[Ananya Nagaraja is an Advocate enrolled with the Bar Council of Karnataka in 2025, practising independently. Her work spans general corporate advisory, financial regulation, and MSME Advisory]
The Reserve Bank of India (“RBI”) introduced the Scale-Based Regulation (“SBR”) Framework for Non-Banking Financial Companies (“NBFCs”) on 22 October 2021 (subsequently consolidated into updated Master Directions on 28 November 2025) with the objective of preventing the affairs of NBFCs from being conducted in a manner detrimental to the interests of investors, depositors, and the broader financial system. The RBI classified sixteen NBFCs in the Upper Layer (“NBFCs-UL”) under the SBR Framework on 30 September 2022, imposing an enhanced regulatory regime, including a mandatory listing obligation within three years. Tata Sons Private Limited (“Tata Sons”) remains the only entity on that list that has not fulfilled this obligation. The three-year deadline expired on 30 September 2025 without enforcement action or formal exemption. On 6 August 2026, the RBI reclassified Tata Sons under a revised Upper Layer framework retaining the listing obligation unchanged. Its deregistration application filed in March 2024 was rejected by the RBI on 11 September 2026.
At first glance, the RBI has merely discharged its statutory duty. However, upon closer examination something more consequential is revealed. A regulatory instrument designed for financial intermediaries is producing outcomes that are corporate and structural in nature. It compels a public listing and materially threatens the philanthropic architecture of the Tata Trusts. This post examines whether the powers conferred upon the RBI by the Reserve Bank of India Act, 1934 extend to restructuring private corporate entities.
The power to regulate financial intermediation is well-established; the power to restructure corporate governance is not. This post argues that the gap between the two demands doctrinal clarification through judicial intervention, legislative amendment, or inter-regulatory coordination between the RBI and the Securities and Exchange Board of India (“SEBI”).
The Statutory Limits of the RBI’s Mandate
The RBI’s mandate was expanded to regulate NBFCs to address a straightforward legislative concern: protecting members of the public who deposited money with unregulated financial intermediaries from the consequences of their collapse. The 1997 amendment to the RBI Act had one purpose, which was to bring within the RBI’s supervisory architecture those entities that raised money from the public and deployed it as loans or investments, entirely outside the framework that governed scheduled commercial banks.
The RBI has placed reliance on sections 45JA, 45K, 45L and 45M of the RBI Act to issue the enhanced regulatory framework under the RBI (Non-Banking Financial Companies-Governance) Directions, 2025. Chapter V of the Governance Directions requires NBFCs-UL entities to list on stock exchanges within three years of identification and to make disclosures on the same lines as those applicable to listed companies even prior to listing. However, the enabling provisions confer authority on the RBI to issue directions on specific matters. Section 45JA covers prudential financial management directions. Section 45K confers the power to collect information from non-banking institutions and to issue directions in matters relating to or in connection with the receipt of deposits. Section 45L stipulates the authority to collect information from financial institutions and issue directions regarding the conduct of business with due consideration to the object of establishment of the institution, its statutory responsibilities, and the effect the business of the institution is likely to have on trends in the money and capital markets. Directing a private company with a philanthropic trust ownership at its foundation to list does not satisfy the requirement of due regard under section 45L(3). Section 45M covers the duty of the non-banking institutions to furnish statements required by the RBI, a provision to support execution of the regulations.
Every other enhanced regulatory requirement imposed on NBFC-UL entities under the Governance Directions, including board composition standards, fit and proper criteria for directors, supervisory reporting obligations, and pre-listing disclosure requirements falls within the scope of the enabling provisions cited. The mandatory listing obligation alone does not. It is not a direction on prudential financial management, information collection, or reporting. It is a direction that compels the structural transformation of a private company into a public listed entity, an outcome that falls squarely within the legislative domain of the Companies Act, 2013 and the Securities and Exchange Board of India Act, 1992, not the RBI Act.
The mandatory listing direction therefore lacks express statutory authority under any of the enabling provisions relied upon. In issuing it, the RBI has exercised a power that the RBI Act does not confer. Tata Sons is the only Core Investment Company identified in the Upper Layer list. Unlike every other NBFC-UL entity, this passive holding company conducts no direct financial intermediation. Its classification rests entirely on the April 2026 expansion of the definition of “public funds” to include indirect receipt through group entities, the legal soundness of which is examined in the section that follows.
The Public Funds Expansion: Collapsing the Separate Entity Principle
The 2026 Amendment to the Master Directions inserted an explanation to the definition of “public funds”. It states: “Indirect receipt of Public Funds means funds received not directly but through associates and Group entities which have access to Public Funds.”
This change indicates a doctrinal shift from regulating the manner in which an entity itself accesses public funds, to determining that an entity accesses public funds simply because its affiliated entities raise funds from public markets. This expanded definition creates a fundamental inconsistency. A company and its shareholders or group entities are separate legal persons. The debts and financial obligations of one cannot be attributed to another merely by virtue of their relationship. This principle was laid down as early as in Kondoli Tea Co. Ltd., In re. The expanded definition attributes the financial character of group entities to Tata Sons solely on the basis of group membership. Through this insertion, the RBI is achieving by regulatory direction what Indian courts have permitted only in exceptional circumstances determined through strict judicial interpretation on specific grounds such as fraud, improper conduct, or a specific statutory provision authorising consolidation.
