The Economic Times of India reported today (18 Jan) that another shareholder of the now defunct Lakshmi Vilas Bank (LVB) has filed a court petition in Delhi challenging the forced acquisition of LVB by DBS India.
The petition in the Delhi High Court has been filed by lawyer Sudhir Kathpalia, who was also a shareholder of LVB. He lost 20,000 of LVB shares due to the forced merger of LVB with DBS India.
Kathpalia has sought to quash a clause in the merger agreement, which states that from the date of merger, “the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off”.
DBS India inherits 4,000 staff from LVB
Last Nov, India’s central bank, the Reserve Bank of India (RBI), seized control of the struggling LVB based in Chennai and “forced a merger” with DBS India. It was the first time RBI has brought in a foreign-linked bank to rescue a local Indian bank through a merger. As part of the deal, DBS India injected some S$450 million into the merged entity.
According to RBI, the financial position of LVB had undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. With declining advances and mounting non-performing assets (NPAs), LVB was expected to make continual losses, in the view of RBI. LVB was also experiencing a continuous withdrawal of deposits and low levels of liquidity, with its capital adequacy ratio failing to meet regulatory requirements.
RBI further revealed that LVB had been experiencing serious governance issues and practices in recent years, which led to its deterioration. In fact, the All India Bank Employees’ Association (AIBEA), the staff union of LVB, had alleged that some top management officials of LVB were responsible for the huge bad loans in the bank and wanted them to be held responsible. It was said that LVB management was responsible for bad loans of more than Rs2,000 crore (S$360 million) to borrowers like Religare, Jet Airways, Cox and Kings, Nirav Modi group, Coffee Day and Reliance Housing Finance.
In any case, with the merger, DBS India inherited 566 bank branches and about 4,000 employees from LVB.
Petition states merger “irregular, arbitrary, irrational, unreasonable, illegal”
In his filing, Kathpalia stated that the merger of LVB and DBS India had left LVB shareholders “in the lurch”, as under the merger agreement, DBS India was not required to give any shares to the LVB investors in return.
Kathpalia also contended that RBI has failed to protect the interests of LVB shareholders. He claimed that DBS India was chosen for the merger without inviting bids from other banks and financial institutions.
He alleged that the “scheme of amalgamation was irregular, arbitrary, irrational, unreasonable, illegal and thus, void”.
The petition came before 2 judges in Delhi High Court last Wed (13 Jan). However, it was adjourned to 19 Feb after the court was told that the RBI has already moved a plea in India’s Supreme Court to transfer all pleas against the amalgamation scheme to the Bombay High Court.