Bombay High Court
Mrs Madhu Ashok Kapur And 3 Ors vs Mr Rana Kapoor And 8 Ors on 4 June, 2015
Author: G.S. Patel
Bench: G.S.Patel
NM 944-2013 suit 462-2013-yes bank-f3.doc
shephali/atul
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO. 944 OF 2013
IN
SUIT NO. 462 OF 2013
1 MADHU ASHOK KAPUR
of Mumbai Indian Inhabitant, residing at
11, Silver Arch, Nepean Sea Road, Mumbai
400 006.
2 SHAGUN KAPUR GOGIA,
of Mumbai Indian Inhabitant, residing at
11, Silver Arch, Nepean Sea Road, Mumbai
400 006.
3 GAURAV ASHOK KAPUR,
of Mumbai Indian Inhabitant, residing at
119, Samudra Mahal, Dr. A. B. Road,
Mumbai 400 018.
4 MAGS FINVEST PVT. LTD.,
a company incorporated under the
provisions of Companies Act, 1956 and
having their registered address at Silver
Arch, Nepean Sea Road, Mumbai 400 006. ...Plaintiffs
Versus
1 RANA KAPOOR
of Mumbai, Indian Inhabitant, residing
at 427-428, 27th Floor Penthouse,
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Samudra Mahal, South Wing, Dr A
Road, Worli, Mumbai - 400 018
2 BINDU RANA KAPOOR
of Mumbai, Indian Inhabitant, residing
at 427-428, 27th Floor Penthouse,
Samudra Mahal, South Wing, Dr A
Road, Worli, Mumbai - 400 018
3 RADHA KAPOOR,
of Mumbai, Indian Inhabitant, residing
at 427-428, 27th Floor Penthouse,
Samudra Mahal, South Wing, Dr A
Road, Worli, Mumbai - 400 018
4 YES CAPITAL (INDIA) PVT. LTD.,
a banking company incorporated under
the Companies Act, 1956 having its
registered office at Mumbai - 400 018
5 MORGAN CREDITS PVT. LTD.,
a banking company incorporated under
the Companies Act, 1956 and having
their registered office at F-1/12, Hauz
Khas, New Delhi - 110 016, India
6 YES BANK LTD.,
a banking company incorporated under
the Companies Act, 1956 having its
registered office at Nehru Centre, 9th
Floor, Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018
7 DIWAN ARUN NANDA,
Row House No. 11, Grand Paradi, 572,
Dady Seth Hill, August Kranti Marg,
Mumbai - 400036
8 RAVISH CHOPRA,
J-14, 1st Floor, Saket, Delhi, 110 017.
9 M.R. SRINIVASAN,
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Flat No. 61, 6th Floor, Jolly Maker Apt.
No. II, 94 Cuffe Parade, Mumbai -
400 005
10 RAJAT MONGA,
Indian Inhabitant, having his office at
Nehru Centre, 9th Floor, Discovery of
India, Dr. A.B. Road, Worli, Mumbai -
400 018.
11 SANJAY PALVE,
Indian Inhabitant, having his office at
Nehru Centre, 9th Floor, Discovery of
India, Dr. A.B. Road, Worli, Mumbai -
400 018.
12 PRALAY MONDAL,
Indian Inhabitant, residing at / having
his office at Nehru Centre, 9th Floor,
Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018.
13 LT. GEN. (RETD.) MUKESH
SABHARWAL,
Indian Inhabitant, C/o. Yes Bank Ltd.,
having its office at Nehru Centre, 9th
Floor, Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018.
14 BRAHM DUTT,
Indian Inhabitant, C/o. Yes Bank Ltd.,
having its office at Nehru Centre, 9th
Floor, Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018.
15 SAURABH SRIVASTAVA,
Indian Inhabitant, C/o. Yes Bank Ltd.,
having its office at Nehru Centre, 9th
Floor, Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018.
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16 VASANT V. GUJARATHI,
Indian Inhabitant, C/o. Yes Bank Ltd.,
having its office at Nehru Centre, 9th
Floor, Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018.
17 RADHA SINGH,
Indian Inhabitant, C/o. Yes Bank Ltd.,
having its office at Nehru Centre, 9th
Floor, Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018.
18 AJAY VOHRA,
Indian Inhabitant, C/o. Yes Bank Ltd.,
having its office at Nehru Centre, 9th
Floor, Discovery of India, Dr. A.B. Road,
Worli, Mumbai - 400 018. ...Defendants
APPEARANCES
FOR THE PLAINTIFFS:
Mr. D.J. Khambata, Senior Advocate, with Mr. D.D.
Madon, Senior Advocate, Mr. Shyam Mehta, Senior Advocate,
Mr. Jimmy Avasia, Mr. M.S. Doctor, Mr. Aditya Mehta, Mr.
Rohan Dakshini, Ms. Pooja Kothari, Ms. Nikita Mishra, Ms.
Spenta Havewala, i/b M/s. Federal & Rashmikant.
FOR DEFENDANT NO. 1
Mr. Rohit Kapadia, Senior Advocate, with Mr. Naval
Agrawal, Mr. Prashant Beri, i/b M/s. Beri & Co.,
FOR DEFENDANTS NOS. 2 TO 5
Mr. Naval Agarwal, a/w Mr. Prashant Beri, i/b M/s. Beri &
Co.
FOR DEFENDANT NO. 6
Dr. Veerendra Tulzapurkar, Senior Advocate, with Mr. V.P.
Singh, Mr. Ankoosh Mehta, Rucheta Shah, Ms. Gathi Prakash
i/b M/s. Amarchand & Mangaldas & S.A. Shroff & Co.,
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FOR DEFENDANTS NOS. 7 TO 18
Mr. Soli Cooper, Senior Advocate, a/w with Mr. V.P. Singh,
Mr. Ankoosh Mehta, Ms. Rucheta Shah, Ms. Gathi Prakash, i/b
M/s. Amarchand & Mangaldas & S.A. Shroff & Co.,
CORAM : G.S.Patel, J.
JUDGEMENT RESERVED : 9th October 2014
JUDGEMENT PRONOUNCED : 4th June 2015
JUDGMENT :(Per G.S. Patel, J.) CONTENTS
1. OVERVIEW .................................................................................... 6
2. DRAMATIS PERSONAE ............................................................. 11
3. FACTUAL MATRIX ....................................................................14
4. THE FRAME OF THE SUIT & THE INTERIM RELIEFS SOUGHT ...................................................34
5. VOLUMES IN THE RECORD.....................................................37
6. BROAD ISSUES FOR DETERMINATION................................38
7. RELEVANT PROVISIONS OF THE ARTICLES ..................... 40
8. YES BANK'S ARTICLES............................................................ 40
9. INDIVIDUAL DIRECTORSHIPS............................................... 92 9.1 Defendant No.1 : the appointment of Rana Kapoor as Managing Director and CEO ................................................. 94 9.2 The appointment of Defendant No.8 (Ravish Chopra) as an IP Representative Director and as an Independent Director .................................................................104 5 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:15 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 9.3 The appointment of Defendant No. 9 (M. R. Srinivasan) as Director and Chairman ...........................109 9.4 The appointments of Defendant No. 7 (Diwan Arun Nanda) and Defendant No. 18 (Ajay Vohra) as 'Independent Directors'.................................... 113 9.5 The appointments of Defendant No.10 (Rajat Monga), Defendant No. 11 (Sanjay Palve) and Defendant No. 12 (Pralay Mondal) as Whole Time Directors....................... 115
10. SHAGUN GOGA KAPUR'S 'NOMINATION' ....................... 117
11. OTHER MATTERS AND ISSUES............................................122
12. CONCLUSIONS & FINDINGS .................................................124
13. THE THREE DETERMINANTS AT THE INTERIM STAGE.......................................................................128
14. FINAL ORDER AND RELIEFS ................................................. 139 ANNEXURE "A": Prayers in the Motion ................................142 ANNEXURE "B": Relevant Articles .......................................147
1. OVERVIEW 1.1 This is a singularly unfortunate dispute, not least for being a matter eminently fit for a sensible and rational settlement. None has been effected, despite every effort till the very end (indeed, till the date of pronouncement of this judgment). On one side of the dispute are the widow, the two adult children and a group company of one Ashok Kapur, by all accounts a person of considerable standing in financial and banking circles. He was one of the victims of the 26th November 2008 terror attacks in Mumbai. Ashok 6 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:15 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Kapur and Rana Kapoor, the 1st Defendant, promoted a new banking enterprise, the 6th Defendant, Yes Bank. This is a relatively new entrant on India's banking scene but in a very short time it has done extremely well. Defendants Nos. 2 to 5 are Rana Kapoor's wife, daughter and two group concerns.
1.2 Not only were Rana Kapoor and Ashok Kapoor co-
founders of Yes Bank, 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 (Plaintiff No.1 and Defendant No.2) are sisters. Although this may not fit the definition of "relatives" within the meaning of the Companies Act, the family bond is undeniable.
1.3 The battle between these two groups has been portrayed, especially in the media and in public imagination, as a fight for control of Yes Bank. It is nothing of the kind. Indeed, I would venture to suggest that the controversy in this litigation is very narrow although it has gone down a particularly convoluted path. When they founded Yes Bank, Ashok Kapur and Rana Kapoor ensured that they enjoyed certain privileges in the running of Yes Bank, its management and control of its affairs. The Articles of Association of Yes Bank actually contain 'definitions' of each of them by name. These definitions are among the many matters to which I will presently address myself, for it 7 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:15 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 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.
1.4 Sometime after Ashok Kapur passed away, his family attempted to assert these rights. 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 Yes Bank. The Plaintiffs reasserted their rights and it was then they found that their rights were being completely denied. The principal right sought to be asserted and invoked is the right to 'nominate' representatives to Yes Bank's Board.
1.5 Matters soon came to a head. This suit was filed on 6th June 2013. Various interim proceedings were filed. A preliminary issue was framed and decided in favour of the Plaintiffs. Appeals failed. Several applications were made for disclosure of documents, and amendment. Most were allowed, some in part.
