The Delhi High Court has dismissed an appeal by Unity Small Finance Bank, reinforcing the mandatory nature of shareholder consent clauses contained within a Shareholders' Agreement. A Division Bench comprising Justice C. Hari Shankar and Justice Vinod Kumar upheld an interim injunction that prevents the bank from tabling a proposal to increase its authorised share capital without the prior written consent of Resilient Innovations Private Limited—the parent company of BharatPe—and Centrum Financial Services Limited.

The dispute stems from a October 2021 Shareholders' Agreement (SHA) executed between the bank and its primary stakeholders. Under the terms of this agreement, any significant changes to the capital structure or amendments to the Memorandum and Articles of Association are classified as "Reserved Matters." The court held that these provisions, specifically clauses 6.11(d) and 8, impose a stringent obligation on the bank to obtain affirmative, prior written consent from both Resilient and Centrum before any such proposal is even presented for discussion at a Board meeting.

Unity had intended to pass a resolution, marked as Agenda Item 18, to increase its authorised share capital from ₹4,000 crore to ₹4,900 crore. The bank stated that this increase was necessary to facilitate the conversion of existing warrants into compulsorily convertible preference shares (CCPS), citing a looming October 2026 deadline for the dilution of certain shareholder stakes in accordance with Reserve Bank of India (RBI) guidelines. When Resilient refused to grant consent, the bank proceeded to include the item in its board agenda, prompting Resilient to seek urgent relief under Section 9 of the Arbitration and Conciliation Act.

Contractual Obligations vs. Internal Procedures

During the appellate proceedings, Unity’s counsel argued that the proposed increase was an essential step for regulatory compliance and that previous references to the proposal as a "Reserved Matter" in corporate communications were merely "inadvertent errors." The bank further contended that it was under statutory pressure from the RBI and that the SHA could not override its Articles of Association, particularly after specific directions to remove certain clauses from its founding documents.

The Division Bench found these arguments unconvincing. In a strongly worded judgment, the court emphasized that the bank had repeatedly sought shareholder consent in writing over the course of several months, which contradicted its later stance that such matters were outside the scope of the SHA’s restrictive covenants. Dismissing the bank’s attempt to characterize its own official communications as errors, the court remarked, "That, quite clearly, is merely an argument of desperation, and nothing more."

The court clarified that the presence or absence of "Reserved Matters" in the bank's Articles of Association did not abrogate the independent contractual commitments made by the bank to its shareholders. Because the SHA’s Clause 8 begins with a non-obstante provision, it takes precedence over contrary internal corporate procedures. Consequently, the bank’s failure to secure the contractually required consent made it legally impermissible to place the agenda item before its board.

Regulatory Compliance and Judicial Restraint

Unity also suggested that the court’s intervention would hinder its ability to comply with the Reserve Bank of India’s regulatory directives. The Division Bench dismissed this concern, noting that the judicial restraint did not in any way prohibit the bank from fulfilling its regulatory obligations or meeting its compliance deadlines. Instead, the court’s order strictly enforced the procedural safeguards that the bank itself had negotiated and signed into existence.

"The learned Single Judge has not interdicted enforcement of the warrants, but has merely directed, effectively, that their enforcement had to be in terms of Clause 8 of the SHA," the court held. "No directive of the RBI stands breached thereby." The bench concluded that while the bank may have a regulatory mandate to reach a certain shareholding threshold, it cannot bypass the veto rights granted to its strategic investors through the SHA to achieve those goals unilaterally.

Operational Consequences of the Ruling

The judgment effectively freezes the bank’s proposed capital expansion until such time as it reaches an amicable settlement with its shareholders or receives the requisite written approval. The court observed that the proposal to issue new securities to third parties would have diluted the existing shareholding of Resilient from 40% to approximately 21%, a transformation that triggered the protection mechanisms specifically embedded in the SHA to safeguard investor rights.

By upholding the lower court’s decision, the Division Bench has affirmed that, in the context of high-stakes corporate partnerships, regulatory compliance does not grant a company carte blanche to ignore the specific procedural requirements governing shareholder relations. The court’s refusal to interfere with the discretionary interim order indicates that the judiciary will continue to prioritize the enforcement of clear, unambiguous contractual affirmative covenants in commercial agreements, even when those agreements intersect with the complex regulatory environment of the banking sector.

As the matter moves toward formal arbitration, the ruling serves as a reminder to corporate entities that once consent rights are negotiated and codified, they act as binding procedural hurdles that cannot be easily set aside. The bank remains restrained from considering Agenda Item 18, and the status quo remains in place until the arbitral tribunal adjudicates the substantive merits of the shareholder dispute. The judgment confirms that the bank must navigate its capital restructuring journey strictly within the framework of the governance rules it established with its partners.