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

The Madras High Court, in a ruling on April 26, declined to intervene in the 2020 merger of Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL). However, the court directed the Reserve Bank of India (RBI) to conduct a fresh valuation of the assets and shares of both entities to determine any reduction in the value of shares and to reconsider Tier-II bond write-offs.

The court’s directive instructed the RBI to evaluate the shares and assets of both DBIL and LVB as of the date preceding the amalgamation. Based on this evaluation, the RBI is mandated to make a fresh decision regarding the reduction in the value of shares and the writing off of Tier-II Bonds.

This ruling comes after investors contested the LVB-DBS merger, particularly challenging the Tier-II bond write-offs. While the decision is seen as partially favorable to bond and equity investors, as it requires the RBI to reassess the Tier-II bond write-off, the court’s order provides hope for further scrutiny and redressal of grievances.

The bench, comprising Chief Justice Sanjay V. Gangapurwala and Justice D. Bharatha Chakravarthy, has directed the central bank to complete the reassessment process within four months. The court emphasized that the RBI should consider the concerns of shareholders and bondholders while undertaking this exercise.

In a related development, the Supreme Court in March 2022 permitted Lakshmi Vilas Bank minority shareholders to transfer all cases pertaining to the LVB’s amalgamation with DBS Bank India Ltd to the Madras High Court. The High Court, in its recent ruling, urged the RBI to address shareholder and bondholder grievances and alleviate hardships arising from the compulsory amalgamation scheme to the best extent possible.