1.6 Rana Kapoor's approach, one that is adopted by Yes Bank, perhaps of necessity, is that not only is the Plaintiffs' entire case founded on a misconception and misinterpretation of the Articles, but the presence of the Plaintiffs in the functioning of Yes Bank is neither necessary nor desirable. The Plaintiffs are, they say, a 8 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:15 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc disruptive influence. Any rights under the Articles were limited to Ashok Kapur himself and did not survive to his family and group companies. There is, therefore, no legal basis to the plaint.
1.7 I have heard Mr. Khambata, learned Senior Counsel on behalf of the Plaintiffs, Mr. Rohit Kapadia, learned Senior counsel for Rana Kapoor, Dr. Tulzapurkar for Yes Bank and Mr. Soli Cooper for some of its directors at quite debilitating length over several weeks. The arguments have been intricate and detailed. I will consider each of these in turn.
1.8 At an overall level, there seems to me very little doubt that there are material contradictions and discrepancies in factual narrative of Yes Bank's and Rana Kapoor's conduct. These inconsistencies and discrepancies are insufficiently explained. The rights claimed by the Plaintiffs are first denied on the ground that these were personal to Ashok Kapur and they died with him. At the same time, these very rights are invoked by Rana Kapoor acting on his own. The Plaintiffs say that these can only be validly invoked if the Plaintiffs do, in fact, succeed to the rights of Ashok Kapur. In Mr. Khambata's telling of the Plaintiffs' story, there is no manner of doubt that the Plaintiffs have been systematically excluded from all aspects of Yes Bank's functioning. The Bank has been entirely ring-fenced against the Plaintiffs. Their ostracism from the 9 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:15 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc company is as complete as it is possible to be. Almost the entirety of Mr. Khambata's case is based on a reading of certain sections of the Companies Act, 2013 and some of the company's Articles. I will, in the course of this judgment, need to refer to these Articles frequently. For this reason, they are annexed to this order as set out below.
1.9 The factual narrative that follows is, given the way events unfolded, necessarily of some complexity and length. There is then a brief synopsis of the frame of the action and an identification of the broad issues for determination. I have then considered the Articles and their interpretation, followed by an assessment of the rival submissions impeaching certain directorships. I have also considered the question of Ms. Shagun Kapur Gogia's nomination and its rejection by Yes Bank's board, as a relief is pressed in that regard. I have then set out my conclusions and findings, addressed the question of balance of convenience, prima facie case and prejudice, and identified the reliefs granted.
1.10 I must note that while there are very large number of individual prayers in this Notice of Motion, Mr. Khambata, in fairness, agreed that some of those prayers would require to be moulded, some would not survive, while the remaining would and ought to be granted as framed. I have not been able to agree entirely with Mr. Khambata on this. Some of the reliefs sought 10 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:15 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc are decidedly unambiguous. I have not been able to accept the submissions of Mr. Kapadia, Mr. Tulzapurkar and Mr. Cooper to deny the Plaintiffs all relief.
2. DRAMATIS PERSONAE The Plaintiffs -- Ashok Kapur's Family Ashok Kapur ig One of the co-founders of Yes Bank, Defendant No. 6. Was one of the victims of the 26th November 2008 terrorist attacks in Mumbai.
Madhu Kapur Ashok Kapur's wife;
Plaintiff No.1
Shagun Kapur Gogia Their daughter; also referred to as
Plaintiff No.2 "Shagun" in this judgment.
Gaurav Ashok Kapur Ashok and Madhu Kapur's son.
Plaintiff No.3
Mags Finvest Pvt Ltd "Mags Finvest"; The Plaintiffs'
Plaintiff No.4 investment company. Madhu
Kapur holds 50%; Shagun holds 4%
and Gaurav holds 46%.
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NM 944-2013 suit 462-2013-yes bank-f3.doc The Defendants -- Rana Kapoor's Family Rana Kapoor The second co-founder of Yes Defendant No.1 Bank. Ashok Kapur's brother-in-
law; Yes Bank's Managing Director and CEO.
Bindu Rana Kapoor Rana Kapoor's wife; Madhu
Defendant No.2 Kapur's sister.
Radha Kapoor Their daughter
Defendant No.3
Yes Capital (India) Pvt "Yes Capital"; An investment Ltd company of the Rana Kapoor Defendant No.4 family: Rana Kapoor holds 4.5%;
Bindu Kapoor holds 4.5% and Radha Kapoor holds 91%.
Morgan Credits Pvt Ltd "Morgan Credits"; Another Defendant No.5 investment company of the Rana Kapoor family. Rana Kapoor holds 3.62%; Bindu Kapoor holds 0.45%;
Raakhe Kapoor, another daughter of Rana and Bindu Kapoor, holds 95.93%.
12 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:15 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc The Defendants -- Yes Bank and its Directors Yes Bank Ltd "Yes Bank"; The Bank set up by Defendant No.6 Ashok Kapur and Rana Kapoor.
Diwan Arun Nanda Appointed Independent Director of Defendant No.7 Yes Bank. Appointment challenged.
Ravish Chopra Appointed as an Indian Partners'
Defendant No.8 Representative Director and then
ig as an Independent Director.
Appointment challenged.
M. R. Srinivasan Appointed IP Representative
Defendant No.9 Director. Appointment challenged.
Rajat Monga Appointed Whole Time Director.
Defendant No.10 Appointment challenged.
Sanjay Palve Appointed Whole Time Director.
Defendant No.11 Appointment challenged.
Pralay Mondal Appointed Whole Time Director.
Defendant No.12 Appointment challenged.
Lt. Gen. (Retd). Mukesh Independent Director. Sabharwal Appointment not challenged.
Defendant No.13
Brahm Dutt Independent Director.
Defendant No. 14 Appointment not challenged.
Saurabh Srivastava Independent Director.
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NM 944-2013 suit 462-2013-yes bank-f3.doc Defendant No. 15 Appointment not challenged.
Vasant V. Gujarathi Independent Director. Defendant No.16 Appointment not challenged.
Ms Radha Singh Independent Director. Defendant No.17 Appointment not challenged.
Ajay Vohra Independent Director.
Defendant No.18 Appointment not challenged.
3. FACTUAL MATRIX
3.1 On 7th February 2002, the Reserve Bank of India
("RBI") granted an in-principle approval to Ashok Kapur, Rana Kapoor and one Harkirat Singh to promote a new bank. About a year later, on 30th April 2003, a Share Subscription Agreement ("the SSA") was executed by Ashok Kapur, Rana Kapoor and Rabobank, another entity. Rabobank agreed to subscribe to 49% of the equity shares of the proposed banking company, while Ashok Kapur and Rana Kapoor agreed to subscribe to the remaining 51%. On the same day, a Shareholders Agreement ("SHA") was executed by Ashok Kapoor, Rana Kapoor and Rabobank. This SHA contains several definitions too, including of Ashok Kapur and Rana Kapoor. It closely follows the preceding SSA.
14 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 3.2 On 4th November 2003, Yes Bank, Defendant No. 6, obtained RBI approval to its Articles of Association. Yes Bank was incorporated on 21st November 2003.
The initial subscribers to its Memorandum and Articles of Association ("the Articles") were Ashok Kapur, his wife Madhu Kapur (Plaintiff No. 1), their daughter Shagun Kapur Gogia, Plaintiff No.2, their son, Gaurav Ashok Kapur, Plaintiff No. 3, as also Rana Kapoor (Defendant No.1), his wife, the 2nd Defendant, Mrs. Bindu Kapoor and their daughter Radha Kapoor, Defendant No. 3. These Articles contained several clauses to which I will return shortly, after I complete the factual narrative. As on 25th November 2003, Ashok Kapur held 17.5% of the equity of Yes Bank. Another 8.5% was held by the 4th Plaintiff, Mags Finvest Private Limited ("Mags Finvest"), a company held by Madhu Kapur, Shagun Kapur and Gaurav Kapur. Rana Kapoor held 10% of the shares in Yes Bank. Defendant No. 4, Yes Capital (India) Private Limited ("Yes Capital"), a company held by Rana Kapoor, Bindu Kapoor and their daughter Radha Kapoor held another 8.5%; and Morgan Credits Private Limited ("Morgan Credits"), another company held by Rana Kapoor, Bindu Kapoor and one Raakhe Kapoor (another daughter of Rana and Bindu Kapoor) held 7.5%. Rabobank held 48% of Yes Bank's equity.
3.3 On 16th April 2004, Yes Bank made an application to the RBI seeking approval for the appointment of Rana 15 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Kapoor as Yes Bank's Managing Director and CEO for a five-year period. On 25th May 2004, the RBI issued a banking licence to Yes Bank. On 10th November 2004 Yes Bank applied to the RBI for an amendment to its Articles to include a new Article 127A.
3.4 On 24th June 2004, Yes Bank made a public offering of its equity shares. The prospectus in this regard was approved by SEBI. At this stage, it is only necessary to note that in the prospectus, the term "Promoters" was defined to mean Mr. Ashok Kapur and Mr. Rana Kapoor.
3.5 Between 2004 and 2008, Yes Bank's business grew substantially. Mr. Ashok Kapur was the Chairman of Yes Bank, while Rana Kapoor, his brother-in-law was its Managing Director and CEO. Ashok Kapur also served either as a Member or as the Chairman of several of Yes Bank's committees including its Audit and Compliance Committee, its Risk Monitoring Committee, its Investor Relations Committee and its Fraud Monitoring Committee.
3.6 Following the initial public offering ("IPO") by Yes Bank, the shareholding of the Plaintiffs and the Rana Kapoor changed somewhat. Ashok Kapur held 13.01%. Mags Finvest held 6.3%. Rana Kapoor held 7.41%. Yes Capital held 6.3%, and Morgan Credits held 5.6%.
16 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 3.7 Tragedy struck on 26th November 2008. Ashok Kapur was one of the victims of the 26th November 2008 terrorist attacks on Bombay. Following his untimely demise, Ashok Kapur's shares in Yes Bank were transmitted to his wife Madhu Kapur and their children Shagun and Gaurav.
3.8 In January 2009, Shagun Kapur met Rana Kapoor. It seems that at this meeting Shagun Kapur enquired about the rights of the Plaintiffs to participate in the management of the Yes Bank. According to the Plaintiffs, Rana Kapoor told Shagun Kapur that she was then too young. He advised the Plaintiffs to wait and to trust him, assuring them that he would take care of their interests. Rana Kapoor also introduced Madhu Kapur and Shagun Kapur to some of the Directors of Yes Bank. According to the Plaintiffs, they were assured that they would, in time, be allowed to participate in the management of Yes Bank.
