IN THE HIGH COURT OF BOMBAY BY JUSTICE PATEL
YES BANK LIMITED & RANA KAPOOR, MANAGING DIRECTOR OF YES BANK LIMITED
I. KEY NOTE OF THE CASE:
Can successors of the Late Company- founder of Yes Bank Limited nominate Directors to the Board?
Can successors of Late Company- founder of the Company reserve a seat on the Board?
II. FACTS OF THE CASE:
Ashok Kapur and Rana Kapoor, promoted a new banking enterprise, Yes Bank Limited (the “Company”). This is a relatively new entrant on India’s banking scene but in a very short time it has done extremely well.
Not only were Rana Kapoor and Ashok Kapur co-founders of the Company, with Ashok Kapur functioning as its Chairman and Rana Kapoor as its Managing Director and CEO, but they were also related by marriage: their wives are sisters. Although this may not fit the definition of “relatives” within the meaning of the Companies Act, the family bond is undeniable.
Ashok Kapur was one of the victims of the 26th November 2008 terror attacks in Mumbai. Sometime after Ashok Kapur passed away, his family attempted to assert these rights. On one side of the dispute are the widow, the two adult children and one group company of Ashok Kapur.
The battle between these two groups was the fight for control of the Company. When they founded the Company, Ashok Kapur and Rana Kapoor ensured that they enjoyed certain privileges in running of the Company, its management and control of its affairs. The Articles of Association of the Company actually contain ‘definitions’ of each of them by name. It is the case of the Defendants that these rights were personal to the two gentlemen and, following Ashok Kapur’s demise, did not survive to his heirs, legal representatives and successors
Madhu Kapur, widow of Late Co-founder of the Company and her children i.e. legal heirs of Late Ashok Kapur – Shagun Kapur Gogia & Gaurav Kapur initiated the case against the Company and its Managing Director & Chief Executive Officer- Rana Kapoor demanding the principal right to ‘nominate’ representatives to the Company’s Board.
They say they were first assured that these rights would receive recognition in the fullness of time. They waited. There was no action from either Rana Kapoor or the Company. The Plaintiffs reasserted their rights and it was then they found that their rights were being completely denied.
The Company and Rana Kapoor, contented that Ashok Kapur’s rights were not inheritable and Madhu Kapur cannot nominate any director to the Board on the ground that these rights were personal to Ashok Kapur and they died with him. Plaintiffs have been systematically excluded from all aspects of the Company’s functioning. The Company has been entirely ring-fenced against the Plaintiffs.
The prayers made by Plaintiff can be broadly classified into three categories:
- One set that seeks recognition of the Plaintiffs’ rights to participate in the management of the Company;
- A second set that seeks to restrain individual directors from acting as such or holding out themselves as directors; and
- Thirdly which seeks to restrain the Defendants from making or continuing with any application to the RBI for reclassifying the Plaintiffs’ shareholding into a non-promoter shareholding.
The case was a Right Vs Might as much as it was a Kapur Vs Kapoor case.
- Justice Patel referring the article of association of the company stated that Ashok Kapur’s right as a co- promoter also include his successors and legal representatives unless it was a repugnant to the context.
- The hon’ble Justice further also stated in the order that the right to recommend was never personal to either Ashok Kapur or Rana Kapoor. It includes their successors, legal representatives and assigns. The right not being in the nature of a contract of personal service, the question of repugnancy to the contract had not arised.
- He further stated that the applications to the RBI were self-serving and prima facie unlawful and any recommendations made by Rana Kapoor without the concurrence and consent of the Plaintiffs were also ultra vires the articles and therefore were null and void,”
The high court also impeached the appointments of the Company’s directors Ravish Chopra, M.R. Srinivasan, Diwan Arun Nanda, Ajay Vohra, Rajat Monga, Sanjay Palve and Pralay Mondal, calling them “invalid”, “ultra vires to the articles of association of the bank” and “null and void”.
The judge thus passed the order which recognized Madhu Kapur and her children Shagun Kapur Gogia and Gaurav Kapur as successors of late co-founder Ashok Kapur, giving them the right to nominate directors on the Company’s board, which is stronger than the “right to suggest”. He, however, rejected Madhu Kapur group company’s right to demand a seat on the Company’s board.
References : Sections of Companies Act referred in the case:
Section 89, 257, 269 and 314 of Companies Act, 1956;
Section 10, 149, 149(6), 152, 152(2), 160, 179 (1), 188, 188(1), 188(1)(f), 196, 196(4), 203 and 283 of Companies Act, 2013