Mere Inviting Of Expression Of Interest Does Not Violate Provision Of Banking Regulation Act: Delhi HC Clarifies

While dismissing the petition challenging the Expression of Interest (EoI) invited by Bank of Baroda (second Respondent/BoB) for the purposes of acquisition of stake holding of the BoB in Nainital Bank Limited (fourth Respondent/NBL), the Delhi High Court held that in the absence of there being a clear violation of any statutory provision, no writ interference is called for.

The Single-Judge Bench of Justice Purushaindra Kumar Kaurav stated that “More so, the decision of the BoB for divestment could not be said to be arbitrary or illegal so as to warrant interference of this court under its power of judicial review. This Court, therefore was not inclined to interfere with the impugned advertisement of EoI. However, it would be open to the petitioner to raise any grievance at an appropriate stage in accordance with the law, if so necessitated”.

Advocate Prashant Bhushan appeared for the Petitioner, whereas Solicitor General Tushar Mehta appeared for the Respondent.

In a brief background, the Petitioner stated that the decision of inviting EoI was arbitrary, illegal and the same was in violation of the recommendations made by the Parliamentary Committee as well as by the Ministry of Finance (MoF). In the year 2006, BoB had also shown interest in merging NBL into BoB. The RBI granted permission to BoB to retain its existing holding in NBL, subject to the condition that the BoB could not reduce or transfer its shareholding in NBL without prior approval from RBI. However, in violation of the RBI guidelines, BoB, without awaiting the decision on its request for allowing BoB to dilute its stake in the NBL, had selected two private players, namely, Gaja Capital and Capital Float Financial Services Pvt. Ltd.

After considering the submission, the High Court noted that there was no final and binding decision taken by any of the authorities to merge the NBL in the BoB; Whether it was the Parliamentary Committee, RBI or the GoI, Ministry of Finance, all had left it to the discretion of the BoB either to merge the NBL with itself or to go for divestment; The divestment route had been decided to be followed by the BoB and the same had not attained its finality yet; and the invitation of EoI was the second step after taking a principal decision to go ahead for divestment.

The High Court stated that there was no approval required from RBI for publishing PIM inviting EoI as that in itself did not amount to transfer of shares of the banking company by the BoB.

The Bench clarified that it had been stated unequivocally that once the divestment process was taken forward, the shortlisted entity would approach the RBI in terms of Section 12B (1) of the Act of 1949 which would take a decision on the suitability of the entity as per extant law and regulations and would arrive at a reasoned decision keeping the interest of all stakeholders into account.

The High Court elucidated that unless the qualified bidder is ascertained, there is no question of making an application to RBI.

“There was proper check and balance under Section 12B of the Act of 1949 to ensure that the decision of acquisition of shares or voting rights in favour of any person was in public interest and fulfilled the criteria mentioned in Section 12B(2) of the Act of 1949. Since such a stage had not yet arrived, therefore, it was pre-mature at this stage, to assume that the legal regime applicable in the divestment of its shares by the BoB in NBL would not be followed”, added the Bench.

The Bench clarified that the decision of divestment of BoB was in the realm of a policy decision, since as on date, the BoB was holding the share capital in NBL in breach of the provisions of Section 19(2) of the Act of 1949.

The Bench stated that if BoB decided to go for divestment by fair and transparent process, no fault could be found in adopting such an approach, unless the action of BoB was shown to be patently illegal or arbitrary or in defiance of the applicable provisions of law.

The Bench stated that a process of divestment was a policy decision involving complex economic factors, and the courts had consistently refrained from interfering with economic decisions as it had been recognized that economic expediencies lack adjudicative disposition and unless the economic decision, based on economic expediencies, was demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason, that the Courts would decline to interfere.

Cause Title: The Nainital Bank Officers Association v. Union of India and Ors. [Neutral Citation: 2023: DHC: 4017]

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