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Business transactions fall within purview of Companies Act

Staff Reporter

Lord Krishna Bank has submitted a report of the scrutinisers

Kochi: The issues raised by a minority share holder such as the manner in which the AGM of Lord Krishna Bank Ltd. (LKBL) was conducted and the transaction of the business fall within the purview of consideration of the authorities under the Companies Act, according to an affidavit filed by the Reserve Bank of India before the Kerala High Court.

The affidavit filed by K.B. Menon, Deputy General Manager (Officer-in-Charge) in the department of Banking Supervision, Reserve Bank of India, Regional Office, Thiruvananthapuram. It is in response to a writ petition filed by Umesh Kumar Pai, a minority shareholder, seeking a direction to the Central Government to appoint inspectors to investigate into the affairs of LKBL.

The affidavit said that in case of any doubt about the legality of the resolutions passed in an AGM, RBI had to satisfy itself about the matter before passing an order under section 44A of Banking Regulation Act, 1949. An early decision on the legal issue raised by the petitioner would enable the RBI to take a decision on the merger applications.

The RBI affidavit said that LKBL had submitted a report of the scrutinisers which stated that only two of its members hold more than 10 per cent of the total voting rights of all the shareholders of the bank viz. Mohan Exports India Private Ltd. and Ms Neeru Puri. However, the report of the scrutinisers said that the voting rights exercised by each of the above two members in the AGM held on September 30 had not exceeded 10 per cent of the total voting rights of all the shareholders of LKBL.

In an additional affidavit, the RBI pointed out that there was no violation of the provisions of Banking Regulation Act in appointing Karan Anand as Director. The issue of Mr. Bhargava being elected (who is aged above 70) in the AGM was being taken up with the bank. The Consultative Group of Directors of Banks/Financial Institutions had recommended in April 2002 that the appointment of directors aged above 70 or below 35 be discouraged.

The affidavit said the recommendations were not mandatory and as a result, the appointment of directors aged above 70 or below 35 would not automatically disqualify them.

In a reply affidavit, the petitioner countered the arguments of the RBI and said that LKBK had not appointed a chairman for more than five years. Such non-appointment was a clear violation of section 10B of the Banking Regulation Act. Besides, the RBI had failed to take any action against the bank for not appointing the Chairman.

The reply affidavit filed through counsel for the petitioner, George G. Poothicote, said that all the issues, including the amalgamation, took place in the absence of a chairman. The bank had been flouting regulations continuously, the reply affidavit alleged. The Registrar of Companies had warned the bank to adhere to the provision of the Companies Act.

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