3.9 On 21st April 2009 and 22nd April 2009, Yes Bank's Nomination and Governance Committee ("NGC") met. At this meeting, this Committee apparently 'rejected' the 'nomination' of Madhu Kapur as a Director of Yes Bank. The terms of the minutes of this meeting are of some consequence. They have been emphasized by Mr. Khambata for different purposes, and I will return to these later in this judgment. What is, however, not in doubt is that the Plaintiffs knew 17 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc nothing of these meetings. They first learned of this so-
called nomination and rejection only on 7th June 2013 when copies of these minutes were produced by Yes Bank's counsel at the time of an ad-interim application in the present suit. Till this time, the Plaintiffs had not proposed Madhu Kapur as a Director of Yes Bank.
According to the Plaintiffs, this so-called nomination and rejection was engineered by Rana Kapoor. Yes Bank has separately accepted that there was no letter of request for the nomination of Madhu Kapur to Yes Bank's Board.
3.10 On 1st June 2009, Yes Bank applied to the RBI for approval to the appointment of Rana Kapoor as Yes Bank's Managing Director and CEO for another period of five years from 1st September 2009 to 31st August 2014. The Plaintiffs' contention is that their concurrence was not obtained for this appointment, although, according to them, this was required by Yes Bank's Articles. Although the application was for a five year term, it seems that the RBI's approval came through only for a three year period with effect from 1st September 2009.
3.11 On 20th and 21st October 2009, the NGC and Yes Bank's board, respectively, held meetings. At these, Rana Kapoor, claiming to be now the only 'Indian Partner', a term used throughout in the previous documentation, purported to exercise rights that, 18 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc according to him, were available under Article 127(b) and nominated or recommended one S.L. Kapur as Yes Bank's Chairman. Mr. S.L. Kapur was duly appointed by Yes Bank's Board as Non-Executive Part Time Chairman of Yes Bank.
3.12 In 2010, Rabobank sold its shareholding in Yes Bank in the open market on a piecemeal basis. Rabobank thus completely exited the Yes Bank venture.
3.13 Yes Bank's Annual Report for 2009-2010, published on 27th April 2010, listed the major shareholders of Yes Bank as on 31st March 2010. The Plaintiffs' group held 12.68% and Rana Kapoor's group collectively held 16.56%. The only relevance of this document in this narrative is that even as late as April 2009, Yes Bank showed these shareholdings as those of "the Promoter and Promoter Group". This, again, is a matter on which Mr. Khambata bases a part of his case.
3.14 I must at this stage note that there is a grievance made by the Plaintiffs regarding the notices for the various AGMs called by Yes Bank from 2010 onwards. At each of these AGMs there have been appointments of various persons to Yes Bank's Board. These are challenged and impugned by the Plaintiffs for want of sufficient authority, principally on the ground that the recommendation of these persons are not either in accordance with law or in accordance with the terms of 19 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc the Articles of Association of Yes Bank, or both. Rather than include each one of these challenges in this factual narrative, I propose to deal with them separately later in this judgment.
3.15 On 18th August 2010, Yes Bank wrote to the RBI claiming inter alia that the two families, i.e., Ashok Kapur's family and Rana Kapoor's family, were not related in terms of the relevant definitions under the Companies Act, 1956 and the RBI Act, 1934. It is at this time that Yes Bank asserted to RBI that since Ashok Kapur had passed away, and since his heirs were not involved in the management of Yes Bank and did not sit on its Board, Ashok Kapur's share ownership could no longer be "classified as Indian Promoter ownership". This is one of the documents that were disclosed subsequently during the course of this Notice of Motion. It came to light as recently as June 2014.
3.16 In January 2011, Madhu and Shagun Kapur met Rana Kapoor to discuss the Shagun's participation in Yes Bank's management. Once again, Rana Kapoor asked Madhu and Shagun Kapur to trust him. It seems that at this point Rana Kapoor also asked that the Plaintiffs consider selling their equity shareholding in Yes Bank.
3.17 It seems that a few months later, on 25th April 2011, Rana Kapoor met with certain officers of the RBI and sought to impress upon them his contention that the 20 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Plaintiffs' shares in Yes Bank could not be classified as Indian Promoter Ownership. By this time, therefore, the question of the Plaintiffs' status or classification as Promoters, following the definition of Indian Promoters in the Articles of Yes Bank, had assumed critical importance. Less than a month later, on 19th May 2011, Yes Bank again wrote to RBI on this issue. It now claimed that the "Indian Promoter" status and definition in the Articles of Yes Bank was personal to Ashok Kapur and did not travel to his heirs and legal representatives. Evidently, the Plaintiffs were unaware of this correspondence. This was part of the correspondence and documentation disclosed in June 2014. A reminder e-mail followed from Rana Kapoor on 2nd February 2012 to the same effect.
3.18 On 25th April 2012, at a meeting of Yes Bank's Board of Directors, Rana Kapoor was reappointed as its Managing Director and CEO for a period of five years with effect from 1st September 2012 "subject to the approval of RBI and shareholders". This appointment is also impugned by the Plaintiffs on the ground that it was not jointly recommended by the 'Indian Promoters' or 'Indian Partners', and also because the Plaintiffs had played no role whatever in making this recommendation or nomination. The Plaintiffs also contend that this appointment was never placed before the shareholders for their approval either at the eighth AGM (14th July 2012) or the ninth AGM (8th June 21 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 2013). It was sought for the first time only two years later at the tenth AGM held on 14th June 2014 on the basis of a AGM notice that the Plaintiffs described as 'tricky and misleading'. The continued appointment of Rana Kapoor as the Managing Director and CEO of Yes Bank from 1st September 2012 is challenged.
3.19 On 18th June 2012, Yes Bank applied to the RBI for approval for Rana Kapoor's reappointment as its Managing Director and CEO for a five year period from 1st September 2012 to 31st August 2017. Now this is an application on which Mr. Khambata places a great deal of emphasis. He says that what Yes Bank sent to the RBI as a "certified true copy of the Articles of Association of Yes Bank" is materially defective. It is not, demonstrably, an accurate reproduction of the relevant portions of the Article. Indeed, it entirely omits the all-important Article 127(b), but only includes copies of Articles 127(a) and (c). I must note that even before me Yes Bank and Rana Kapoor went to great lengths to withhold disclosure of this document and it was only pursuant to my order of 12th June 2014 that this document was disclosed. The disclosure was also made only on 20th June 2014 well after the 10th AGM held on 10th June 2014. The approval sought from the RBI came through on 31st August 2012. This approval is also impeached on the ground that what was sent to the RBI was not only defective but was materially misleading.
22 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 3.20 On 14th January 2013, Yes Bank wrote to RBI again, seeking its confirmation specifically for classifying Ashok Kapur's family's ownership as a non-promoter holding. On 23rd January 2013, the RBI replied to Yes Bank's letter of 19th May 2011 and 14th January 2013. Based on the unilateral representations made by Yes Bank and Rana Kapoor, RBI said that its earlier letter of 14th November 2011 was modified, so that the shareholding of Madhu Kapur's group, the heirs of Mr. Ashok Kapur, would not be counted as a promoter's stake subject to that group's shareholding being brought down to less than 5% of the Bank's paid up capital. The RBI said that this was a normal condition:
shareholders other than promoters and financial institutions were not permitted to hold 5% or more of a Bank's paid up capital. Time was given till 31st March 2014 in order to achieve this. At this time, i.e., March 2013, the shareholding of the 'Indian Partners' in Yes Bank was thus: Plaintiff No. 1 held 9.79%; Plaintiff No. 4, Mags Finvest, held 2.21%; Rana Kapoor held 5.58%;
Yes Capital held 3.92% and Morgan Credits held 4.22%.
3.21 There is at this stage, i.e., for the period between 2nd May 2013 and 6th June 2013 when this Suit was filed, a considerable amount of correspondence between the Plaintiffs on the one side and Rana Kapoor on the other. This relates not so much to the question of classification of the Plaintiffs' shareholding as a promoter or a non-promoter shareholding, but to the 23 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc question of whether Shagun Kapur Gogia, Plaintiff No. 2, was entitled as a matter of right to be nominated to and to serve on Yes Bank's Board. I believe this to be a somewhat different issue from the question of whether or not Rana Kapoor was entitled to make nominations on his own, or whether this or any nominations to the Board required the concurrence, consent, or the joining of the Plaintiffs in the capacity as one of the two initial promoters ('Indian Promoters' or 'Indian partners') of Yes Bank. I will be dealing with both issues separately.
3.22 On 2nd May 2013, Shagun Kapur Gogia wrote to Rana Kapoor recalling the earlier assurance that he had given and the subsequent events of January 2011. She mentioned that in a December 2012 publication entitled the "Yes Bank Story", all references to Ashok Kapur had been completely omitted. She asked for a meeting between herself and her mother on the one hand and Rana Kapoor on the other. There was no reply. On 13th May 2013, Shagun sent a second letter to Rana Kapoor. She said that the Plaintiffs had not even been consulted before Rana Kapoor appointed Directors ostensibly 'on behalf of the Indian Partners'.
Once again there was no reply. A third letter followed on 15th May 2013, and in this, Shagun requested a meeting as an AGM was scheduled on 8th June 2013. Rana Kapoor did not reply to this letter either.
24 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 3.23 A fortnight later, on 4th June 2013, Bindu Kapoor and Radha Kapoor met Madhu Kapur and her children. At this time, Madhu Kapur gave Bindu Kapoor (her own sister) and Radha Kapoor her letter of 4th June 2013 to Rana Kapoor. Later that day in the late evening of 4th June 2013 Rana Kapoor did meet the Plaintiffs. He said, it seems, that there were formalities to be completed for the participation of the Plaintiffs or at least of Shagun Kapur Gogia as a representative director of the Plaintiffs. The next day, 5th June 2013, Madhu Kapur wrote to Rana Kapoor requesting that effect be given to Articles 110, 121 and 127 of the Articles of Yes Bank. She suggested that the nomination of three Directors by the two Indian partners, i.e., the Plaintiffs' group and Rana Kapoor's group should be by consensus. Absent such consensus, Madhu Kapur suggested, it should be agreed that one director would be nominated by each of the Indian Partners and the third would be on an alternating basis, i.e., where one of the two groups would appoint a director at first and in the next cycle it would be the right of the second group to nominate their director. She suggested that Shagun be nominated jointly as a beginning, this recommendation being in the interest of Yes Bank, and on the understanding that Yes Bank's Board would appropriately consider her appointment as an additional director with all formalities being completed within the next few weeks.
