He was ousted by shareholders at the bank’s AGM on September 30. Gurbaxani’s ouster raises debate over whether the Companies Act supersedes the RBI Act, when it comes to banks.
Kerala-based private sector lender Dhanlaxmi Bank’s former managing director and CEO Sunil Gurbaxani on Monday said the Reserve Bank of India (RBI) has indicated that the regulator is weighing all options with respect to his dramatic ouster by the shareholders.
“I have been told by the RBI that I should be patient. The RBI has indicated to me that they are weighing all options in this matter,” Gurbaxani told Moneycontrol.
An email to the RBI, seeking a response remained unanswered till the time of filing this story.
Gurbaxani served as the CEO of the Thrissur-based bank only six months before he was ousted by the shareholders. Subsequently, the bank has invited applications for a new CEO. This is the first time an RBI-appointed CEO of a private bank is being ousted by shareholders in such a dramatic fashion.
Gurbaxani was appointed by the RBI in February this year to head the bank.
Legality of ouster
Gurbaxani’s exit has brought back the discussion on whether the Companies Act can be superseded by the Banking Regulation Act in such cases where shareholders choose to remove RBI-appointed CEOs before their term ends.
The shareholders’ move was initiated under the Companies Act. However, the CEO was appointed by the RBI under the Banking Regulation Act.
Section 10 BB of the Banking Regulation Act refers to the power of the RBI to appoint a managing director of a bank if the regulator feels that non-closure of the vacancy is likely to adversely affect the interests of the banking company.
“The 67 [chairman of the Board of directors appointed on a whole-time basis or a managing director] so appointed by the Reserve Bank shall be in the whole-time employment of the banking company and shall hold office for such period not exceeding three years, as the Reserve Bank may specify, but shall, subject to other provisions of this Act, be eligible for re-appointment,” the Section says.
As a Moneycontrol column argued earlier, the RBI silence on this matter could lead to a repeat of similar events in other banks as well, and could deter professionals from taking up the top job in private banks.
‘Shareholders have final say’
However, JN Gupta, former executive director of the Securities and Exchange Board of India (SEBI), said shareholders have the final say in the CEO’s appointment.
“The RBI doesn’t appoint but only approves an administrative process. The final decision lies with the shareholders unless there is an exceptional situation,” said Gupta.
In an interview with Moneycontrol, Gurbaxani had said that he was not given any clue by the shareholders or the Board about any performance-related issue or engagement in any irregularities that could lead to his ouster.
Gurbaxani put in his papers after the appointment of the committee of directors (CoD) became official. On October 1, the RBI appointed a three-member committee to run the day-to-day operations till a new CEO is appointed.
G Subramonia Iyer will be the chairman and G Rajagopalan Nair and PK Vijayakumar are the committee members.
“How a handful of shareholders who recommended my appointment have gone against me without any clear indication smells foul. The issues deserve an investigation—what went wrong? On whose behest the shareholders voted against me?” Gurbaxani said in an exclusive conversation with Moneycontrol.
Gurbaxani has 35 years of experience with the State Bank of Bikaner & Jaipur (now State Bank of India) and Axis Bank. According to a majority of the shareholders in the bank, Gurbaxani’s favourable approach to investors from the “North Indian lobby” made him a misfit in the organisation.
These shareholders feared that the bank would lose its Kerala identity, and, hence, wanted to oust Gurbaxani and bring in a more ‘fit and proper’ candidate.
Gurbaxani has denied all these charges, saying that there was no such discussion ever.
As of March 2020, prominent investors in the bank include B Ravindra Pillai (10 percent), Gopinathan C K (7.5 percent) and Kapilkumar Wadhawan (5 percent). Foreign portfolio investors hold 11.4 percent.
Dhanlaxmi Bank posted a 69 percent decline in net profit at Rs 6.09 crore for the first quarter ended June 2020 from Rs 19.84 crore during the same quarter of the previous fiscal due to higher provisioning.Total income during April-June 2020 increased to Rs 278.62 crore from Rs 256.75 crore in the year-ago period, the lender said in a regulatory filing.