The amalgamation of banks under financial distress requires proper valuation and procedural transparency; the writing down of shares and bonds must comply with statutory provisions.

ORDER :

THE HON'BLE MR.SANJAY V.GANGAPURWALA, CHIEF JUSTICE

Prayer in W.P.No.17521 of 2020: Petition filed under Article 226 of the Constitution of India seeking issuance of a writ of certiorarified mandamus, quashing the impugned amalgamation scheme,G.S.R.No.731(E) dated 25.11.2020 notified by the 1st respondent and the consequent press release of the 2nd respondent dated 25.11.2020 and the impugned moratorium order, S.O.4127 dated 17.11.2020issued by the respondent 1 or any other revised Scheme without a consultative process or re-examination of the valuation or through a price discovery by an open, fair and transparent bidding process byway of a public announcement or in the alternative issue a mandamus directing that the shareholders of the 3rd respondent bank should be treated as the shareholders of the merged entity, DBIL.

The petitioners herein are mainly the shareholders and the bondholders of Lakshmi Vilas Bank [for brevity, “LVB”]. They assail the action of the Reserve Bank of India [in short, “RBI”] purportedly under Section 45 of the Banking Regulation Act, 1949 [hereinafter, “the Act of 1949”] amalgamating LVB with the DBS Bank India Limited [for brevity, “DBIL”]. They also assail the writing off the Tier II bonds and also the shares.

2. LVB is a scheduled commercial bank and a company registered under the COMPANIES ACT , 2003. The RBI, on or about 17.11.2020, published a draft scheme inviting objections for amalgamation of LVB with DBIL. On the said date, RBI declared moratorium for LVB, thereby restricting the withdrawal of the amount to Rs.25,000/- (Rupees Twenty Five Thousand Only). On or about 25.11.2020, the Central Government sanctioned the scheme and the final scheme was published. The shareholders and the persons/institutions, investing in Tier II bonds, have filed the present writ petitions.

3. We have heard the learned Senior Advocates and learned Advocates for the respective petitioners and also the party-in-person. The common arguments of the shareholders and the bondholders are culled out hereunder:

(i) The entire process of amalgamation was completed within a period of eight days, despite excellent liquidity position of LVB. The RBI imposed the moratorium on 17.11.2020 and thereafter, within half an hour, published a draft scheme on the same day, giving less than three days' time for inviting objections from the public. Thousands of objections were summarily discharged by RBI and these comments were forwarded to the Union of India, who merely rubber stamped the scheme without application of mind to the objections received. Relying upon the judgment of the Apex Court in the case of Bari Doab Bank Ltd. vs. Union of India , (1997) 6 SCC 417 , it is further submitted that the RBI failed to produce its comments on the objections. Thus, this omission of RBI throws light on the fact that there has been a clear violation in the process adopted by the RBI and the Union of India.

(ii) The stand taken by the RBI and the Union of India that LVB was in a financial difficulty and prompt action of RBI and the Union of India was necessary to protect the interest of the depositors and that the existing bank reserves would not have been enough to cover a scenario where all the depositors would come asking for their money are fallacious for two reasons, viz., (i) the Liquidity Coverage Ratio (LCR) of LVB, which was 294.81% as on June 2020, was almost three times the standard fixed by the RBI, i.e., 100% from April 1, 2021 onwards; and (ii) in any event, the unlikely scenario of every depositor wanting to withdraw the entire deposi