Kotak Mahindra moves HC against RBI
MUMBAI: Kotak Mahindra Bank Ltd has moved the Bombay high court against the Reserve Bank of India (RBI) after its promoter Uday Kotak was barred from reducing his stake in the bank through a preference share issue, in the first instance of a bank dragging the regulator to court.
Documents on the Bombay high court website show the writ petition was filed by Kotak Mahindra Bank and its director Chengalath Jayaram against the RBI and the finance ministry. Law firm Manilal Kher Ambalal & Co. (MKA & Co.) is representing Kotak Mahindra. The first hearing on the case will take place on December 17. Vikram Trivedi, managing partner of MKA & Co. declined to comment, citing client confidentiality.
The RBI had mandated the private sector lender to trim promoter shareholding to 20% of its paid-up capital by December 31, 2018, and to 15% before March 31, 2020. On August 2, Kotak Mahindra completed an issue of perpet- ual non-convertible preference shares (PNCPS), increasing the bank’s paid-up capital from ₹953 crore to ₹1,453 crore, thereby bringing down the promoter’s holding from 30.3% to 19.7%. However, the bank informed the stock exchanges on August 14 that the method did not meet the RBI’S requirements.
In a regulatory filing on Monday, Kotak Mahindra said ever since, it has clarified and conveyed its position to the central bank “in relation to PNCPS being a part of paid-up capital, and the legal basis on the matter of dilution of shareholding under the Banking Regulation Act”. “We have also shared with the RBI the opinions of eminent jurists and legal counsels of the country, which confirm our understanding.” It added that it has not heard from the RBI and given the deadline of December 31, the “bank has been left with no option, but to protect its interests”.
A banking analyst, who did not wish to be identified, said in chal- lenging RBI’S decision, Kotak Mahindra has essentially challenged RBI’S powers to regulate private sector banks.
There are two possible outcomes from this, the analyst said. The first is, if Kotak wins the case and is allowed to use PNCPS to reduce promoter shareholding, the RBI will definitely challenge it in the Supreme Court. The second scenarios is, if Kotak loses the case, then he will not only have to use another way to pare his stake, but will also face far more stringent regulatory supervision following the debacle. In either scenario, the December 31 deadline is unlikely to be met. “The bank has filed a case against the regulator. The case will surely set a precedent for any such future disputes. The matter pertains to the interpretation of the law and should be dealt with by the court,” Ashish K Singh, founder and managing partner of law firm Capstone Legal said. “The deadline for the diluting the shareholding is December 31, 2018; so if the petition is admitted, the time period is required to be extended by the direction of the court.”