Mumbai: The Bombay High Court on Thursday held that the right to nominate Board of directors of private sector lender Yes Bank has to exercised jointly by the promoters and not individually. The court also held that the right of the wife of deceased co-promoter Ashok Kapur to nominate her daughter on the bank's Board could not be exercised without the consent of the other promoter, Rana Kapoor, who is currently the Managing Director and Chief Executive of the Bank.
The court delivered its order on a suit filed by Madhu Kapur, whose husband was killed in the 26/11 terror attacks, demanding her right to nominate daughter Shagun Kapur-Gogia on the bank's Board.
"Although the right to recommend is the right to nominate, it is an indivisible right and must be exercised jointly. It cannot be splintered into component rights with each group nominating its own person to Yes Bank's Board," said Justice Gautam Patel in his 153-page judgement on a notice of motion taken out by the plaintiff.
"The right to nominate is also distinct from the right to serve on Yes Bank's Board; there is no such right to serve, and the plaintiffs do not have the right to demand that the 2nd Plaintiff (Shagun) be accepted onto the Board without Rana Kapoor's concurrence and consent," the Judge noted.
The Judge was of the view that the suggestion of each group nominating one Board member and a third Independent Representative Director being chosen for alternating terms "is wholly outside the scheme and frame of these Articles." "The right must be exercised jointly or not at all. It is incorrect to say that Yes Bank's Board was bound to accept the nomination of the 2nd Plaintiff (Shagun) as a joint nomination made under Article 110(b). It is also not for a court to question the sufficiency of the Board's decision in that regard," the court ruled.
Madhu Kapur holds shares in the bank to the tune of 10.29 per cent jointly with her children. The bank argued that appointment of directors by the Board cannot be questioned before a court. Kapur filed the suit in 2013 against the bank and Rana Kapoor. She contended that the bank had rejected her claim to nominate directors on the ground that her late husband's rights are not automatically transferred to her.
The HC also held that the right to nominate is not and was not personal to the two individuals (Ashok Kapur and Rana Kapoor). It was also not restricted to merely making suggestions and that is belied by Yes Bank's and Rana Kapoor's repeated representations to RBI.
"The fact that Yes Bank and Rana Kapoor applied to RBI 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. "It is equally incorrect to suggest that the plaintiffs have, only on account of Ashok Kapur's demise, transmogrified into some sort of non-promoter capacity. The applications to RBI to this end are motivated, self-serving and prima facie unlawful," the Judge noted.
"It also follows that any recommendations made by the defendant, Rana Kapoor, without the concurrence and consent of the plaintiffs are also ultra vires the Articles and are null and void," the Judge noted. "Apart from anything else, a demand for a seat on the Board seems to me to fly in the face of the Yes Bank's ethos. It is said to be the professional's bank. That necessarily means that it cannot be run like a family estate. Consequently, I do not believe it is open to the plaintiffs to demand any one of them take a seat reserved for them on Yes Bank's Board," said the Judge.
The HC also held that the Bank had not complied with the formalities for appointing Arun Nanda and Ajay Vohra as Independent Directors but left it to the Bank to decide whether it wanted to rectify or not. The HC rejected the contentions of plaintiffs against Rana Kapoor, holding that his appointment had been ratified by the Reserve Bank and the bank's Board. It also observed that under his stewardship in 7 years after the death of Ashok Kapur Yes Bank had grown tremendously.
Observing that the right to nominate independent directors should be exercised jointly by promoters, the HC held that defendant Ravish Chopra cannot have been validly appointed as a Representative Director or an Independent Director and termed his appointment as invalid.
It also ruled that the appointment of M R Srinivasan as chairman of Yes Bank was ultra vires the Articles and null and void. Hence the so-called approval of RBI for that appointment is "inconsequential." Similarly, the HC held, the appointments of other defendants Rajat Monga, Sanjay Palve and Pralay Mondal as wholetime directors are also prima facie ultra vires and void.
Ashok Kapur and Rana Kapoor, brothers-in-law, jointly started Yes Bank in 2003 leaving their careers in other banks. The shareholders had at the Bank's AGM on June 6 approved the appointment of Nanda, Vohra and Srinivasan as Independent directors and also the appointment of Rana Kapoor as the MD and CEO of the Bank.
Reacting to the judgement, Yes Bank said in a statement that there was no immediate impact of the HC order on its operations, though the HC pointed out some infirmities for which it will seek legal advice. Shagun Kapur-Gogia, daughter of deceased co-promoter Ashok Kapur, welcomed the HC order and said that her stand had been vindicated. "As much as it was a Kapur versus Kapoor, it was also a case of right versus might...we believed our rights could not be ignored."
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