The Supreme Court in Life Insurance Corporation of India v. Escorts Ltd established that the corporate veil may be lifted only in certain well-recognised circumstances: where the company is used as a mere cloak or sham, where it is used to evade obligations, or where a specific statutory provision requires consolidation. However, the RBI makes no such stipulation to verify the nature of the relationships. It simply holds all group entities, sham or not, in the same basket. The Supreme Court in Vodafone International Holdings BV v. Union of India refused to permit the state to look through a group structure on the basis of economic relationships alone, even where the state had compelling fiscal interests. It held that group membership alone, without additional grounds, is not sufficient to disregard separate legal personality doctrine.
The RBI applied this April 2026 expansion to a deregistration application filed by Tata Sons in March 2024 under the pre-existing definition, formally rejecting that application on 11 September 2026 on the basis of standards that did not exist when the application was made. The term “indirect” existed previously to mean a method of access to public funds. The explanation inserted achieves a recharacterisation by enlarging the scope to the structuring of separate entities. Applying this amendment to an application pending prior to its introduction creates a retrospective effect which is contrary to the well-established presumption against retrospectivity as established in Commissioner of Income Tax v. Vatika Township Private Limited.
The combined effect of the definitional expansion and its retrospective application is that Tata Sons’ classification rests on a foundation that is both doctrinally unsound and procedurally irregular, with consequences that extend well beyond the deregistration application and into the governance and enforcement questions examined below.
A Mandate Without a Mechanism: Enforcement, Governance, and the Chain of Consequences
The listing mandate is not a compliance requirement that Tata Sons can fulfil within the RBI’s regulatory framework alone. To ensure compliance with this mandate, a prior conversion of Tata Sons from a private limited company to a public limited company is required. This conversion is governed by section 14 of the Companies Act, 2013, which requires a special resolution passed with the assent of at least 75 per cent of the votes cast by the shareholders. Notably, Tata Sons itself converted from a public limited company to a private limited company in 2017 through this same process, a conversion administered entirely under the Companies Act without any RBI involvement, confirming that conversion and listing are matters of corporate law and not financial regulation.
The RBI has no authority to compel shareholders to approve such a resolution under the Companies Act, and the listing mandate contains no mechanism to do so. Listing is an executive decision involving a fundamental restructuring of the company’s corporate character, its relationship with public markets, and its ongoing obligations under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Governance Directions compound this by requiring NBFC-UL entities to make disclosures on the same lines as those applicable to listed companies even before listing occurs. This imposes a disclosure regime on a private company, with no obligation to publicly disclose even its capital structure or shareholding pattern under the governing company law.
The RBI’s mandate creates an enforcement paradox. The RBI is empowered to penalize non-compliant NBFCs under section 58G of the RBI Act, cancel the certificate of registration (“COR”) issued to the NBFC under section 45-IA, prohibit asset alienation under section 45-MB or supersede the board under section 45-IE. However, none of these mechanisms are designed for the direction issued. If the COR is cancelled, the entire intra-group financial architecture is rendered non-compliant, which is a consequence disproportionate to any regulatory objective. Parliament expressly addressed the RBI’s authority over group companies through section 45NAA of the RBI Act, confining it to information gathering and inspection. That power falls well short of compelling an architectural restructuring of the group. This enforcement framework was designed for deposit-taking financial intermediaries, not passive holding companies.
Compliance with the listing mandate triggers consequences beyond the legal regime the RBI administers. Paragraph 43 of the Governance Directions imposes pre-listing disclosure obligations equivalent to those applicable to listed entities under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, including the obligation to disclose related party transactions under regulation 23(9) thereof. For Tata Sons, whose intra-group arrangements typically span the entire Tata Group, this requires public disclosure of transactions that a private company has no statutory obligation to disclose. The Tata Trusts, which are public charitable trusts registered under the Bombay Public Trusts Act, 1950, hold significant interests in Tata Sons through governance rights embedded in its articles of association. Whether the conversion of Tata Sons from a private limited to a public limited company, followed by listing, would materially alter those rights, thereby requiring the prior sanction of the Charity Commissioner under section 51 of the Bombay Public Trusts Act, 1950, is a question no regulator has examined.
Conclusion
The Tata Sons conundrum highlights a fundamental misalignment between authority conferred on the RBI and the consequences that the listing mandate produces. While the RBI’s objective of ensuring public transparency and market discipline over systemically significant conglomerates is sound in principle, the means adopted are not defensible through the statutory framework as it currently stands. This analysis reveals the need for inter-regulatory coordination between the RBI, SEBI and the Ministry of Corporate Affairs to address the gaps created by this direction, especially the section 14 requirements for conversion, the pre-listing disclosure mandate and the ambiguity arising under section 51 of the Bombay Public Trusts Act, 1950. Further, the Governance Directions require judicial scrutiny on the grounds established herein that the listing mandate lacks the necessary statutory authority under the enabling provisions and that the expanded definition of public funds collapses the separate legal entity principle without the conditions laid down by the Indian courts. Finally, an amendment should be considered to create a distinct category for systemically important passive holding companies calibrated to the risks presented by this category rather than equating them with the deposit-taking NBFCs. With the RBI having now directed immediate listing following its 11 September rejection of Tata Sons’ deregistration application, the need for these clarifications has become acute. Without these clarifications, the gap between what the RBI can direct and what the law can justify quietly widens.
– Ananya Nagaraja