The Madras High Court has passed an interim order giving certain directions to protect the interests of the Lakshmi Vilas Bank (LVB) shareholders. The court, however, refused to intervene in the amalgamation of the bank with DBS.
Last week, the government announced an amalgamation scheme to merge the crisis-ridden private bank with DBS.
In its interim order, Madras HC has said that no further prejudicial action should be taken against the LVB shareholders by the Respondents, legal news portal, Bar and Bench reported on Friday.
Also, DBS Bank should furnish an undertaking in the Court that in case the Court concludes and directs it to provide compensation to LVB, they will pay the same, the portal reported, citing the interim order.
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.
On Thursday, Moneycontrol first reported that four more investors plan to file separate petitions in the Madras High Court, seeking judicial intervention against certain provisions in the LVB-DBS Bank amalgamation scheme, mainly the clause that writes off all equity investments.
What has irked the investors and promoters is the valuation part of the scheme.
In 2018, DBS had approached LVB to acquire at least 50 per cent of the stake in LVB for a much higher valuation, Rs 100-Rs 150 per share. At that point, LVB had appointed J P Morgan to scout for investors for the bank. But, when the DBS approached the RBI with the proposal, it sought an exemption from the stake dilution norms The RBI didn’t agree to this and subsequently rejected the proposal.
On Thursday, the Bombay High Court refused to stay the DBS-LVB merger scheme while considering a petition filed by investors and promoters. The court however said the promoters’ claim, being a monetary claim, can be considered at the time of disposal of petitions. Promoters are hopeful that their plea will be heard on account of the monetary loss following equity write off.
Major shareholders in the 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).
Earlier, the RBI had said that all the branches of LVB will function as branches of DBS Bank India with effect from November 27. This is after the Cabinet cleared a scheme for the amalgamation of the LVB with DBS Bank India. LVB has been a stressed entity for long, logging net losses for several quarters on end. The bank tried to engage with Clix Capital and Indiabulls for a possible merger in the last two years but nothing progressed beyond the regulatory scrutiny.
LVB was founded in 1926 by a group of businessmen in Karur in Tamil Nadu. The bank rose to prominence lending to small businesses. But the fall came quick. Before it could complete a century of existence, DBS got knocked out by its own doing—an aggressive shift from retail to wholesale loans.