The Bombay High Court denied interim relief for the third time to Kotak Mahindra Bank Ltd., urging its promoters to declare that they have complied with the Reserve Bank of India’s direction to dilute their shareholding.
“If the promoters (of Kotak Mahindra Bank) haven’t come forward to challenge the order, the RBI is bound to take action," said Justice AS Oka, leading a two-judge bench with Justice MS Sanklecha. The promoters were given time until April 22 to file an affidavit.
Uday Kotak, as per the RBI’s timeline, needed to reduce his stake in the bank he founded to 20 percent by Dec. 31, 2018 and bring it down to 15 percent after May 2020. Kotak owned 29.7 percent in the bank as of Dec. 31.
In the last hearing on March 12, Harish Salve, senior counsel for Kotak Mahindra Bank, had said that since the RBI’s contention was with the concentration of power in the lender, it could give an undertaking that the founder won’t exercise his voting control in excess of 20 percent until May 2020.
To that suggestion, Justice Oka said that Salve's arguments implied that the promoters' shareholding was beyond the RBI's requirement of 20 percent, and therefore the promoters will have to file a separate affidavit stating that they have complied with RBI's stake dilution directions, as in its Jan. 30, 2017 circular.
In August, Kotak proposed to reduce his promoter holding in the bank using preference shares rather than bringing down his share of common equity. The RBI told Kotak a few days later that the perpetual non-convertible preference shares route to dilute promoter shareholding wasn’t acceptable.
The private lender moved the Bombay High Court in December after the central bank restricted it from reducing promoter holding using preference shares.