice focuses on the alleged conflict of interest posed by Venu Srinivasan, a director of Tata Sons and Vice Chairman of Tata Trusts, who is also a member of the RBI board. The notice claims that Srinivasan’s dual role compromises the independence of the RBI’s decision-making and raises ethical questions regarding its consideration of Tata Sons’ deregistration application.

The notice said, “Venu Srinivasan being the Vice Chairman of Tata Trusts and a Director holding signatory powers in Tata Sons has also been appointed as a director of RBI for the period during 2022-2026.”

Advocate Reddy said, “Having Venu Srinivasan on the board of RBI further raises severe concerns regarding the independence of a body like RBI. Prima facie it appears to be in conflict of interest. When RBI does not even have the authority under the regulations to entertain such a deregistration application, accepting the application and considering it for so long, certainly, raises eyebrows.”

The notice warns that permitting Tata Sons to deregister as a CIC could erode public trust in regulatory institutions like the RBI and set a precedent for other entities to evade scrutiny. The complainant has urged the RBI to reject Tata Sons’ application and direct compliance with the SBR framework.

Reddy added, “A body like RBI is obligated to display utmost transparency and garner the faith of the nation. Hence, it’s imperative that RBI rejects the application and gives a decisive mandate that the law is equally applicable to everyone irresponsible of who it is.”