The Madras High Court on Friday restrained DBS Bank India Limited from taking any action prejudicial to the interests of shareholders of Lakshmi Vilas Bank (LVB) without the leave of the court.
Justices Vineet Kothari and M.S. Ramesh also directed DBS to furnish an undertaking before the court that it would provide cash compensation to LVB shareholders if the court orders so in future.
The judges also directed DBS to create a separate reserve fund in its own books of accounts to the extent of face value of the shares of LVB and maintain the same subject to further court orders.
The interim orders were passed on an urgent writ petition moved by AUM Capital Market Private Limited, a retail investor holding 13 lakh shares in LVB, of West Bengal. The petitioner had challenged the merger of LVB with DBS.
Senior Counsel Arvind P. Datar and P.S. Raman, representing the petitioner, questioned the need for Reserve Bank of India (RBI) to have moved the proposal for the merger and the Centre's approval to it at break neck speed.
They said LVB was having robust health and it's book value as well as market value in the stock exchange was fairly good.
Only in January 2018, LVB had undertaken rights issue of shares at the rate of ₹122 per share as against the face value of ₹10 per share and a sum of ₹781 crore was received by the bank from the existing shareholders.
Suddenly, RBI as well as the Centre invoked their powers under Section 45 of the Banking Regulation Act for the merger and framed a scheme which reduced the book value of the shares of LVB to zero, the senior counsel complained.
Agreeing with the counsel that they have made out a case for admission of the writ petition, the Division Bench directed the Centre as well as RBI to file their counter affidavits within three weeks.
It however refrained from staying the operation of the scheme of merger since senior counsel Ravi Kadam, representing RBI, informed the court that the scheme had already come into effect from 12 a.m. on Friday.
At the same time not wanting to leave the LVB shareholders in a lurch, the Bench issued a slew of interim directions which included creation of a separate reserve fund that could be used in the future.
Though RBI as well as DBS urged the Bench to keep its interim directions in abeyance for three weeks, the judges refused to do so and adjourned further hearing of the case to January 5.
