BackMadhu Kapur, her children can nominate Yes Bank directors: Bombay HC
High court impeaches appointments of several Yes Bank directors; no action against Rana Kapoor as managing director and CEO
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Mumbai: The Bombay high court on Wednesday recognized Madhu Kapur and her children Shagun Kapur Gogia and Gaurav Kapur as successors of late co-founder Ashok Kapur, giving them the right to nominate directors to the board of India’s youngest commercial bank.
The ruling came after a two-year legal battle initiated by Madhu Kapur and her family against Yes Bank Ltd and its managing director and chief executive officer Rana Kapoor, demanding the right to nominate directors on the bank’s board.
On Wednesday, the high court also “impeached" the appointments of Yes Bank directors Ravish Chopra, M.R. Srinivasan, Diwan Arun Nanda, Ajay Vohra, Rajat Monga, Sanjay Palve and Pralay Mondal, calling them “invalid", “ultra vires to the articles of association of the bank" and “null and void".
However, a submission by Madhu Kapur to quash the appointment of Rana Kapoor as managing director and CEO on grounds that it was “procured by way of a misleading application" was rejected because it was “without necessary evidence (and) alleging ill motives to Rana Kapoor does not carry the matter further", Justice G.S. Patel said.
Madhu Kapur is the widow of Ashok Kapur, one of the promoters of Yes Bank along with Rana Kapoor. Rana Kapoor’s wife Bindu Kapoor and Madhu Kapur are sisters. Ashok Kapur died in the 26 November 2008 Mumbai terrorist attack.
In an emailed comment, Madhu Kapur’s daughter Shagun Kapur Gogia, one of the petitioners in the case, said she was happy to be vindicated.
“As successors we have been recognized as having equal rights; also the seven directors have been unseated. However, this is the first step and we have a long way to go," she said without elaborating.
“As much as it was a Kapur vs Kapoor (case), it was also a case of right vs might. We strongly believed that our rights couldn’t be ignored. We had immense faith in the judiciary of our country and that faith has been further reinforced with this verdict," Gogia added.
In a 152-page order made public on Wednesday, Justice Patel said that the “right to recommend... decidedly is not and never was personal to either Ashok Kapur or Rana Kapoor. It inures to each of their successors, legal representatives and assigns. This right is not in the nature of a contract of personal service and was not limited to the two individuals in question. There is no question of contextual repugnancy".
Justice Patel was referring to the articles of association of the bank which state that Ashok Kapur’s right as co-promoter of the bank shall include his successors and legal representatives unless it is “repugnant to the context".
Yes Bank’s contention all along had been that the rights of Ashok Kapur were not inheritable and hence Madhu Kapur or her children could not nominate directors on the bank board.
The judge said Madhu Kapur and her family have the “right to nominate" directors on the bank’s board, which is stronger than the “right to suggest". He, however, rejected the Madhu Kapur group’s right to demand a seat on the bank’s board.
“(Rana Kapoor’s) suggestions or recommendations have only been taken to be nominations. It is inconceivable that he and only he is somehow qualified to nominate directors but that nobody else has that ability... the fact that Yes Bank and Rana Kapoor applied to the RBI (Reserve Bank of India) to ‘declassify’ the plaintiffs shareholding is itself an admission of sorts. Why but for this right not being personal and not being the right merely to suggest would they need to do so," the judge asked.
Patel was referring to a letter written by Rana Kapoor to RBI in 2012 seeking declassification of Madhu Kapur as a co-promoter of the bank.
Rana Kapoor and Madhu Kapur are the two largest shareholders of the bank with stakes of 11.77% and 10.29%, respectively, as of March 2015.
At Wednesday’s closing price of Yes Bank stock, Rana Kapoor’s holding is valued at around ₹ 4,011.20 crore and Madhu Kapur’s at ₹ 3,504.85 crore.
Yes Bank shares closed at ₹ 815.70 on the BSE on Wednesday, down 0.02% from the previous close, while the benchmark Sensex rose 0.55% to close at 26,832.66 points.
Justice Patel said it was “incorrect to suggest" that the rights of Madhu Kapur and her children have been “transmogrified" into a non-promoter category after Ashok Kapur’s death.
“The applications to the RBI to this end are motivated, self-serving and prima facie unlawful... any recommendations made by Rana Kapoor without the concurrence and consent of the plaintiffs are also ultra vires the articles and are null and void," Patel said. Ultra vires is a Latin term meaning “beyond the powers".
The final order has been stayed for five weeks to allow Yes Bank to appeal to a division bench in the high court if it so desires.
In a statement on the judgment, Yes Bank said it will decide on its course of action after seeking advice from its law firm Cyril Amarchand Mangaldas.
“The Hon’ble Court has in any event also stayed the operation of its own judgment for a period of five weeks from today, that is, 17 June 2015. Thus, there is no immediate impact whatsoever on the bank’s board of directors or its management. Few procedural infirmities were pointed out by the Hon’ble Court, which are curable, and the bank and its board of directors do not foresee any material impact even in the mid to long term," the bank said.
Yes Bank pointed out that Diwan Arun Nanda and Ajay Vohra were duly elected as independent directors at the bank’s annual general meeting on 6 June.
“Thus, procedural infirmities in their appointment which the Hon’ble Court has found (though not admitted by the bank) would not impede their continuance on the board as directors. With regard to Ravish Chopra, the bank will be taking appropriate steps to revalidate his appointment as suggested by the Hon’ble Court," Yes Bank said.
Meanwhile, the Madhu Kapur group will file a fresh affidavit in the high court on Thursday challenging the appointment of M.R. Srinivasan and Diwan Arun Nanda to the bank’s board because they are above the cut-off age of 70 years set by RBI for bank directors.
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