25 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 3.24 On 5th June 2013, Rana Kapoor arranged a meeting between Madhu Kapur and Shagun Kapur Gogia and M.R. Srinivasan, Defendant No. 9, then the Chairman of Yes Bank. Srinivasan indicated that he was looking for a satisfactory way forward in the interest of both families and of course Yes Bank. According to the Plaintiffs, Srinivasan at this meeting indicated that Madhu Kapur could nominate Shagun as a director. After this meeting, on 5th June 2013 itself, Shagun Kapur sent an email to Srinivasan in which she referred to the constant exclusion of the Plaintiffs from the management and affairs of Yes Bank despite what she described as the 'rights enshrined' in the Articles. She emphasised the need for a written commitment for such joint nomination. With this, Shagun also sent her own CV and Bio-data to Srinivasan. He replied immediately saying that the CV was impressive and asking till the next day to revert.
3.25 As Srinivasan had not responded, Madhu Kapur sent an email to Rana Kapoor on 6th June 2013 along with a letter. These related to the question of establishing a protocol or procedure to implement nomination rights under the Article. That very day, Shagun Kapur gave to Srinivasan a signed copy of Madhu Kapur's letter to Rana Kapoor and requested Srinivasan to pass this on to Rana Kapoor. This suit was filed on 6th June 2013. That afternoon, Srinivasan sent an email to Shagun. In this email, Srinivasan clearly attempts to put some 26 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc distance between himself and what he perceived to be a dispute between the two warring families. According to Srinivasan he only suggested that Madhu Kapur and her group could suggest Shagun's nomination (or any other nomination) for a joint proposal to the Board of Directors for its consideration, and that Srinivasan's own role was limited to arrive at an understanding on the regulatory issues involved in the matter. All other issues, Srinivasan claimed, would fall within the purview of the families of the Indian Promoters. He declined to get further involved in this matter.
3.26 That evening, at about 5.41 p.m. on 6th June 2013, Rana Kapoor sent an email and letter to Madhu Kapur in response of her letters of 4th and 5th June 2013. The Plaintiffs claim to have seen this letter only after the suit was filed. Mr. Khambata laid a very great deal of emphasis on this document. According to him, it demonstrates that Rana Kapoor has unequivocally accepted that the Plaintiffs have entrenched rights flowing from the Articles of Yes Bank. Mr. Khambata submits that the only question was about whether RBI's eligibility criteria were satisfied by Shagun Kapur Gogia's nomination. What is noteworthy, Mr. Khambata says, is that even at this time, Rana Kapoor did not disclose to Madhu Kapur and Shagun Kapur that he and Yes Bank had made repeated applications to the RBI to declassify the Plaintiffs' holding as Indian 27 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Promoters and to show them, instead, as non-promoter shareholders.
3.27 On 7th June 2013, on an application made for ad-
interim reliefs inter alia in relation to the AGM to be held on 8th June 2013, it was clarified that the appointments of Defendants Nos. 7, 8 and 9 as Directors of Yes Bank would be subject to further orders of the Court. On 8th June 2013, Yes Bank held its AGM in Mumbai. Srinivasan was the Chairman at the AGM. At Madhu Kapur's request, Srinivasan conducted a poll to determine the outcome resolutions relating to the appointments of Defendants Nos. 7, 8 and 9. He nominated two persons of his choice for scrutinising the votes cast at this poll. At Madhu Kapur's request, Shagun Kapur Gogia was allowed to observe the process of scrutinizing the votes cast.
3.28 The Plaintiffs' ad-interim application was renewed and was taken up on 10th June 0213 and 1st July 2013. An order was passed allowing the Plaintiffs to forward to Yes Bank the recommendation for the appointment of Shagun Kapur Gogia as a director of Yes Bank. This was to be done within seven days and this nomination was to be considered by the Board at its scheduled meeting on 22nd June 2013. There followed between 10th June 2013 and 12th June 2013 some correspondence relating to inspection. I am not immediately concerned with this. On 15th June 2013 28 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc the Plaintiffs wrote to Rana Kapoor referring to Article 110 and this Court's order of 10th June 2013. In this letter the Plaintiffs stated that since Rana Kapoor had agreed to Shagun Kapur Gogia's nomination, the Plaintiffs assumed that this proposal had Rana Kapoor's concurrence. On 17th June 2013 the Plaintiffs forwarded their letter of 15th June 2013 to Yes Bank's Board of Directors. Shagun Kapur Gogia was recommended and nominated for the appointment of as a director. The Plaintiffs say this was pursuant to Article 110(b); this is disputed. Shagun Kapur Gogia's resume, CV and other declarations and information were also sent to the company. On 21st June 2013, Yes Bank asked the Plaintiffs to provide a revised declaration. It also called for an extensive amount for additional information and particulars. These details included information regarding lists of relatives, the probated will of Ashok Kapur, a copy of the Power of Attorney from Plaintiff No. 3, Rana Kapoor to Madhu Kapur, the consent of Ashok Kapur's legal heirs for the recommendation of Shagun Kapur Gogia and a confirmation whether Gaurav Kapur or any other member of the Ashok Kapur group had permanently surrendered their succession rights in favour of Shagun Kapur Gogia. On 24th June 2013, the Plaintiffs provided the information called for. On 26th June 2013 Yes Bank informed the Plaintiffs that it was considering Shagun Kapur Gogia's nomination pursuant to the Court order dated 10th June 2013, but that this should 29 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc not be assumed, construed or deemed to be a joint nomination by the Indian partners.
3.29 At this meeting on 22nd June 2013, the NGC and Board rejected Shagun Kapur Gogia's nomination. This was on the basis that she did not meet the standards of Yes Bank and its peer banks and, secondly since RBI guidelines of ownership and governance in private sector banks made it undesirable that two or more "relatives" should be on the Board of the bank.
3.30 At that very meeting, Defendants Nos. 10 to 12 were appointed as Whole Time Directors of Yes Bank on the recommendation of Rana Kapoor ostensibly pursuant to Article 127A.
3.31 On 28th June 2013, the Plaintiffs received a letter from Yes Bank stating that the Board had rejected Shagun Kapur Gogia's nomination. In the meantime, Affidavits in Reply and Rejoinder continued to be filed in the Notice of Motion filed by the Plaintiffs' Suit. On 30th July 2013, the Plaintiffs' advocates wrote to the Advocates for Defendants, Rana Kapoor and Yes Bank asking them to disclose correspondence with the RBI of which the Plaintiffs had learned from a recent news report. There was no reply to this demand.
30 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 3.32 On 12th August 2013 Madhu Kapur wrote to the RBI referring to the news article that said that Rana Kapoor had sought from the RBI a declassification of the Plaintiffs. There is no reply to this letter till date.
3.33 In the course of their replies to the Plaintiffs' Notice of Motion, the Defendants raised objections to the jurisdiction of this Court. Preliminary issues were framed under Section 9A of the Code of Civil Procedure, 1908. These were finally heard and rejected by this Court vide its judgment dated 24th March 2014.
Appeals were dismissed on 9th May 2014. The Supreme Court declined to stay the present Notice of Motion on Yes Bank's Special Leave Petition.
3.34 In the meantime, on 30th September 2013, Yes Bank applied to the RBI for the approval for the appointment of Defendants Nos. 10 to 12 as whole time Directors. RBI sought clarifications and information in relation to these appointments by its letter dated 4th October 2013. Yes Bank responded on 6th November 2013 saying that its Board was the competent authority to make the appointments in question.
3.35 On 28th March 2014, the Plaintiffs wrote to Rana Kapoor and Yes Bank pointing out that the positions of Chairman and Managing Director of Yes Bank would soon fall vacant and requesting that the be taken into 31 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc confidence if steps have already been taken to identify suitable candidates for these two positions.
3.36 On 23rd April 2014, the Board of Directors of Yes Bank resolved that Madhu Kapur and her family could not be considered as Indian partners, Promoters or part of the promoters' group of Yes Bank and could not, therefore, inherit rights under the Article of Association in that capacity. At this meeting, Yes Bank's Board also appointed Defendant s Nos. 15 and 16 as additional Directors.
3.37 On 25th April 2014 Yes Bank replied to the Plaintiffs' letter of 28th March 2014. It only said that it would make appointments to the two positions of Chairman and Managing Director by following the due process of law.
3.38 That very day, even while this suit was pending, Yes Bank wrote to the RBI attempting to persuade RBI that the Plaintiffs should not and could not be considered as Promoters of Yes Bank. This correspondence, as indeed all correspondence between Yes Bank/Rana Kapoor and RBI was not copied to or disclosed to the Plaintiffs. As the following facts will show, this disclosure was only made pursuant to an order that I passed a little later.
32 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 3.39 In the meantime the financial newspapers reported that Yes Bank was in the process of seeking a clarification on the Plaintiffs' status as Promoters of Yes Bank from SEBI. These news reports indicated that Yes Bank had already approached the RBI with an application to declassify the Plaintiffs as promoter of Yes Bank. The Plaintiffs wrote to SEBI and requested it to not give an opinion without affording the Plaintiffs a personal hearing. There is no response from SEBI to this letter.
3.40 Further correspondence continued in this vein between the Plaintiffs and Yes Bank/Rana Kapoor in May 2014.
3.41 On 15th May 2014 the Plaintiffs received an email notice dated 23rd April 2014 of the 10th AGM of Yes Bank scheduled to be held on 14th June 2014. This is a notice that the Plaintiff describe as tricky and misleading. The Plaintiffs challenge not only the notice but the appointments made at this annual General Meeting. There followed, on 23rd May 2014 an entirely unnecessary and avoidable controversy regarding inspection being given by Yes Bank to Shagun Kapur of certain documents at the registered office of Yes Bank.
