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High Court asking DBS to create reserve fund gives hope to LVB shareholders

by The Outlooker Web Desk
December 1, 2020
in Business
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High Court asking DBS to create reserve fund gives hope to LVB shareholders
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While both the RBI and DBS urged the court to stay the order for a few weeks, the court declined to do so.

The Madras High Court’s recent order directing DBS Bank that it should create a separate reserve fund in its books of account to the extent of the face value of shares of Lakshmi Vilas Bank (LVB) and maintain the same till further orders has given some hope to LVB shareholders.

The court, while refusing to stay the amalgamation of LVB with DBS Bank India, had passed certain interim directions for the legal protection of shareholders of LVB, given that the entire share capital value of shareholders has been reduced to zero following the merger.

Justice Vineet Kothari and Justice MS Ramesh while dealing with a petition moved by AUM Capital Market, a retail investor holding shares in LVB, observed that completely reducing the shares was not an exercise which has happened in the public domain.

The Bench directed DBS Bank that no further prejudicial action should be taken against LVB shareholders, and said DBS should furnish an undertaking that in case the court concludes and directs it to provide compensation to LVB, it will pay the same.

The court also noted that the entire exercise of amalgamation had taken place in a fast manner, in a week between November 17 and November 25, leaving LVB shareholders high and dry. The court said this called for a review, while admitting the matter and issuing notices.

“The court is not interfering with the amalgamation scheme’s operation, otherwise at this stage,” it was clarified.

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, cannot be done without very compelling reasons, the court said.

While both the RBI and DBS urged the court to stay the order for a few weeks, the court declined to do so. The matter is likely to be heard next on January 5, 2021.

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The Outlooker Web Desk

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