Bombay High Court Refuses To Stay RBI Scheme For Lakshmi Vilas Bank Merger With DBS Bank

Division bench of Justice Nitin Jamdar and Justice Milind Jadhav observed they are not inclined to grant a stay since the reliefs sought were of monetary terms and noted that reasons for the said decision will be recorded separately and a detailed order will be made available tomorrow.

Senior Advocate Darius Khambata appeared on behalf of the petitioners, he submitted that the first ground for challenge against the said scheme was that it is ultra-vires to Section 45 of the Banking Regulation Act. Secondly, Utter haste and non-application of mind is manifest. Thirdly, Section 45(5)(f) requires RBI to take into consideration all stakeholders, including the members. However, in this case the shareholders of Lakshmi Vilas Bank are being wiped out, Khambatta argued.

(Note: Section 45 is the power of Reserve Bank to apply to Central Government for suspension of business by a banking company and to prepare scheme of reconstitution of amalgamation)

The whole idea of provision like Section 45 would be defeated. My shares are being taken away, they have become valueless. Even though my shares were valued at more than Rs.170 Crores. The scheme is violative of Article 300A, Khambatta said.

Referring to the fact that the said scheme is becoming effective from tomorrow i.e. November 27, Sr Adv Khambata added - "Tomorrow morning my membership will cease to exist, the Laxmi Vilas Bank would cease to exist. So a stay has to be granted to the scheme. The scheme is a nullity."

Senior Advocate DD Madon appeared on behalf of India Bulls and adopted the arguments made by Sr Adv Khambatta. He submitted that the RBI can reduce his client's shareholding but cannot reduce it to zero. This is neither a merger nor an amalgamation, he said.

On the other hand, appearing on behalf of the Central Bank, Senior Advocate Ravi Kadam submitted that RBI has a duty on a much larger scale. He said-

"The petitions are by shareholders. RBI is there to protect the depositors and account holders who are not shareholders. It was incumbent in the interest of the depositors for the RBI to go ahead and start the process on November 17. The scheme is a legislative act, you can't ask for a stay on a legislative act", Sr Adv Kadam said referring to the financial details of Lakshmi Vilas Bank.

Moreover, Kadam argued that the bank was failing rapidly, it had a negative net-worth. The bank has gone into a negative worth of 700 crores. It has seven lakh accounts and the shareholder's worth has become zero, so there is nothing to give to them, Kadam said.

Senior Advocate Janak Dwarkadas appeared on behalf of DBS and made his submissions.

Finally, after rejecting the prayer for ad-interim stay on the said scheme, the Court posted the matter for further hearing on December 14.