3.42 By an order of 12th June 2014, Yes Bank was directed to disclose all documents and correspondence exchanged between the Defendants and the RBI, SEBI and other authorities in relation to the declassification or clarification sought in relation to the Plaintiffs' 33 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc status as promoter, Indian partner and shareholder. In doing so, I permitted the Defendants to redact all material in the documents or correspondence that did not relate to the Plaintiffs or to this declassification/ clarification. A further order on disclosure followed on 20th June 2014. The 10th AGM was video recorded and a copy of that video record was submitted to Court and is in safe custody.
4. THE FRAME OF THE SUIT & THE INTERIM RELIEFS SOUGHT 4.1 The Suit seeks to enforce what the Plaintiffs described as valuable proprietary and participatory rights vested in them, or so they say, by the Articles of Association of Yes Bank. According to the Plaintiffs they are being denied these rights by Rana Kapoor. The Plaintiffs' case is that Yes Bank and Rana Kapoor had both previously acknowledged the existence and subsistence of these rights but it is only now that a contrary stand is being taken. There is in the plaint a prayer for damages, one that I am, of course, not required to consider at this stage. There are also several prayers for a permanent injunction, and these too must be considered at the stage of final hearing of the Suit. Having said that, the reliefs in the Notice of Motion also seek similar orders of restraint. The reliefs sought in regard to the Annual 34 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc General Meetings held till 2014 will not, of course, survive. But there are other reliefs sought seeking inter alia to restrain Yes Bank from appointing any Directors without consulting the Plaintiffs and without obtaining their consent. There are also injunctions sought against several of the Defendants who are Directors from acting or holding themselves out as such, and an injunction restraining Yes Bank and Rana Kapoor from exercising any rights under the Articles of Yes Bank to the exclusion of Plaintiffs and without their concurrence.
4.2 Some of the reliefs survive. Others do not. Mr. Khambata has made it clear in the course of his arguments which of the reliefs he is pressing and which is not, and I will consider each of these while framing the final order to be passed. The plaint and the Notice of Motion both have both been extensively amended at least twice. For clarity and convenience, the reliefs sought in the Notice of Motion are set out again in Annexure "A" to this judgment.
4.3 Mr. Khambata has restricted himself to the following prayer clauses, viz., (a)(iii), (a)(iv), (a)(v), (a)(vi),
(a)(vii), (a)(viii), (a)(xiii), (a)(xiv), (a)(xv) and (a)(xx). The remaining reliefs are not pressed.
4.4 These reliefs are themselves divisible into certain classes. Prayer clauses (a)(iii), (a)(iv) and (a)(v) all relate 35 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc to the claimed participatory rights in management of Yes Bank and the Plaintiffs nomination of Shagun Kapur Gogia to Yes Bank's Board. Prayer clause (a)(vi) seeks to restrain Yes Bank and Rana Kapoor from acting in exercise of rights under certain defined Articles to the exclusion of the Plaintiffs and without their concurrence. Prayer clause (a)(viii) is directed against Defendants Nos. 10, 11 and 12 and seeks to restrain them from holding themselves out or acting as Directors of the Yes Bank. Prayer clause (a)(xiii) must be read with prayer clauses (a)(iii), (a)(iv) and (a)(v) but demands a reconstitution of the Board of Directors of Yes Bank to comply with Section 149 and Section 152 of the Companies Act, 2013 read with Article 121 of the Article of Associations of Yes Bank. Prayer clause
(a)(xiv) is directed against Rana Kapoor and falls under same category as prayer clause (a)(viii): it seeks to restrain Rana Kapoor from acting or holding himself out as the Managing Director or CEO of Yes Bank. Prayer clause (a)(xv) is in the same vein, directed against Defendants Nos. 7 and 18 and seeks to have their appointment as independent Directors stayed. Prayer clause (a)(xx) is a stand-alone prayer and seeks to restrain Defendants Nos. 1 to 6 from applying to the RBI from a reclassification of the Plaintiffs' shareholding or continuing with the application already made in that behalf.
36 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 4.5 Mr. Khambata in fairness agreed that prayer clause
(a)(iii) is substantially covered by prayer clause (a)(vi) and that the prayer clause (a)(xiii) is substantially covered by prayer clause (a)(v).
4.6 Therefore, these prayers can be broadly classified into three categories:
(a) One set that seeks recognition of the Plaintiffs' rights to participate in the ig management of Yes Bank;
(b) A second set that seeks to restrain individual Directors from acting as such or holding out themselves as Directors; and
(c) Prayer clause (a)(xx) 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.
5. VOLUMES IN THE RECORD 5.1 Before I turn to the rival arguments and submissions and the issues raised, I should perhaps indicate the 37 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc record that is before the Court. There is, first of all, a three-volume plaint that runs into merely 800 pages. This includes all amendments. The record in a Notice of Motion runs into nearly twice as many volumes: six in all, totalling about 1300 pages. There is also a Joint Compilation that runs into five volumes and 2000 pages. This, I was told, was "for convenience"
although that term seems to have been used somewhat loosely. There is also an additional compilation of correspondence with the RBI. In addition, there are several files containing the authorities cited on either side. The Plaintiffs have filed comprehensive notes of arguments and a supplemental set of written submissions as well. Defendants Nos. 1, 6 and 17 to 18 have also filed their notes of arguments.
6. BROAD ISSUES FOR DETERMINATION 6.1 To my mind, the submissions and arguments centre around these questions:
(a) Were the rights to participation in management that vested in Ashok Kapur by virtue of Yes Bank's articles personal to him or did they at all survive to the Plaintiffs?
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(b) If so, to what extent? Specifically:
(A) Did these rights require the Plaintiffs' concurrence and consent in the matter of recommendation or nomination of persons to Yes Bank's Board? And if they did, what is the effect on any such recommendations or nominations made without that consent or concurrence?
(B) Is the 'right to recommend' equivalent to a 'right to nominate' or is it merely a 'right to suggest'?
(C) Did the rights claimed by the Plaintiffs include the right to have a person of the Plaintiffs' choice serve on the Board of Yes Bank?
6.2 There are consequential questions or issues that arise relating to the appointments of several directors on Yes Bank's Board. Independently of these, there is the question of the validity of the appointment of two directors (Defendants Nos. 7 and 18) as "Independent Directors" of Yes Bank.
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7. RELEVANT PROVISIONS OF THE ARTICLES 7.1 Several clauses of Yes Bank's Articles are referred to repeatedly. To avoid setting them out at length in the body of this judgment, and for both completeness and convenience, the relevant ones are extracted and appended to this judgment.
8. YES BANK'S ARTICLES 8.1 As I have noted, Ashok Kapur and Rana Kapoor between them, their family members and their respective group companies (Mags Invest, Yes Capital and Morgan Credits) held 51% of the equity shares of Yes Bank. The RBI required Yes Bank's shares to be offered to the public. The Share Subscription Agreement of 30th April 2003 contained draft Articles of Association. According to Mr. Khambata, the Articles that governed Yes Bank on its incorporation on 21st November 2003 constitute what he calls "a matrix of participatory of proprietary rights" under the articles. These articles include some of the definitions, and Articles 110, 111, 118, 121 and 127. In 2004, Article 127A was added by amendment. According to Mr. Khambata, this newly introduced Article grants additional participatory rights to the promoters.
40 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.2 I will turn first to some of the provisions of these articles since these are invoked repeatedly on either side and the entire structure of Mr. Khambata's case depends on an interpretation of these articles.
8.3 Article 3 contains clauses of definitions and interpretation. Both "Ashok Kapur" and "Rana Kapoor" are defined to mean two individuals and, "unless it be repugnant to the context" to include each of there "successors, legal representatives and assignees".
8.4 The word "affiliate" is defined to mean any person which is a holding company or subsidiary of Rabo (i.e. Rabobank) or any person including any subsidiary or holding company which directly or indirectly (a) controls either Rabo or "the Indian Partners"; (b) is controlled by either Rabo or by the Indian Partners (c) controlled by the same person who directly or indirectly controls Rabo and the Indian Partners or (d) is the subsidiary of the same person of which Rabo is a subsidiary.
8.5 The terms "Indian Partners" (used in these proceedings interchangeably with the phase "Indian Promoters") is defined in the Articles to mean Ashok Kapur and Rana Kapoor (as defined above), but collectively and separately. The definition makes it clear that the term "Indian Partners" refers to the two 41 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:16 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc gentlemen together and that each of them is referred to separately as "the Indian Partner". Further, the Articles make it clear that the reference to a person means not only an individual but also artificial entities such as a company, a trust and the like. The interpretation clause also states specifically that the phrase "person" in the case of a body corporate is a reference to its successors and permitted assigns and in the case of a natural person is a reference to his heirs, executors, administrators and legal representatives.
8.6 Articles 47 to 61 deal with transfer and transmission of shares. Article 49(e) provides a special lock-in period.
This was framed at the time when Rabobank was one of the three who took the initial share capital of Yes Bank. Article 49(e) provided that neither Rabo nor the Indian Partners would, for a period of five years from 24th May 2004, transfer a specified amount of equity shares of the company. This clause was subject to any guidelines, instructions or directions issued, recommended or approved by the Reserve Bank in relation to the capital structure of the company. Any relaxation in this clause was required to be prorated to the respective shareholdings.
8.7 We come now to the all important Article 110.
Although I have set this out in the annexure to this judgment, I believe that it is necessary to set this out again here simply because it is so critical to this case.
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110. a) Until otherwise determined by a General Meeting the number of Directors shall not be less than 3 (Three) and no more than 15 (Fifteen).
b) So long as the Indian Partners hold along with any of their Affiliates directly or indirectly, at least 10% of the issued and paid up share capital of the Company, the Indian Partners shall have the right to recommend ig the appointment of three directors collectively referred to as the "IP Representative Directors". So long as Rabo holds along with any of its Affiliates directly or indirectly, at least 10% of the issued and paid up share capital of the Company, Rabo shall have the right to recommend the appointment of one director referred to as the "Rabo Representative Director".
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c) Apart from the IP Representative Directors and the Rabo Representative Director, the other directors shall be independent ("Independent Directors"). The Indian Partners shall propose the names of the first three Independent Directors, who upon approval by Rabo, shall be appointed as such by the Board. Rabo and the Indian Partners may, recommend the names of the remaining Independent ig Directors to the nominations Committee of the Company.
