Setback for Yes Bank as Supreme Court admits Madhu Kapur plea

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Jul 16 2014, 18:02pm hrs
Yes BankIn a setback for Yes Bank, the Supreme Court on Tuesday rejected the bank's plea to stay the proceedings in a suit filed by Madhu Kapur. (Reuters)
In a setback for Yes Bank, the Supreme Court on Tuesday rejected the bank's plea to stay the proceedings in a suit filed by Madhu Kapur, the widow of Yes Bank co-founder Ashok Kapur, before the Bombay High Court.

A three-judge Bench headed by Justice AR Dave while admitting the petition refused to stay the proceedings pending in the Bombay High Court. It also posted the matter for final hearing on January 15 after Yes Bank Ltd senior counsel Kapil Sibal and Soli Cooper said the question of law with regard to banking statute needs to be given proper interpretation at the earliest.

The bank had challenged the HC order on the ground that the plea filed by Kapur and her family was not maintainable. Ashok Kapur was killed in 2008 terrorist attack in Mumbai.

Kapur took over Yes Bank on November 13, 2011. Rana Kapoor, the other co-founder who heads Yes Bank, appealed to HC after the lender allegedly refused to recognise her right to nominate the board members. The move came after Kapur's daughter, Shagun Kapur Gogia, applied for the position of member on the bank's board, but the board rejected her nomination, saying she lacked the requisite experience.

Kapur, the second-largest shareholder of the bank, had also challenged the appointment of directors and the reappointment of Rana Kapoor as managing director and chief executive, besides the resolutions passed at Yes Bank's annual general meeting (AGM) on June 14. With 11.87% stake, Rana Kapoor is the bank's largest shareholder; Rana Kapoor directly and through other family-owned ventures, holds a 13.64% stake. Kapur and her company own 10.37%. Kapur and Rana Kapoor's wife are sisters.

On May 9, the HC said it had jurisdiction to hear the case after rejecting Yes Banks argument that under Section 10 A (6) of the Banking Regulation Act 1949, the HC had no jurisdiction to hear the Kapur's plea as the directors were elected by shareholders.

Challenging the HC's May 9 judgment, Yes Bank said the HC had incorrectly interpreted the provisions of Section 10A by holding that a civil court has jurisdiction to hear and decide the matter related to appointment of directors to a banking company, despite there being an express statutory bar to jurisdiction contained in the Act in relation to director appointments.

Seeking correct and purposive interpretation of the provisions, the lender said these were necessary to put a stop at the threshold to challenges of appointing directors on the board of a banking company so long as they have been duly made; that is in consonance with the procedure laid down in the Companies Act and so as to ensure that the board as a whole is constituited in a manner which is in consonance with the Act.

It further said the Act seeks to insulate the board from litigation relating to appointments of directors so long as the above conditions were satisfied.

Stating that the banking sector being a highly regulated sector, the bank said Section A of the Act was introduced with an intention to ensure that the board of directors of banking companies consists of individuals/professionals who have special knowledge and practical experience in highly specialised matters. According to the petition filed through Karanajawala &Co, RBI was given a mandate to ensure compliance with the provision and an interpretation of Section 10A has to be such so as to give impetus to the legislative intent.