Dhanlaxmi Bank in the Dock: Court Sets Aside Arbitrary Dismissal of Union Leader
Dhanlaxmi Bank Ltd (DBL), the Thrissur (Kerala)-based private sector bank, is once again in the limelight although for the wrong reasons. In 2020, it was a conflict between the board appointed managing director (MD) & chief executive officer (CEO) and the shareholders, leading to his premature ouster at DBL’s annual general meeting. (Read: Lakshmi Vilas Bank and Dhanlaxmi Bank: Self-Inflicted Existential Crisis? -Part 1 & Lakshmi Vilas Bank and Dhanlaxmi Bank: Self-Inflicted Existential Crisis? -Part 2)
 
In 2021, DBL’s decision to reject the candidature of two persons, who had filed their nominations for appointment as directors on the board, was contested in the court. In June this year, DBL had to call an extraordinary general meeting of its shareholders where, ostensibly, they wanted to discuss the dwindling earnings of the Bank and its rising cost to income ratio.  
 
The latest in the saga of its bumbling ride is a decision of a civil court in Thrissur, declaring as unsustainable, its 2015 decision to peremptorily dismiss an otherwise competent officer who happened to be the general secretary of the Dhanlaxmi Bank Officers’ Organisation (DBOO) and ordering DBL to pay him a compensation along with the costs of the litigation.
 
The Facts
 
In June 2015, PV Mohanan, an officer with over 37 years of experience, was summarily dismissed by DBL, paying him three months’ salary in lieu of notice. He had nearly a year of residual service to attain superannuation at 60. He was denied his rightful retirement benefits like pension and encashment of leave. 
 
The background to this extreme action by DBL needs no reiteration here, it caused a serious industrial relations conflict in the form of a prolonged strike at the bank and a nationwide protest by DBOO’s parent body, All India Bank Officers’ Confederation (AIBOC). Given the difficulty in sustaining the protest for long, and DBL’s refusal to settle the dispute, Mr Mohanan sought legal redress. Since the Bank was not a statutory authority, he had no recourse before a high court. He filed a civil suit in the court of additional sub judge in Thrissur against DBL and its senior officials.
 
Predictably, the trial went on for nearly six years with several adjournments, including at the stage of pronouncing the judgement after the trial was concluded. Finally, the verdict delivered on 15 June 2022, set aside Mr Mohanan’s dismissal and awarded him a compensation of about Rs30 lakh and cost of the litigation. The court, however, did not order payment of pension to him. This article will not go into the legal questions involved in the verdict and the order and will limit itself to the implications of the legal tussle on the fundamental issue of corporate governance. 
 
Conduct of the Top Bosses
 
That the conduct of top management, including the board, failed to stand up to judicial scrutiny and was indicted by the court, is a sad commentary on the level of corporate governance at the bank.
 
The principal problem in most financial institutions, including the State-owned public sector banks (PSBs), is the inability, or worse, refusal, to acknowledge signals of incipient management problems. Different internal sources can provide valuable information about what is happening within each bank; they need to be identified, protected from victimisation and the information received needs to be acted upon promptly for corrective actions. 
 
In the instant case, as recorded in the proceedings of the trial court, Mr Mohanan was performing his role as general secretary of DBOO, which was a recognised association of officers in DBL. He was also an employee, who had won several accolades for the responsibilities he had discharged as an officer of the bank. 
 
A serious issue he had pointed out related to the fraudulent fixed deposits of DBL’s Mumbai branches during 2013. It exposed the Bank to a risk of Rs141 crore and the banking industry to over Rs800 crore. There was an economic offence involving a few officers and a director of DBL triggering investigation by the economic offences wing (EOW) of the Mumbai police. The bank not only suffered financially but there was a serious dent to its reputation. 
 
Mr Mohanan had brought this to the notice of the Bank’s highest authorities, creating an opportunity to set right the irregularity. As later events proved, instead of acting upon the information, the informant was victimised.
 
DBOO and its general secretary were not alone in raising the red flag within DBL. In 2015 and 2016, two eminent independent directors had quit the board because the conduct of the Bank’s top executives was contrary to good governance. 
 
One of them, K Jayakumar, a highly acclaimed civil servant of the Kerala cadre even appeared as a witness in court and allowed himself to be cross examined. His resignation from the board in April 2016 had brought to light the feudal attitude of the top management led by the MD and his chief general manager who apparently desired ‘independent’ directors to be yes men! (Read: Dhanlaxmi Bank: Director K. Jayakumar exposes top brass while resigning)
 
Mr Jayakumar had lamented that several proposals by the board to improve the Bank’s performance were not implemented by the top management team. Mr Jayakumar had no love lost for Mr Mohanan either, as was clear from his resignation letter. 
 
The Implications
 
For a corporate entity like DBL, the amount of compensation ordered to be paid to Mr Mohanan is peanuts. The Bank can also file an appeal against the judgement, while Mr Mohanan is entitled to appeal the denial of pension for which he had actually contributed while in service as per the industry level settlement. 
 
Whatever happens next, one thing is clear: the action of the management was judged to be arbitrary and against the principles of natural justice. While the judgement vindicates DBOO’s stand and of its then general secretary, it has the capacity to reopen old wounds, which could further damage the institution’s already dented reputation.
 
Needless to say, decisions like this by bank managements are hardly in symphony with the concept of a collaborative relationship between stakeholders, rather than the traditional master and servant relationship being the bulwark for managing a publicly-owned enterprise. Effective governance needs the participation and active involvement of every segment of employees, not merely a few officials sitting in the corporate office. The trial court’s decision to set aside the arbitrary termination of a senior employee is another object lesson on the risk of disregarding basic rules of governance.
 
(The author was formerly joint general secretary of All India Bank Officers’ Confederation -AIBOC from 1995-2009; he was a director on the board of a public sector bank and authored Reforming the Indian Public Sector Banks-the Lessons and the Challenges (2018)
 
Comments
r_ashok41
3 months ago
i think sebi should intervene with respect to corporate governance being very weak and may be even money siphoning or laundering might be taking place.It needs to see
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