For the purpose of this Article the expression "independent directors"
means Directors who apart from receiving Director's remuneration, do not have any other material pecuniary relationship or transactions with the Company, its promoters, its management or its subsidiaries which in judgment of the Board may affect independence of judgment of the Director.
8.8 The material part of this Article for our purposes is Article 110(b). The first sentence of this Article specifies a threshold limit for the Article to operate. It says that provided the Indian Partners (as defined in the Articles) along with any of their affiliates (also defined), directly or indirectly hold at least 10% of the
44 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc issued and paid up share capital of the Company, the Indian Partners have "the right to recommend the appointment of three Directors" to Yes Bank's Board.
These three recommended Directors are to be called "IP Representative Directors". The second part of Article 110(b) made a similar provision for Rabobank giving it the right to recommend the appointment of one Director.
8.9 Article 110(c) provides for Directors other than the IP Representative Directors and the Rabo Representative Director. These other Directors are required to be what are called "Independent Directors". In addition to their right to recommend the appointment of IP Representative Directors, the Indian Partners were required (the word used is "shall") to propose the names of the first three Independent Directors. These names were to be approved by Rabo and these were then to be appointed to the Board. For the remaining Independent Directors, Rabo and Indian Partners were entitled to make recommendations to Yes Bank's nominations committee.
8.10 Article 111 is also important. This names Ashok Kapur and Rana Kapoor as the first two IP Representative Directors and another person as the Rabo Representative Director. Article 111(d) may have some consequence to the matter of interpretation of these Articles. It provides that the Board could appoint an 45 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Alternate Director to act for another Director. This Alternate Director's name could be suggested by the Director or he could be otherwise appointed. This alternate appointment could be made for a period of at least three months during which the Director in question was absent from the state where the Board meetings were ordinarily held. The Alternate Director was to be nominated by a shareholder for whose representation the Director was appointed. The term "shareholder" is also defined and it means the holder of any share of the Company. This phrase seems to indicate that there is a certain class of shares, the holders of which are entitled to representation on the Board of Yes Bank.
8.11 It is normal in such cases to provide for vacancies in the offices of Directors. Article 118 does precisely this. It does, however, go little further apart from the usual clauses regarding the filling up the casual vacancies Article 118(b) says that if the vacancies so created are of the Rabo Representative Directors or IP Representative Directors these are to be filled in by individual(s) recommended for appointment by either Rabo or the Indian Partners as the case may be.
8.12 Articles 121 to 126 provide for rotation of Directors.
The two IP Representative Directors and the Rabo Representative Directors are not liable to retire by rotation.
46 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.13 Article 127 deals with the Non-executive Chairman and CEO and Managing Director of Yes Bank. Article 127(b) says in terms that the Indian Partners have, again "the right to recommend" the name of the Chairman. They also have "the right to recommend"
the CEO and Managing Director of the Company. This Articles specifically provided that Ashok Kapur would be the first Chairman of the Yes Bank and Rana Kapoor its first CEO and Managing Director. The second part of Article 127(b), a provision that is no longer material following the exit of Rabobank, but which may nonetheless shed some light on the manner in which these Articles are to be interpreted, says that Rabobank would cause the Rabo Representative Directors to vote along with the IP Representative Directors for the appointment of the Chairman, CEO and Managing Director to the relevant committees of the Directors "(as indicated by the Indian Partners)". In other words, the Rabobank representative had little choice in this matter of appointment of the Chairman, CEO and Managing Director to various committees of Yes Bank.
8.14 Article 127A was introduced by an amendment in 2004, one that was approved by the Reserve Bank of India. This Article sought to introduce the concept of "Whole Time Directors" into these Articles. Article 127A(a) says specifically that subject to the provision of the governing statutes and to the Articles, the Board of Yes Bank shall, "subject to a recommendation made by 47 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc the Promoters" also include such Whole Time Directors as may be appointed. Now the word "Promoters" is not defined in these Articles. It is, however, common ground that this expression used in the amended and newly introduced Article 127A was and is interchangeable with the concept of Indian Partners, a term that is defined in these Articles. Both terms are used interchangeably and all have understood them so to be.
8.15 Article 127A(b) also provided that subject to all necessary approvals and the articles, the Board of Yes Bank is entitled to periodically appoint or reappoint one or more existing members to be designated as and to act as a Whole Time Director of a company. In any case, these Whole Time Directors are not to exceed more than one-third of the total number of Directors of Yes Bank.
8.16 Article 127A(e) opens with a non-obstante clause and says that Whole Time Directors are not subject to retirement by rotation under Article 122. They remain subjected to the other disciplines of resignations and removals and it is clarified that should any of them cease to hold the office of Directors, they will simultaneously and immediately cease to be Whole Time Directors as well.
48 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.17 Mr. Khambata submits that taken together these Articles make it abundantly clear that Ashok Kapur and Rana Kapoor had extensive participatory rights in the management of Yes Bank. They were both collectively defined as Indian Partners. Each of them was individually defined as an Indian Partner. The definitions of them by name as also the interpretations of the word "person" in the Articles made it clear that their rights extended to their heirs and legal representatives. The rights that Mr. Khambata speaks of are substantial. Under Article 110, the Indian Partners had a right to recommend the appointment of three Directors to Yes Bank's Board. That Article also provides for a threshold shareholding of 10% in order to exercise that right. This 10% may be made up by adding to the shareholding of the Indian Partners the shareholding of their 'affiliates', and this term is defined to include companies that are controlled directly or indirectly by Ashok Kapur and Rana Kapoor; i.e., the Indian Partners must together hold at least 10% of the shareholding of Yes Bank to exercise the rights under Article 110(b). In addition, Ashok Kapur and Rana Kapoor were the first IP Representative Directors of Yes Bank. The Indian Partners had also the right to propose the names of the first three independent Directors. This phrase is defined in the second part of Article 110(c) as being persons who apart from remuneration as directors have no other material pecuniary relationship or transaction 49 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc with company, its Promoters, its management or its subsidiaries and which, in the judgment of Yes Bank's Board, might affect their independence of judgment.
Incidentally, this appears to be another place where the expression "Promoters" has actually been used. The IP Representative Directors were also saved from retirement by rotation. Ashok Kapur and Rana Kapoor were respectively appointed under the Articles as a first Chairman and the first CEO and Managing Directors of Yes Bank. The amended Article 127A also gave the Indian Partners the right to recommend Whole Time Directors to the Board of Yes Bank.
8.18 Mr. Khambata's submission is that the right to recommend mentioned in these Articles is a recommendation that is binding and subject only to banking regulations. Its purpose is to protect the interest of the initial promoters and founders of Yes Bank. It is saved from being subjected to the will of the majority of the shareholders of the company by incorporation in the articles themselves. He submits that these participatory rights are recognised as enforceable in Indian Law.1 The Articles are also contract between members and are binding not only on the members but also on the company, i.e., Yes Bank.2 It is not permissible, Mr. Khambata says, for Directors 1 Vodafone International Holdings V. v Union of India, (2012) 6 SCC 613 2 Naresh Chandra Sanyal v Calcutta Stock Exchange Association Ltd, (1971) 1 SCC 50 50 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc to act contrary to the powers conferred by the Articles.
Any such action would be ultra vires the Articles as also Section 10 of the Companies Act, 2013. Consequently, any action contrary to or in defeasance of these participatory rights is by definition ultra vires and void.3 Further, he submits, the Articles of Association are a business document and must be construed so as to give them reasonable business efficacy, where such a construction is permissible or plausible. This interpretation is to be preferred to a result that might prove unworkable or is contrary to the Articles themselves.4 8.19 Mr. Khambata's submission, based on a plain reading of these Articles, is that the rights conferred in them are not personal. They are heritable and assignable. A share in a company, Mr. Khambata submits, is a bundle of diverse rights contained in the contract that is the Articles of Association of the company.5 A share is movable property and it carries with it all attributes of movable property.6 Since shares include proprietary rights, according to Mr. Khambata, the participatory rights contained in the Article and which accrue or endure to the Indian Partners enjoy all the attributes of 3 Claude-Lila Parulekar v Sakal Papers Pvt. Ltd., (2005) 11 SCC 73.4
Holmes v Lord Keyes, (1959) Ch 199 (CA) at 215; Rayfield v Hands, (1958) 28 Com Cases 460; Union of India v D.N.Revri & Co., AIR 1976 SC 2257 5 CIG (Central) v Standard Vacuum Oil Company, AIR 1966 SC 1393.6
LIC v Escorts Ltd, AIR 1986 SC 1370.
51 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc movable property. This includes heritability and assignability. Thus, even without the express provisions in the definitions contained in the Articles and without the express words of Article 110, any rights that were available to Ashok Kapur would pass on his death to his heirs and legal representatives. If the Articles intended to provide for the contrary, they would say so in terms. They do not. In the present case, Mr. Khambata submits, far from curtailing any rights of succession, inheritance or assignability, the Articles make explicit that which is implicit in the very nature of the share itself: all the proprietary rights available to Ashok Kapur, were, plainly, heritable and assignable. They cannot in any manner be construed to be personal rights. Contractual rights are by definition assignable. The exception is cases of contracts that are personal in nature or where rights are incapable of assignment either because of a statutory prohibition or because of an explicit provision in the contract itself.7 Ordinarily, and unless there is a contrary intention either expressed or implied a contract is enforceable against the legal heirs, representatives, assignees and transferees of a party to that contract.8 Usually, contractual rights are not treated as personal unless there is clear evidence sufficient to support an inference of a prohibition or a restraint against an 7 Khardah Company Limited v Raymond & Co (I) Pvt. Ltd., AIR 1962 SC 1810 8 Ram Baran Prasad v Ram Mohit Hazra, AIR 1967 SC 744.
52 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc assignment or transfer. The onus lies on he who seeks to contain that there is a prohibition against assignment.9 8.20 The response from Mr. Kapadia and Dr. Tulzapurkar is that the right in Article 110(b) is entirely personal and is unlinked to any shareholding; i.e., that it was intended always to be a right personal to Ashok Kapur and Rana Kapoor. This right does not, therefore, they contend, survive to the two individuals' successors, legal representatives and assigns; any such reading is 'repugnant to the context'.
8.21 This raises some distinct questions:
(a) Is this right personal, as the Defendants contend, or does it survive to the heirs, successors, legal representatives and assigns of Ashok Kapur and Rana Kapoor?
