On Monday, the Bombay High Court refused to hear Kotak Mahindra Banks plea for a stay on the Reserve Bank of Indias (RBI) December 31 deadline to reduce its promoter stake holding.
This means that Kotak has a little more than 10 days to lower its promoter stake from close to 30% to 20% without facing penalties from the RBI.
A division bench of Justices B.P. Dharmadhikari and S.V. Kotwal had directed the RBI to file an affidavit by January 17 on the writ petition filed by the bank against the directive.
The private sector lender had moved the high court after the RBI rejected the banks proposal to issue perpetual non-convertible preference shares in August to comply with promoter stake rules.
The RBI has asked Uday Kotak, who owns about 30% in the bank, to reduce his holding to 20 percent by the end of this year, and to 15 percent by March 2020.
Senior counsel Venkatesh Dhond, who appeared for RBI, said promoter stake dilution has been aimed at ensuring that voting power does not remain concentrated in the hands of a single group and that all banks have complied with the rule.
We have issued a letter to the bank in August, but now when the deadline is approaching, the bank has come to the high court seeking a stay, said Dhond, Mintreported.
Darius Khambata, the lawyer representing Kotak Mahindra, said: In the past, the RBI asked the bank to only dilute promoter shareholding of its paid-up capital. However, the impugned letter sought dilution of paid-up voting equity capital.”
After receiving the letter, the bank wrote two lettersone to then-RBI governor and the other to the RBI board seeking clarification. But, we havent got any response.
Khambata pleaded before the court that RBI must not take any coercive step post December 31, the deadline by when the promoters have to reduce their stake to 20%, as per the Mint report.
Kotak moves Bombay High Court
Earlier, reports on December 11 stated that Kotak Mahindra Bank had moved the Bombay High Court against the RBI after its promoter Uday Kotak was barred from reducing his stake in the bank through a preference share issue. This was the first time a bank had dragged the regulator to court.
Documents on the Bombay high court website show the writ petition was filed by Kotak Mahindra Bank and its director Chengalath Jayaram against RBI and the finance ministry.
In August, Uday Kotak proposedto lower his promoter holding in the bank using preference shares rather than bringing down his share of common equity. However, within 10 days of the proposal, the RBI told Kotak that the Perpetual Non-convertible Preference Shares route to dilute promoter shareholding was not acceptable.
Feud goes way back?
The ongoing legal battle between Kotak and the RBI might have begun a few days ago, but a war of letters has been underway since at least 2008.
A series of more than 35 letters and emails shared between Kotak and the RBI since 2008, enclosed in Kotaks writ petition in the Bombay High Court on December 10, detailed the arguments of both the regulator as well as the regulated.
The long trail of correspondence shed light on a number of issues ranging from lack of regulatory clarity, the constant revision of milestones, missed deadlines, and interchangeable use of legal terms.
Elton Gomes is a staff writer at Qrius