It was reported that the Indian High Court in Madras passed an interim order last Fri (27 Nov), proceeding to protect the interests of the Lakshmi Vilas Bank (LVB) shareholders.
The Indian government has earlier announced to merge the loss-making LVB with DBS India.
It has also allowed the entire amount of the paid-up share capital of LVB to be written off. That is to say, LVB’s equity will go down to zero and the original shareholders of LVB will get nothing.
Following this announcement, LVB shareholders filed a petition to the High Court in Madras demanding compensations.
In its interim order, the Madras High Court directed DBS that no further prejudicial action should be taken against the LVB shareholders and asked DBS to furnish an undertaking to compensate LVB shareholders in case the Court rules so at a later stage.
The High Court further directed DBS to create a separate reserve fund in its books of account to the extent of the face value of shares of the transferor company (LVB) and maintain the same subject to further orders from the Court.
“…completely reducing the shares is not an exercise which has happened in the public domain and the shareholders do not appear to be aware of the exact reasons why this is so,” the Court observed.
Further, the court added that even if the authorities have the power to reduce the share value during an amalgamation under Section 45 of the Banking Regulation Act, reducing it to zero or negative, prima facie, it cannot be done without very compelling reasons.
Major shareholders in LVB include Indiabulls Housing Finance (4.99 per cent), Prolific Finvest Private Ltd (3.36 percent), Srei Infrastructure Finance (3.34 percent), MN Dastur and Co Pvt Ltd (1.89 percent), Capri Global Holdings Pvt Ltd (1.82 percent), Capri Global Advisory Services (2 percent), Boyance Infrastructure Pvt Ltd (1.36 percent) and Trinity Alternative Investment Managers (1.61 percent).
As of 27 Nov, LVB ceased to exist and have become part of DBS India. LVB was founded in 1926 by a group of businessmen in Tamil Nadu. The bank rose to prominence lending to small businesses.
But the fall came quick after it aggressively shifted from retail to wholesale loans, resulting in a lot of bad loans.
The next hearing is likely to be held on January 5 next year.