SC Stays Madras HC Order Asking RBI to Evaluate Assets of LVB & Indian Arm of DBS Singapore

The Supreme Court of India on Wednesday said that a foreign bank was involved in the merger proposal of LVB and DBS Bank India Limited (DBIL) as stalling it would have wider ramifications on our regulatory mechanism. The apex court stayed a Madras High Court order giving relief to the RBI in the LVB-DBIL case.

New Delhi : In a relief to the Reserve Bank of India, the Supreme Court on Wednesday stayed a Madras High Court order asking it to determine the value of shares, assets and investor bonds of the cash-strapped Lakshmi Vilas Bank (LVB) and the Indian subsidiary of DBS Bank of Singapore.

The merger proposal of LVB and DBS Bank India Limited (DBIL), the Indian arm of the Singapore Bank, was approved in 2020. The top court refused to accept prima facie the submission of investors that around 92,000 people will lose their money if the high court order is stayed.

It said a foreign bank was involved in the merger and stalling it would have wider ramifications and the foreign investors would lose faith in our regulatory mechanism. A bench comprising Chief Justice D Y Chandrachud and Justices JB Pardiwala and Manoj Misra stayed the high court order and issued notices to Aum Capital, representing the investors, and others on separate appeals of the RBI and the DBS Bank against the HC judgement.

It also asked them to file their responses within two weeks and listed the pleas after that for a final hearing. The RBI, represented by Solicitor General Tushar Mehta, referred to the laws governing amalgamation of banks and said the investors, who were getting higher returns on their money compared to ordinary depositors, would lose the investments they made in case of merger of the bank with DBS.

Bondholders are never held to be akin to ordinary depositors, the law officer said, adding that as many as 12 Indian banks earlier refused to step in to save the cash-strapped LVB before the present bank stepped in. Bond holders always get an interest of around 11 percent on their investment which is quite high in comparison to the depositors.

The arguments were supported by senior advocates Mukul Rohatgi and Shyam Divan, who appeared for the DBS Bank India Ltd, and said that the foreign bank came in to take over LVB after being asked by the RBI and the Centre in 2020.

Senior advocates Abhishek Singhvi and Arvind Datar, appearing for the investors, opposed the submission that investors' money cannot be written off without any valuation. Datar, however, said the investors were not opposed to the merger but they wanted the valuation to be done to ensure that their money is not reduced to zero.

The Madras High Court had refused to interfere with the decision taken by the RBI and approved by the Centre in November 2020 to amalgamate LVB with DBIL. It, however, had directed the RBI to determine the value of the shares and assets of both DBIL and LVB as on the date before the amalgamation, and on that basis, take a decision afresh on the reduction of value of shares and writing off Tier II bonds.