Madras HC Refuses to Interfere with LVB-DBS Merger, Directs RBI to Reevaluate Tier-II Bond Write-Off

In a significant development, the Madras High Court declined to intervene in the merger of Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL) that took place in 2020. However, the court directed the Reserve Bank of India (RBI) to conduct a fresh assessment of the assets and shares of both entities to reconsider the reduction in the value of shares and write-off of Tier-II bonds.

The ruling, delivered by a bench comprising Chief Justice Sanjay V. Gangapurwala and Justice D. Bharatha Chakravarthy, comes after investors raised concerns about the merger and challenged the write-off of Tier-II bonds.

Under the draft scheme of amalgamation, the entire paid-up share capital of LVB was written off as part of the merger with DBS Bank India. Additionally, the RBI instructed the bank to write off Tier-II bonds amounting to approximately Rs 320 crore.

The Madras High Court’s directive to the RBI involves conducting a fresh valuation of shares and assets of both DBIL and LVB as of the date before the merger. This decision aims to address the grievances of shareholders and bondholders affected by the amalgamation.

The court has given the RBI a timeframe of four months to complete this exercise, emphasizing the need to consider the hardships faced by stakeholders due to the compulsory merger. The ruling underscores the court’s commitment to ensuring a fair and transparent process in dealing with the aftermath of the merger.

The LVB-DBS amalgamation was initiated by the RBI in November 2020, following the financial deterioration of LVB and its failure to raise necessary capital. Despite legal challenges and objections from stakeholders, the merger was sanctioned by the Central government via a Finance Ministry notification.

The Madras High Court’s decision to refrain from interfering with the merger while directing a reevaluation of the Tier-II bond write-off reflects a balanced approach to addressing concerns raised by investors. It remains to be seen how the RBI will proceed with the fresh valuation and its impact on the ongoing legal battles surrounding the merger.

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