Bombay High Court says Yes Bank promoters must jointly nominate board directors

The Bombay High Court has passed an order in favour of Madhu Kapur, the widow of Yes Bank's late co-founder Ashok Kapur, stating that Kapur and her children Shagun Kapur Gogia and Gaurav Kapur are successors of deceased co-founder and thus have legal rights to nominate directors to the board of the commercial bank.

The Bombay High Court, however, also held that right to nominate board member cannot be exercised individually or without the consent of other promoter Rana Kapoor, who is the managing director and chief executive officer of the bank and currently owns about 11.77 per cent stake.

The court's ruling came after a two-year long legal battle initiated by Madhu Kapur and family, who own a 10.29 per cent stake in the bank, in 2013 against the bank and Rana Kapoor wherein she had 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.

Yes Bank had held that the rights were personal to Ashok Kapur and do not succeed to his family. Ashok Kapur died in the 26/11 terrorist attacks at the Taj Mahal in 2008, and since then the bank's management has been led by its other co-founder Rana Kapoor.

In the Judgment, the court has now asked Rana Kapoor and Yes Bank to not pursue their application to the Reserve Bank of India seeking the "de-classification" of Madhu Kapur's shares as that of non-promoters.

She had also demanded to nominate her daughter Shagun Kapur Gogia on the bank's board, on which the court has said that the bank's Articles of Association do not state the family is "entitled to a reserved seat" on the board.

"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 court has also held the appointment of three whole-time directors Rajat Monga, Sanjay Palve and Pralay Mondal, who were nominated only by Rana Kapoor as whole time directors, as prima facie ultra vires and void. Yes Bank and Rana Kapoor can challenge the HC order within five weeks.

"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,” Justice Gautam Patel said in his 153-page judgment.

The HC also rejected the contention by Kapur to quash the appointment of Rana Kapoor as managing director and CEO on grounds that it was “procured by way of a misleading application”, saying that it was without necessary evidence (and) “alleging ill motives to Rana Kapoor does not carry the matter further”.

In a statement on the judgment, Yes Bank said it will decide on its course of action after seeking advice from its law firm Cyril Amarchand Mangaldas. It also said Diwan Arun Nanda and Ajay Vohra were duly elected as independent directors at the bank’s annual general meeting on June 6.

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