This article explains, in general terms, how Indian law treats shares held on trust, and why it is the trustees, not the trust, who appear on a company’s register of members. It refers to the articles of association of Tata Sons Private Limited, as reported in the media, only by way of illustration; it does not analyse them or comment on their legality.

A relationship, not a person: why a trust cannot be a shareholder

Indian law does not recognise a trust as a legal person. The Indian Trusts Act, 1882 does not describe a trust as an entity at all: Section 3 calls it “an obligation annexed to the ownership of property”, arising out of a confidence reposed in and accepted by the owner for the benefit of another. The trustee owns the property, and the trust is simply the obligation that governs how the trustee deals with it. A trust therefore has no separate legal personality: it cannot hold property or enter into contracts in its own name.

Litigation concerning trust property is brought by or against the trustees, not “the trust”, and where a trust is named as a party, it is understood as shorthand for its trustees. Public trust statutes, such as the Maharashtra Public Trusts Act, 1950, regulate trustees and trust property through registration and supervision by the Charity Commissioner, but registration does not convert the trust into a corporate body.

Company law requires a member to be a person. Under Section 2(55) of the Companies Act, 2013, a member can only be a person whose name is entered in the register of members. Since a trust is not a person, it cannot be entered on the register in its own right. The shares are registered in the names of the trustees, usually as joint holders, and the trustees become the members. The trust’s interest is disclosed through the Section 89 declarations, not by entering the trust itself as a member.

The 1956 Act said this directly: Section 153 provided that no notice of any trust, express, implied or constructive, would be entered on the register of members. The 2013 Act has no identical provision. Instead, it requires disclosure under Sections 89 and 90. Accordingly, the register of members still records the legal owner, and the company deals with the registered trustees, not the trust.

Section 113 allows only a body corporate to appoint an authorised representative. A trust is not a body corporate, so it cannot use Section 113. The trustees attend and vote in their own right as registered members, or appoint proxies under Section 105. Where trustees hold jointly, the articles usually provide that the vote of the senior joint holder, by order of names on the register, is accepted to the exclusion of the others. Attendance slips, proxy forms and minutes should therefore name the trustees as registered holders, with any reference to the trust used only as description.

Under the Companies Act, 2013, the beneficial owner’s rights are indirect. Section 89(10) defines beneficial interest to include the right to exercise, or cause to be exercised, any or all of the rights attached to the share, and the right to receive or participate in dividends or other distributions. The beneficial owner gets these rights by directing the registered holder. It does not exercise them against the company in its own name. It cannot vote, attend or receive notices as a member until it is itself on the register.

The beneficial owner’s main remedies are against the registered holder. For a trust, these come from the trust deed and trust law. If trustees act in breach of trust or fail to follow the express terms of the trust deed, the beneficiaries, and in the case of a public trust the relevant regulator such as the Charity Commissioner, may seek remedies against them. A trust’s rights as beneficial owner are therefore enforced against its own trustees, not against the company. The company’s statutory dealings are with the member on the register.

Rights without membership: board and veto rights of a beneficial owner

This raises an obvious question: how can a beneficial owner have board appointment rights or veto rights when it is not even a member? The answer is that it does not hold those rights in its own name as a matter of company law. It can get the benefit of them in three ways, and in each case the right is held or enforced by someone else.

First, through the registered holder. The articles give the nomination or veto right to the shareholder on the register, which for a trust means its trustees (whose names are entered in the register of members). The trustees exercise the right on the trust’s instructions, because Section 89(10) treats the right to “cause to be exercised” the rights attached to a share as part of the beneficial interest. The beneficial owner controls the right, but it is enforced through the trustees, not by the beneficial owner directly against the company.

Second, through the directors. Many affirmative rights are drafted as a requirement that the nominated directors vote in favour of a matter at board level, rather than as a shareholder veto. Article 121 of the Tata Sons Articles is reported to work in this way. The veto then belongs to directors who are validly on the board, and each of them owes duties to the company under Section 166, whatever the expectations of the person who nominated them. The tension between those duties and a nominee’s loyalty to the nominator has been highlighted in recent commentary on the Tata controversy.

Third, by contract with the company. A non-member can obtain board rights by agreement, as lenders and investors often do, and Section 161(3) recognises the appointment of directors nominated by an institution pursuant to an agreement. It is not publicly known whether the Tata Trusts have any such agreement with Tata Sons. In any event, a contractual right is enforceable only between the parties, and only to the extent it is consistent with the articles and the Act.

In each case, the legal right sits with the registered members (trustees), the directors or a contracting party. Describing board or veto rights as rights “of the Trusts” is therefore shorthand, not a statement of the legal position.

The trustee on the register: what the company recognises

As far as the company is concerned, the trustee shareholder is the member and holds every membership right. These include: the right to vote on a show of hands and on a poll; the right to receive notice of and attend general meetings; the right to appoint a proxy and to demand a poll; the right to receive dividends and bonus or rights shares; the right to inspect statutory registers and receive financial statements; and the right to requisition meetings. For trustees holding jointly, this means a single member for the purpose of the numerical threshold.

A trustee must exercise these rights in line with the trust deed and the duties of prudence and loyalty. A trustee who votes against the trust’s interests is accountable to the beneficiaries, but the company is entitled to act on the vote as cast. The company is not required to look into the arrangement between the trustees and the beneficial owner.

Special rights in the articles: who can enforce them?

The articles of a company contain the regulations for its management, and they may include entrenchment provisions under Section 5(3). Under Section 10, the memorandum and articles bind the company and its members as if each member had signed them. In practice, special rights are given to the shareholder group that holds the shares, for example “the trustees for the time being of [the Trust], as holders of shares”.

No special rights can benefit an outsider, so once a trust is treated as separate from its trustees, it becomes an outsider and cannot enforce them. Even as a beneficial owner, it is an outsider for this purpose, so a special right drafted in its favour cannot be enforced by it directly against the company, particularly where the provision is contrary to the Companies Act.

Conclusion

Indian law keeps two relationships distinct. The trust deed and trust law govern the relationship between the trust beneficiaries and its trustees. The register of members governs the relationship between the trustees and the company. Section 89 and the Companies (Significant Beneficial Owners) Rules, 2018 connect the two by requiring disclosure, but they do not merge them. A trust is not a legal person, cannot be entered on the register of members, and therefore cannot itself be a shareholder.

It follows that a charitable trust that invests in a company has rights that run only through its trustees. Voting rights, nomination rights and affirmative rights under the articles belong in law to the trustees as registered members, and directors appointed on their nomination owe their duties to the company. Describing these as rights “of the Trusts”, or describing directors as “the Trusts’ nominees”, is a convenient shorthand, used widely, but it does not change the legal position. Recent press commentary, and to some extent the Tata Trusts’ own public statements, use this shorthand without explaining where legal control actually lies.