(b) Following from this, how is that right is to be exercised? Can it be exercised separately or severally, or must it be exercised jointly?9
Chinna Munuswami Nayudu v Sagalaguna Nayudu, (1925) ILR 49 Mad 387, affirmed in Sakalguna Nayudu v Chinna Munuswami Nayakar, AIR 1928 PC 174; Vishweshwar Narsabhatta Gaddada v Durgappa Irappa Bhatkar, (1940) 42 Bom LR 653; T.M. Balakrishna Mudaliar v M. Satyanarayaona Rao, (1993) 2 SCC 740; Shyam Singh v Daryao Singh, (2003) 12 SCC 160.
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(c) What is the precise nature of that right? Is the right to recommend merely a right to suggest, or does it necessarily imply the right to nominate?
(d) As a corollary of the second and third questions above, are the Plaintiffs are entitled to what I will call, for want only of a better expression, a 'reserved' seat on Yes Bank's Board?
8.22 Is the right in Article 110(b) (and Article 127A) personal to Ashok Kapur and Rana Kapoor? On a plain reading, such as the one Mr. Khambata advocates, one would have to say it is not. After all, the Articles define the term "Indian Partners" to include both Ashok Kapur and Rana Kapoor; and more unusually in such cases, the Articles also contain a 'definition' of those two names. Those definitions explicitly and unambiguously include their heirs, successors, legal representatives and assigns. There is nothing in either Article 110(b) or Article 127A to indicate that any other definition or interpretation was intended. Mr.Kapadia's submission that this right has its genesis in the banking license originally granted, and that this license was on account of the personal qualifications and ability of Ashok Kapur and Rana Kapoor is not compelling. Every venture has its progenitor or promoter, and licenses are granted to the proposed venture because of 54 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc that person's abilities. This does not colour the rights to be found in the Articles and I do not believe that any principle of interpretation can allow us this kind of a regression. Mr. Kapadia says further that the 'successors' may not have any experience at all in banking and for that reason the right must be held to be personal. This is clearly incorrect, and it needlessly conflates distinct questions: to whom that right accrues, the precise nature of that right and whether that right includes the right to self-nominate. It does not follow from a finding that the right is not personal that it necessarily includes and means the right to nominate or foist oneself on the Board. Mr, Kapadia's submission that this is the necessary sequitur or result of finding that the right is personal is not correct. That is a possibility, not an inevitability. It might happen when both Indian Partners agree. In any case, I do not see how this helps Mr. Kapadia. If the right is personal, as he suggests, then it not only includes the right to 'foist' oneself to the Board, but it must also include the right to foist some other unworthy to the Board. What, in essence, Mr. Kapadia's argument translates to is this:
Ashok Kapur and Rana Kapoor might indeed have had the right to impose an unsuitable person to the Board;
now that Ashok Kapur has passed on, only Rana Kapoor can do so. This is simply untenable.
8.23 Mr. Kapadia then submits, as does Dr. Tulzapurkar, that the right was conferred on Ashok Kapur and Rana
55 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Kapoor in contradistinction to a corresponding right to a third entity, Rabobank, and that this was in the nature of an arrangement of a partnership. For our purposes, this makes no difference, and it is entirely impermissible in my view to carry out any such deconstruction of a plainly worded clause in the Articles.
8.24 Mr. Kapadia then points out that there are other parts of the Articles that refer to Ashok Kapur and Rana Kapoor, and these are clearly meant as references to them as individuals without including their successors:
for instance, Articles 111 and 127 providing for Managing Directorship and first Directorships of Yes Bank. If, he says, the expansive definition is to be used in Article 110(b), then it must be used in Articles 111 and 127 too. The only way to resolve this, in his submission, is to read the references to the names as being personal (and not to include their successors) in all clauses that relate to matters of appointments of directors, chairmen, Managing Directors, whole time directors and so on. There is, I think, a fatal fallacy in this argument. Article 110(b) does not speak of the appointment of any particular person. Articles 111 and 127 on the other hand name individuals to certain posts. There is a distinct conceptual difference between these. Certainly when it comes to Articles 111 and 127 there exists a repugnancy and the references in those Articles must be construed as references to the 56 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc two individuals concerned. I do not think it is at all possible to extend this to every other such reference.
Article 110(b) confers a right. Articles 111 and 127 make an appointment. The difference is crucial.
8.25 Mr. Kapadia's endeavour is to illustrate what he describes as 'absurd' consequences that might result if the two names in Article 110(b) are given their expanded meaning to include successors. He seeks first to link the right to specific shares held by each of the two contesting groups. This argument leads us nowhere because, admittedly, the right under Article 110(b) can only ever be exercised if the two groups command 10% of the equity shareholding of Yes Bank. That is a threshold criterion for the exercise of the right (and this must be carefully separated from a right that attaches to a shareholding). Mr. Kapadia then constructs various scenarios of buying and selling of stock to demonstrate the so-called absurdity. Here, too, the argument fails because it proceeds on the assumption that within each group, each successor and each assign and each affiliate can exercise the right separately. That is not correct. In fact, as regards, heirs, successors, legal representatives and Affiliates (the latter as defined) there is no difficulty at all in accepting Mr. Khambata's interpretation. An Affiliate is an entity controlled by either of the two individuals and, in fact, both have exercised this right through such Affiliates (Mags Finvest, Yes Capital and Morgan Credits, for 57 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc instance). Mr. Kapadia's analogies gain some traction when he emphasizes the use of the word 'assigns' and asks if it is at all possible for transferees of the shares of the two groups to exercise these very rights. That, he says, could never have been the intention and it must therefore follow, in his submission, that the right was entirely personal to the two individuals in question. For instance, if the Plaintiffs' group divests itself of the entirety of its shareholding to a third party (or several such), could this entity (or the several entities coming together) invoke this right? First of all, this is an extreme scenario and it can hardly dictate or govern the interpretation of the clause as it plainly stands. Second, it is entirely possible that, in a given context, the word 'assigns' might be contextually repugnant (and it would probably be so in the scenario Mr. Kapadia outlines), but that does not mean that it should drag down with it every other term in the expanded definition, i.e., all heirs, legal representatives and successors. Certainly it is 'repugnant to the context' of Article 49(e), the lock-
in provision, for that could never apply to any assign. Finally, perhaps the scenario Mr. Kapadia envisions is possible. What of it? The way the clause is worded, the right can only ever descend to one level below Ashok Kapur and Rana Kapoor and no further; a transferee from those might be able to invoke those rights, but not a transferee of a transferee. It seems to me that the clause in Article 110(b) has a defined and limited life- cycle. It is not one that can endure in perpetuity.
58 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Finally, it is common ground that both groups have in fact divested themselves of some of their shareholding. None of their transferees, qua 'assigns', have ever laid claim to this right. More importantly, neither group has tried to rope in any 'assigns' to shore up its requisite threshold qualifying shareholding for the exercise of that right. This is a non-issue; nobody is concerned with the exercise of any rights by any 'assigns'. This hypothetical is hardly a guide to interpretation.
8.26 Articles 110, 118, 127 and 127A use the term "Indian Partners". The Defendants argue that Article 49(e), which provides for a lock-in period, is the only one in which the expansive definition of Ashok Kapur and Rana Kapoor can be given full effect. Ex-facie, this seems incorrect. Were it so, the so-called definition of the two persons was entirely unnecessary and it would have been sufficient to include the phrase "heirs, administrators, legal representatives and successors", or something of the kind, in Article 49(e). The inclusion of a general definition suggests that it must be used throughout except where (a) expressly excluded, which we find nowhere; or (b) implicitly excluded by a contextual repugnancy. The latter is a concept well known to law. An expression may be contextually repugnant if it results in an absurdity or nullifies the 59 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc provision in which it is used.10 Neither is the case here.
The only Articles where such a repugnancy may be imputed are those that name Ashok Kapur and Rana Kapoor to definite and definite corporate positions as the first IP Representative Directors11 the Chairman and the Managing Director-and-CEO respectively.12 8.27 The Articles are, I find, cautiously worded. At this stage, it is not unreasonable to assume that had the draftspersons intended to word Article 110(b) in the manner Mr. Kapadia and Dr. Tulzapurkar suggest, they would have said so. The words "heirs, legal representatives and assigns" might have been excluded specifically from that Article. It is not. To the contrary, it is expanded to include Affiliates, and that expansion by itself suggests that the right in that Article cannot be delinked from a shareholding. The 10% qualification in that Article attaches to the entitlement to exercise the right to recommend, but it is available only to shareholders and not to an outsider or non-member.
8.28 To accept Mr. Kapadia's and Dr. Tulzapurkar's submissions, I would necessarily have to accept that the Articles of Yes Bank had a quite extraordinary provision, one that allowed for an outsider, i.e., 10 Dhandhania Kedia & Co. v CIT, AIR 1959 SC 219; M. Karunanidhi v Union of India, (1979) 3 SCC 431.
11Article 111(a) and (b) 12 Article 127(b) 60 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc someone who held no shares in it, to dictate and direct its course provided he could muster up the 10% qualification shareholding in Article 110(b). It is, I think, axiomatic that the Articles are a contract between a company and its shareholders, and it would be utterly bizarre to have in these articles a conferment of power or entitlement of this magnitude on a non- shareholder, one said to be performing a contract of personal service.
8.29 Mr. Kapadia's
ig portrayal of Mr. Khambata's
interpretation as an attempt to read the Articles "up, down and sideways" is, I think, needlessly waspish. Mr. Khambata's interpretation is not only contextual; he reads the Articles in their plain terms, and it is the Defendants who invite me to subtract meanings from unambiguous terms. It is they who invite an ambiguity where none exists. Indeed, the question of repugnancy that the Defendants raise is more than a little self- defeating; for it is the Defendants' submission that invite me a wholesale rewriting of Articles 110(b) and
(c), 118(b), 127(b) and 127A(a), by doing away, where convenient to the Defendants, the words "successors", etc., and elsewhere, the word "assigns".
