The Bombay High Court on Thursday refused an interim stay on the Union Cabinet approved merger of the crisis-ridden Lakshmi Vilas Bank Limited with the DBS Bank, which will come into effect from Friday.
The HC said that it was not inclined to grant a stay on the amalgamation since the reliefs sought by shareholders were of “monetary terms” and can be decided at a later stage of hearing.
Lakshmi Vilas Bank Limited will start normal operations as DBS Bank India Limited from Friday, with the Union government on Wednesday approving a scheme for amalgamation proposed by the Reserve Bank of India (RBI). The RBI had said the moratorium imposed on Lakshmi Vilas Bank (LVB) will be lifted on November 27, resulting in depositors being able to withdraw their funds without any limits.
The decision was challenged in the HC on Thursday by the promoters and the shareholders of LVB, including Kare Electronics & Development Private Limited, Pranava Electronics Private Limited and K R Pradeep and investor Indiabulls Housing Finance. The petitioners also sought an interim relief as stay on the merger pending hearing of the case.
A division bench of Justice Nitin M Jamdar and Justice Milind N Jadhav conducted an urgent hearing of the case through video conferences and refused to grant interim relief to the petitioners.
Senior counsel Darius Khambata, representing the shareholders and the promoters, challenged the merger and argued that steps taken by RBI were in “utter haste” and with “total non-application of mind”. He added that before taking such a decision, the consideration of all shareholders, including the members, was required to be taken by RBI as per Section 45 (5) (f) of the Banking Regulation Act. “However, the shareholders of LVB are being completely wiped out,” Khambata said.
Senior counsel Dinyar Madon, appearing for Indiabulls, concurred with Khambata and said that the RBI had violated provisions of the Banking Regulation Act.
Senior advocate Janak Dwarkadas, appearing for DBS Bank, denied allegations that it was getting “a free gift” through the amalgamation. Referring to the deteriorating financial condition of the Lakshmi Vilas Bank, he said that his client will have to clear future liabilities after the merger comes into force.
However, senior advocate Ravi Kadam, representing RBI, said that as a regulator, the central bank’s duty was at a “much larger scale”. He said that the scheme would benefit and secure nearly 20 lakh depositors of the bank with about Rs 20,000-crore deposits.
Kadam argued, “The petitioners are mere shareholders, they are risk-takers, but RBI has to protect the interest of account holders and depositors who are not shareholders… This amalgamation scheme is a legislative act and petitioners cannot seek to stay on it. Continuity of the financial system, economy and depositors’ interest is important.”
He said Lakshmi Vilas Bank was “failing rapidly” and has a “negative net worth” of nearly Rs 700 crore. It has nearly 7 lakh accounts and shareholders do not get anything since the net worth of the bank is zero, he added.
Opposing the relief sought by the Indiabulls Housing, Kadam said the company had purchased shares to take over the bank, and as that could not happen, it was now seeking compensation.
After hearing the submissions, the bench “prima facie” found that the demands raised in the petitions were based on “monetary terms” and did not require interim relief. The court refused to grant stay on the merger and said that it would record the reasons separately.
Seeking responses from the parties in the case, the HC posted further hearing on December 14.
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