Mumbai: The board of Yes Bank Ltd on Wednesday independently shortlisted two potential successors to its managing director (MD) and chief executive officer (CEO) Rana Kapoor without the consent of the two estranged promoters of the bank—Madhu Kapur and Rana Kapoor.
Private lender Yes Bank’s knotty articles of association (AoA), which was registered with the ministry of corporate affairs in 2005, states that the appointment of any whole-time director of the bank will require the joint approval of the two promoters.
“The board has shortlisted the names after the nomination and remuneration committee of the bank approved the names according to the recommendations of the search and selection committee and the appointed leadership advisory firm Korn Ferry. The two promoters have not been asked for their recommendations or consent in this entire process," said a person directly aware of the development.
This is significant because the bank’s AoA states that without the approval of the promoters and the Reserve Bank of India (RBI), a whole-time director cannot be appointed. A managing director is a whole-time director.
The Bombay high court ruled in 2015 that the bank must follow the AoA. Section 127A of Yes Bank’s AoA says that to appoint any whole-time director, the board shall follow the recommendation made by the promoters. It also says that the board may appoint one of its members as a whole-time director, but even that would be subject to the AoA and RBI approval.
The conflict between Yes Bank’s promoters began in 2009, a year after co-founder Ashok Kapur was killed in the 2008 terrorist attack in Mumbai.
The board declined to appoint Shagun Gogia, daughter of Ashok Kapur, as a director because it was felt she might not meet RBI’s fit-and-proper criteria.
In 2013, Madhu Kapur (widow of Ashok Kapur) and her daughter Gogia approached the Bombay high court seeking greater say in appointing directors and wanted the court to uphold their right to jointly nominate directors.
“In case Yes Bank wants to appoint a whole-time director, joint approval of the promoters will be required," Madhu Kapur said, according to a 24 September Mint report.
On 21 November, Mint reported that the bank’s promoters were seeking a mutual resolution to ensure better support and coordination for outstanding issues.
According to the report, in the wake of an exodus at the top level, Yes Bank also advanced its board meeting by a month to 13 December to appoint a new chairman, new CEO and a new independent director to replace the latest resigning board member Rentala Chandrashekhar.
Despite the two promoters initiating talks to settle their family feud, over the past two weeks, Yes Bank’s shares have fallen almost 50% from its peak in the past year on BSE.
“The bank has recently taken measures to improve its corporate governance, accounting and audit processes. The bank has sent a report on the recent measures in this regard to RBI in October," said a person directly aware of the development.
On 8 October, Mint first reported that the Yes Bank promoters had initiated moves to reach an out-of-court settlement.