The Hindu : Business : Shareholder moves court against merger of LKB

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Thursday, Oct 19, 2006
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Shareholder moves court against merger of LKB

Staff Reporter

Plea for probe into affairs of the bank

Kochi: The Kerala High Court was approached by a shareholder of the Lord Krishna Bank (LKB) on Wednesday challenging the decision of the board of directors to merge it with the Centurion Bank of Punjab.

The petition was filed by Umesha Kumar Pai of Ernakulam who holds 200 equity shares in the bank. He sought a direction to the Union Government to appoint inspectors to investigate the affairs of the bank after making a declaration under section 237 of the Companies Act that the affairs of the bank should be investigated.

According to the petitioner, the Banking Regulation Act 1949 stipulated a voting ceiling of 10 per cent of the total voting rights. Since approximately 65 per cent of the shares was held by a single entity, the bar under section 12(2) of the Act prevented anyone from exercising voting rights on a poll in excess of 10 per cent of the total voting rights of all shareholders of the company.

`No voting'

Besides, the guidelines issued by the Reserve Bank of India with regard to the ownership and governance in private sector banks and the regulatory prescriptions stipulated that no single entity or group of related entities had more holdings or control directly or indirectly in any bank in excess of 10 per cent of the paid up capital.

The petitioner alleged that the voting was not conducted in a free and fair manner. He pointed out that the exchange value for the swap ratio was not discussed. Nor was any methodology for this deliberated.

The petitioner also pointed out that the guidelines issued by the RBI on February 3, 2004 imposed a restriction on the acquisition or transaction of more than 5 per cent shares to a single entity. Therefore, the transfer of shares in the name of the late Ashwin Kumar Puri to Mohan Puri was in violation of the guidelines.

He said most of the shareholders were prevented from participating in the AGM held on September 30.The meeting had hastily transacted all the eight items on the agenda including the merger resolution, violating all the company laws. The shareholders were not given an opportunity to discuss the affairs and review the working of the bank.

The elections to the vacancies of directors, appointment of statutory auditors and amalgamation of the bank were all transacted in a "very oppressive manner," he alleged.

No discussion was allowed on the merger proposal and no independent chairman was appointed as per the norms in the case of an amalgamation scheme approved by the High Court, he said.

The petitioner pointed out that the audited balance sheet was passed without any discussion.

The merger resolution was passed in violation of the provisions of section 44A of the Banking Regulation Act, 1949. This section prescribed presence of two-thirds of the shareholders either in person or by proxy for passing amalgamation resolution.

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