In spite of an 80 per cent stake in Space TV, the direct-to-home joint venture with Rupert Murdoch's Network Digital Distribution Services, Tata Sons does not have the right to appoint the company's chief executive.
The joint venture agreement between the two parties signed on January 13, 2004, gives the foreign partner the power to appoint the CEO, despite a minority equity interest of 20 per cent.
Like in any venture, the CEO's rule is crucial in Space TV. The agreement says that it is the CEO who will appoint and structure the management team of the company. Tata Sons will have the right to nominate the chief financial officer as well as the non-executive chairman, who will not have a casting vote in case of a boardroom deadlock.
Tata Sons and Space TV refused to comment on the issue. According to a Tata Sons spokesperson, "The group is not in a position to comment on the joint venture agreement at this time. Similarly, Space TV chief executive officer Vikram Kaushik told Business Standard, "We are in the process of forming the venture and would not have any comment to offer on it now."
According to legal experts, such an agreement has been done to ensure that the foreign company, which has the expertise in running a DTH venture, will be in charge of the day-to-day operations.
"Such a model is common as the CEO is the person in charge of the day-to-day operations of the company. Besides, he is also reporting to the board, which is predominantly owned by the Indian partner," said Anand Prasad, partner, legal consulting firm Trilegal.
As per the joint venture, the CEO will report to the board, which will have eight Tata nominees and two Network Digital nominees. The DTH norms only stipulate that the DTH operator must have Indian management control with majority representatives on the board as well as chief executive being a resident Indian.
Space TV had applied to the government for its permission to launch DTH services in the country over a year back. The government, has, on more than one occasion raised various questions on the nature of the joint venture agreement between the two and on the proposed investment in the venture.
Another area where Network Digital has been given more powers than the majority shareholder is the area of selecting the foreign institutional investor, which could invest in the venture. As per the joint venture agreement, the FII will be identified by Network Digital.
Similarly, in the event of a foreign company having to reduce the equity in the company owing to changes in the regulatory framework, Network Digital will have the right to nominate its replacement. In this event, Tata Sons will not have the first right of refusal, the joint venture agreement stipulates.