Jun 23, 2010, 10.19 AM | Source: CNBC-TV18

ICICI Bk-BoR merger approved: Is it legally tenable?

The shareholders of Bank of Rajasthan have approved the bank's merger with ICICI Bank today. In an interview with CNBC-TV18, Akhil Hirani, Managing Partner, Majumdar & Co gave his perspective on the legal tangle that the bank is embroiled in.

Akhil Hirani, Managing Partner, Majumdar & Co
The shareholders of Bank of Rajasthan have approved the bank's merger with ICICI Bank today. This comes after a series of bizarre events yesterday, where the extraordinary general meeting that was called to approve the merger was first cancelled after a Kolkata civil court restrained the management from holding the EGM. This was based on a complaint filed by a shareholder who was against the merger. The bank then went ahead and informed the exchanges that the EGM has been cancelled following a court order.

However, some shareholders, including the former promoter PK Tayal went ahead and held the meeting chaired by a shareholder named DV Lakhani. And this merger resolution was put to vote.

In the meantime, ICICI Bank approached the Calcutta High Court and got a stay against the lower court order. Today the results of voting were declared and that approved the merger with ICICI Bank.

Speaking to the press, G Padmanabhan, MD & CEO, Bank of Rajasthan said, "We have only flagged certain issues to our solicitors so that they can come back and tell us how to take the process forward. We have asked for a legal view and we are awaiting that. The management really wants to know whether whatever has been done is okay or not because the management has been endeavouring to implement the majority decision of the board, only yesterday in the EGM because of the court order we went slightly out of the loop so we are only trying to ensure that the process is taken forward legally and appropriately."

In an interview with CNBC-TV18, Akhil Hirani, Managing Partner, Majumdar & Co gave his perspective on the legal tangle.

Below is a verbatim transcript. Also watch the accompanying video.

Q: The question is really about the process. Is this legally tenable?

A: This is a very curious case that has happened. I donít think we have had seen something similar happened before. Obviously in the first instance the Bank of Rajasthan took all the necessary steps and did the process as per the Companies Act and fixed up a date for the meeting and tried to hold this meeting.

In the meantime before the meeting could be held, a stay order was passed by the Calcutta city civil court. Effectively the way we interpret this and the way I would look at it is that the stay order would operate on the company because effectively the management and the Board of the company and Chairman who is a member of the Board are the managers of the company. But a stay order directing the management not to hold the meeting would effectively mean that the company should not hold the meeting. So thatís the first point.

So in terms of the management then being made aware of this order and then deciding that well there is a stay now and so we really canít hold this meeting and therefore not holding the meeting, I think they took the right step in doing that.

Of course you had all the shareholders who had gathered here and they decided that they could appoint their own Chairman and continue with the meeting. There is no real process for something like this. What the Companies Act provides is that 10% of the shareholders of a company could requisition a meeting and make a request to the Board of the company to hold a meeting, and then the Board would be mandated to hold such a meeting within a period of three weeks of such a requisition again by following all the procedures.

Although you may have had the 10% who could have requisitioned the meeting but the onus eventually was on the Board to then to take it forward. So if you look at it from a very technical perspective, whether that shareholders meeting is a validly held meeting or not is very questionable. From a company law point of view it could easily be a 50-50 case. Maybe that meeting was not valid in its own right.

So I think the management did the right thing because they were given a stay order and they said, fine we canít hold this until we do something about it. So thatís how we would look at that first phase.

Now what you have is the Calcutta High Court reversing that lower court order and saying that we vacate the stay. But I donít believe that such a vacation of this stay would be retrospective. So again if you look back in point of time on the day of the meeting there was a stay which prevented the management and thereby the company from going ahead with the meeting.

So the way we would look at it and the way one would go if you look at the process was that, now there is no stay and now it is again open for the Bank of Rajasthan to have another meeting and to actually just go ahead with the process in the two weeks or so if it can have a shorter notice and so on under its article and reconvene the meeting which will put to rest the entire controversy because otherwise without any real precedent and with different views on whether the court's order is retrospective or not is just going to be nebulous and grey and again still subject to challenges, some other activist shareholder wants to challenge that and go to the Supreme Court which will again thwart and delay the entire process. So these are the issues as we look at them based on the facts that have been presented.

Bk Of Rajasthan stock price

On August 23, -, Bank of Rajasthan closed at Rs 212.10, up Rs 3.75, or 1.80 percent. The 52-week high of the share was Rs and the 52-week low was Rs .

The latest book value of the company is Rs 33.55 per share. At current value, the price-to-book value of the company was 6.32.

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