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Madras High Court’s Decision on Merger of Lakshmi Vilas Bank and DBS Bank India


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The Madras High Court recently refused to interfere with the decision taken by the Reserve Bank of India (RBI) and approved by the Centre in November 2020 to amalgamate Lakshmi Vilas Bank (LVB) with DBS Bank India Limited (DBIL), an Indian subsidiary of Development Bank of Singapore. The court acknowledged that the RBI had to step in to save the interests of depositors due to irregularities committed by some of LVB’s directors and the continuous withdrawal of deposits. However, the court directed the RBI to value the shares and assets of both DBIL and LVB as of the date before the amalgamation and make a fresh decision on the reduction of share value and writing off Tier II bonds.

The court held that the value of LVB’s shares should not have been reduced to zero without evaluating the shares of DBIL and LVB and determining the swap ratio, which was crucial to protect the interests of shareholders and bondholders who had approached the court against the merger. The court also emphasized the need for transparency in the amalgamation process and criticized the RBI for not disclosing the terms and conditions of the 12 proposals considered for the merger. The court stated that transparency is necessary to address suspicions and allegations of favoritism towards DBIL.

While the court found issues with the process of identifying DBIL and carrying out the amalgamation, it concluded that setting aside the amalgamation would not be feasible as it had already taken effect four years ago and was irreversible. However, the court’s decision highlights the importance of transparency and fair evaluation in such merger processes.

Compensation for LVB Shareholders

The Madras High Court has directed DBS Bank India (DBIL) to create a reserve fund worth the face value of the shares of LVB to compensate the shareholders for the loss they suffered during the amalgamation process. The court has ordered DBIL to maintain this reserve fund until further orders.

Background of the Merger

The merger of Lakshmi Vilas Bank with DBS Bank India was proposed by the Reserve Bank of India (RBI) in November 2020 due to the financial difficulties faced by LVB and allegations of poor governance. LVB had been under the RBI’s Prompt Corrective Action framework since September 2019. The merger aimed to provide stability and better prospects for LVB’s depositors, customers, and employees. The amalgamation came into effect on November 27, 2020, and all branches of LVB started functioning as branches of DBS Bank India from that date.

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