A minority group of nine shareholders, constituting a shareholding of nearly 13% in Dhanlaxmi Bank, has called for an extraordinary general meeting (EGM) to suspend the powers of its managing director and chief executive officer (MD&CEO) Shivan JK and authorising two other directors—CK Gopinathan and Rajagopalan Nair—to settle two writ petitions filed by the lender in the Kerala High Court (HC). Dhanlaxmi Bank, however, says the call for EGM and resolutions sought to be approved "could be ultra vires of the articles of association of the Bank," and it is mandated to schedule the EGM as per the call by shareholders.
In the notice, Dhanlaxmi Bank says, "The Bank has obtained a legal opinion that the resolutions sought to be approved by the special notice could be ultra vires of the articles of association of the Bank. However, they have also opined that there is no power vested with the board of a company, upon receipt of a valid EGM notice, to not hold the EGM by keeping silent or otherwise, even if the resolutions proposed to be passed at the EGM are ultra vires the articles of the company."
Nine shareholders—B Ravindran Pillai, who holds 25.3mn (million) or 9.99% shares in the Bank, B Govindan (3.84mn or 1.51%), Hareendran CK, a relative of the Bank's director Mr Gopinationan and holds 3.50mn or 1.38% stake, Rajesh K (55,450), Vincent CD (10,200), Vipin AS (21,100), Sreedevi K (800), George Kollannur (2,050) and B Sasidharan (1,000 shares)—have given the call for the EGM.
These shareholders seek to consider and pass two special resolutions. It includes suspending all powers of the Bank's MD&CEO till a proper quorum and composition of the board, audit committee and other committees are reinstated. The proposed resolution says, "...all the delegated powers exercised by MD&CEO in respect of all capital and revenue expenditure except statutory payments like salaries and wages, central and state taxes be and hereby shall remain suspended from the date of adopting this resolution till the date on which proper quorum and composition of the board of directors of the Bank, audit committee, and other mandatory committees of the board are reinstated and the guidelines of Reserve bank of India (RBI) and Securities and Exchange Board of India (SEBI) in this regard are fully complied with. All such suspended powers for incurring the expenditures, if any, shall jointly be exercised by any two non-executive directors of the board during the above-mentioned period."
The second resolution says, "Mr Gopinathan (non-executive non-independent director) and Mr Nair (independent director) be and hereby directed, authorised and empowered to settle, the writ petitions (C) No. 19758 of 2021 (Madhusoodan and others) and (C) No. 20425 of 2021 (P.K.Vijayakumar) in the High Court of Kerala by persuading the petitioners to withdraw the said writ petitions through negotiation, compromise or by any other such means they deem fit (keeping in mind the spirit of Section 174 (2) of the Companies Act for reinstating the quorum and composition of the board and it's committees). Further resolved that the above said directors may authorise the company secretary and secretary to the board to appear before the HC for signing all necessary documents on behalf of the Bank, pass necessary instructions to the Bank's advocates and sign whatever documents as required for the settlement of the said writ petitions and all connected proceedings."
Dhanlaxmi Bank has been going through a crisis for some time now. It had ousted CEO Sunil Gurbaxani in a shareholder battle in September 2020 and Mr Shivan, who has previously worked at State Bank of India (SBI), was appointed as the CEO in January 2021. Back then, Mr Gurbaxani had said: "The Bank needs deep surgery and this bandage approach will not work. Secondly, the professional approach used by me is never accepted by these shareholders. Hence, the conspiracy."
Earlier in June 2022, a minority group of 11 shareholders, constituting a total shareholding of around 13.67%, had called for an EGM raising concerns over rising expenses, low capital adequacy and financial performance of the Bank.
According to an explanatory note shared with requisition sent by nine shareholders on 28 September 2022 calling for the EGM, in the previous EGM held on 12 June 2022, the MD had assured to take immediate steps for rectifying issues like poor performance of the Bank and heavy expenditure.
"In spite of verbal assurance of MD, it is alarming to note that our Bank has registered heavy loss in first quarter (Q1). The MD continues with his luxury of incurring expenditure like, engaging high-cost advocates for avoiding litigations thrust upon the Bank, claiming huge incentives for himself, recruiting new personnel, opening of new branches etc. without objective analysis of the workload of the executives."
The note also points out that Dhanlaxmi Bank is running with a truncated board with just two directors besides the MD and the Bank has not appointed a new director except the MD since August 2020. It alleges, "The erstwhile part-time chairman and the present MD have not been taking any interest in filling up vacancies of the board for reasons best known to themselves. This has highly impaired functions of the audit committee of the board and supervision of audit functions..."
Shareholders, who have called for the EGM, contend that the "Bank is badly in need of capital." They say, "Even though there was some news of starting a rights issue as early as May 2021, shareholders are kept in the dark about any plan of augmenting capital. The rumoured rights issue cannot be implemented in the absence of a sufficient number of directors in the board."
The Bank may be unable to appoint new directors due to a pending court case in Kerala High Court. The lawsuit was filed by former directors KM Madhusoodanan, P Mohanan and Prakash DL regarding their candidature for directorship to be placed at the annual general meeting (AGM).
According to the explanatory note shared by the nine shareholders, the rights of shareholders under the Companies Act to elect a set of experienced and professional directors to the board were "unlawfully denied under flimsy grounds, resulting in unwarranted litigation and expenditure for the Bank". "The MD&CEO does not take any worthwhile initiative to settle the case with shareholders, instead spends exorbitant amounts towards legal charges for his ego satisfaction," these shareholders allege.
According to Dhanlaxmi Bank's website
, there are five directors, including Mr Shivan, Mr Gopinathan and Mr Nair. DK Kashyap and Jayakumar Yarasi are the two other additional directors appointed by RBI. Mr Kashyap's two year-term came to an end on 27 September 2022, while Mr Yarasi will remain director of Dhanlaxmi Bank till 29 May 2024.
Dhanlaxmi Bank has been planning a rights issue of Rs127 crore to boost the capital adequacy ratio from 12.98% to 13.5%.
The EGM is scheduled to take place on 12 November 2022.
Moneylife sent an email to the office of the MD. Till writing this story, we have not received any response from Mr Shivan's office. We will update this article with his comment as and when we receive it.
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