Don’t proceed with IDBI investment till tomorrow, HC tells LIC

By: | Published: August 29, 2018 5:07 AM

The Delhi High Court on Tuesday asked Life Insurance Corporation of India (LIC) not to proceed with IDBI Bank investment till Thursday and sought minutes of the LIC board meeting where the transaction was approved.

The Union Cabinet had on August 1 given approval to a proposal for LIC to acquire a 51% stake in IDBI Bank through preferential offer of equity. The government’s stake would drop below 51% after the share sale. As of now, the government holds an 85.96% stake in IDBI Bank.

The Delhi High Court on Tuesday asked Life Insurance Corporation of India (LIC) not to proceed with IDBI Bank investment till Thursday and sought minutes of the LIC board meeting where the transaction was approved.

The Union Cabinet had on August 1 given approval to a proposal for LIC to acquire a 51% stake in IDBI Bank through preferential offer of equity. The government’s stake would drop below 51% after the share sale. As of now, the government holds an 85.96% stake in IDBI Bank.

Justice Vibhu Bakhru directed LIC to file an affidavit annexing the Irdai approval and explaining how investment regulations were relaxed for the LIC-IDBI deal that limit equity purchase to 15%. Besides, it asked LIC to produce its board decision with agenda notes to show what was the consideration for it to decide to purchase a 51% stake in IDBI.

It also observed that LIC has to act in the interest of its stakeholders and cannot take a decision on any other consideration. The next date of hearing is on Thursday (August 30).

As per current regulations, LIC cannot invest more than 15% in the equity of a single company. The LIC counsel assured the court that nothing would be done during pendency of the case.

The explanation was sought by the HC on a petition filed by the All India IDBI Officers’ Association seeking to disallow the government from reducing its shareholding in IDBI Bank below 51% from the existing 77% and also restrain LIC from acquiring a 51% stake in IDBI Bank.

According to the association, the reduction of 51% stake by the government in IDBI Bank and acquisition of 51% stake by LIC is ultra vires of the Industrial Development Bank of India Act 1964 and the Industrial Development Bank (Transfer of Undertaking and Repeal) Act 2003.

Stating that LIC would be putting in over Rs 20,000 crore of public money into the investment, counsel Prashant Bhushan said the deal would corrode the ability of LIC to pay back its policy holders.. The acquisition is not a financially-prudent decision for LIC as the IDBI Bank has gross NPA’s amounting to a whopping Rs 55,588.26 crore, Bhushan said. The said investment made by LIC will adversely hamper its own abilities to pay its 38 crore policyholders, he argued.

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