8.30 The references to situations that lie at the extremities are, I think, needlessly alarmist. Dr. Tulzapurkar says that it is necessary to test an interpretation against extreme situations. The authorities he cites do not 61 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc support this proposition, or say that that an absurd result from an extreme test is determinative. By that reasoning, as George Bernard Shaw famously demonstrated, syllogisms can always be forced to failure. All that these authorities say is that the entire document has to be considered as do surrounding circumstances.13 Mr. Khambata agrees whole-heartedly with this much. Is it conceivable that the Official Assignee or Official Liquidator would be entitled to exercise these rights? ask Mr. Kapadia and Dr. Tulzapurkar. It is, and may well come to pass. But that was always a possibility from the time these Articles were drawn, and not one occasioned by Ashok Kapur's passing. There is nothing so very absurd about this; it only requires the Indian Partners to be more cautious in their affairs.
8.31 Mr. Kapadia also debunks Mr. Khambata's formulation of this being a 'participative proprietary right for the protection of a minority'. To an extent, Mr. Kapadia may be correct. These rights have nothing whatever to do with the Plaintiffs (or the Rana Kapoor group) being a 'minority' per se. There is no linkage between being a minority and the exercise of the right. The right is available to a certain defined class, whether a minority 13 Keshav Kumar Swarup v Flowmore Pvt Ltd, (1994) 2 SCC 10; Puransingh Sahani v Sundari Bhagwandas Kripalani, (1991) 2 SCC 180; Provash Chandra Dalui v Biswanath Banerji, (1989) Supp. (1) SCC 487; Khardah & Co Ltd v Raymon & Co (India) (P) (Ltd), AIR 1962 SC 1810; i, AIR 1969 SC 9.
62 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:17 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc or a majority at any given time, and the clause says that in order to exercise that right, the class must hold shares above a certain percentage. It may be no more than chance that the two families do not each command an absolute majority in Yes Bank's equity and are, on that reckoning, a 'minority'. The defined percentage is a threshold qualification for the exercise of the right; once the shareholding drops below that barometer, the right can no longer be invoked. The discussion about the ambit and purport of the Supreme Court's decision in Vodafone14 carries us no further in an analysis of the Article at hand. Certainly the right Article 110(b) speaks of is participative, but is carefully circumscribed; and while there is no such threshold qualification shareholding in Article 127A, for the purposes of defining the right, this is entirely immaterial.
8.32 Mr. Kapadia's submission that the interpretation commended by Mr. Khambata would result in a shutdown of Yes Bank and that all appointments of all directors, the Managing Director, the Chairman and all whole time directors would be jeopardized for want of the Plaintiffs' consent is unwarranted. Article 110(b) speaks of IP Representative Directors. Independent Directors are to be appointed under Article 110(c), and only the first three are to be proposed by the Indian 14 Supra.
63 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Partners, subject to Rabobank approval. Similarly, under Article 127(b), the first Chairman, and the first Managing Director and CEO are named individuals, and these appointments obviously cannot extend to successors or assigns, nor is it anyone's case that they do. But the Indian Partners also have the right to recommend future appointments. This does not mean that the Indian Partners must exercise that right, or that on their failure or inability to exercise that right the appointments cannot be made. There is a material difference between having a right to do a particular thing, which carries with it an option not to exercise that right, and being required to do that thing, without which it cannot be done at all.
8.33 Mr. Kapadia's prediction of a corporate and financial Armageddon is more than somewhat misconceived. It cannot be happenstance that it arises only after, or because of, Ashok Kapur's passing. Every single one of these situations was possible had Ashok Kapur been alive today and disagreed with Rana Kapoor. Might that have resulted in the 'complete shutdown' of Yes Bank? Or are we required to presume that Ashok Kapur and Rana Kapoor would never and in no circumstances have disagreed on a single nomination?
8.34 There is another reason too that the right with which we are concerned cannot be personal and divorced from shareholding. The right is embedded in the 64 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Articles. This is a contract between the company, Yes Bank, and its shareholders. If the Defendant's interpretation is to be accepted, then that contract would necessarily also have to be with persons irrespective of their shareholding, viz., Ashok Kapur and Rana Kapoor. This creates a considerable legal anomaly: it would confer a right independent of any shareholding, and divorce rights under the Articles from shareholding. It would then follow that that right would be enforceable at the instance of an outsider, a non-member. This is contrary to settled law,15 and, closely read, Article 110(b), for instance, makes that abundantly clear. That Article requires two things:
first, that the persons who can exercise the right must be shareholders, and second that they must hold shares that are more than 10% of Yes Bank's share capital. The Articles do not require any qualification shareholding for directors. But these are special rights and they are conferred on a class of shareholders. Any other interpretation results in an incongruity: it would necessarily mean that even if Ashok Kapur and Rana Kapoor and their groups exit Yes Bank entirely, the two persons would not be eligible for consideration to appointment (which of course they would, as might any other titan in the banking industry), but would also be in a position to steer its course by making 15 Ramkumar Potdar v Sholapur Spg & Wvg Co Ltd, (1934) 4 Comp Cas 481 (Bom)(DB); Maj Gen Shata Shamsher v Kamaru Bros Pvt Ltd, AIR 1959 Bom 201
65 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc recommendations to the Board though they would, by then, be complete outsiders to the company. Mr. Khambata is, therefore, correct when he says that Articles 110(b), 127 and 127A are members' rights and not those conferred on non-member outsiders.
8.35 Mr. Kapadia and, more emphatically, Dr. Tulzapurkar refer to other documentation to submit that there are other indicators that these rights were personal. This is doubtful, to say the least. Dr. Tulzapurkar for Yes Bank referred extensively to four Agreements: The Share Subscription Agreement of 30th April 2003; the Shareholders' Agreement of the same date; the Share Subscription Agreement of 5 November 2003; and the Master Investment Agreement dated 25th November 2003. He drew attention to a number of clauses of these documents and invited a finding that these not only provided context but were permissible aids to interpreting the Articles. According to Dr. Tulzapurkar, these documents show that the rights in the Articles were personal to Ashok Kapur and Rana Kapoor. Of these four documents, the first three precede Yes Bank's incorporation on 21st November 2003; only the Master Investment Agreement is subsequent. The value of the first three pre- incorporation agreements is marginal at best, yet none of these seem to bear out the Defendants' contentions. All three include 'successors', 'legal representatives', 'permitted assigns', 'administrators' and 'executors' in 66 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc some combination or the other16 in the definitions of Ashok Kapur (the expression used is 'AK') and Rana Kapoor ('RK'). It is unclear why the warranties and representations mentioned in those documents should not bind successors, etc., as the Defendants suggest. Moreover, the first Share Subscription Agreement does not have a lock-in clause; yet it uses the expansive definition. Therefore, to suggest that in the present Articles, the expansive definition applies only to the lock-in Article 49(e) is clearly incorrect. Interestingly, the Share Subscription Agreement of 5 November 2003 (pre-incorporation) seems to suggest that the rights of the Indian Partners were also conferred on an artificial entity, a company Doit. How this right can be said to be 'personal' to two individuals and in the nature of a contract of personal service, likened to a contract to perform on stage and so on, remains unexplained. Finding that this is not a personal right obviates the need to consider whether, like all rights that are entirely personal, it is transferable or heritable.
8.36 The Master Investment Agreement followed Yes Bank's incorporation and it is indubitably important for it yields some clues as to how the parties themselves understood the Articles and acted on them. Here again, 16 The Share Subscription Agreement of 5 November 2003 uses the phrase "executors, administrators, legal representatives and permitted assigns", while the other two use the phrase "successors, legal representatives and permitted assigns".
67 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc the term 'promoters' was defined not only to include the two individuals but also three companies, and these 'promoters' had a nomination right, one that could not, for that reason, be personal. These three companies were such that their shares could be held by the spouses and families of the two individuals. In other words, the right with which we are concerned was conferred on Ashok Kapur, Rana Kapoor, and on three companies in which they, their spouses and their families held equity. All three pre-incorporation agreements were ratified by Yes Bank's Board, as was the Master Investment Agreement. Yes Bank has executed a Deed of Adherence binding it to the Master Investment Agreement. These indicia apart, there is no manner of doubt at all that if there is a conflict between the Articles and any of these agreements, it is the former that must prevail.
8.37 Implicit in the Defendants' argument is the presumption that Yes Bank's and Rana Kapoor's conduct is consistent with their interpretation that the right is entirely personal to Ashok Kapur and Rana Kapoor. We do not have to look far to see that this consistency does not exist. Rana Kapoor holds just about 5.55% of Yes Bank's paid up capital. He also does not, on his own, hold more than the required 50% of the paid up capital of Yes Capital and Morgan Credits. These do not, therefore, fit the definition of his 'Affiliates', if the right be entirely personal to him. As a 68 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc result, there is no way that Rana Kapoor can, on his own interpretation, satisfy the 10% threshold requirement to invoke Article 110(b) rights. Yet he has done so. How could that be possible, but for the inclusion of his spouse and children, and a combining of their shareholding in Yes Bank, Yes Capital and Morgan Credits? If what the Defendants say is correct, then the 'Indian Partners' collectively pass the 10% threshold criterion only if Rana Kapoor's personal 5.55% shareholding in Yes Bank is added to Madhu Kapur's (the 1st Plaintiff's) 9.74% stake. This also means that the right in Article 110(b) is, on Yes Bank's and Rana Kapoor's own conduct and understanding of it, available to their 'Affiliates', i.e., Yes Capital and Morgan Credits, neither of which is a natural person.
8.38 Mr. Khambata also submits that there is ample evidence to show that the Defendants have, by their conduct at various stages, 'admitted' that the Plaintiffs, are Ashok Kapur's successors, and are entitled to exercise these rights.17 These admissions, a list of which was provided, indicate only that the Defendants have, at best, accepted that the Plaintiffs are Ashok Kapur's successors. Except for one important exception, this list does not in itself carry Mr. Khambata the distance he must go; for the admissions 17 This is distinct from the argument that Defendants Nos. 1 and 6 have also made admissions regarding the true nature of the right. I have discussed this later.
69 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc to which he refers do not show, on their own, that the Defendants have 'admitted' the Plaintiffs' entitlement to the exercise of those rights. An admission is a matter of evidence. It can always be explained. It can, for instance, be shown to have been used in a given context and therefore not to constitute an admission for other purposes.
8.39 But there are two telling documents. On 21st April 2009, Yes Bank's Nominations and Governance Committee (the NGC) met.18 Among the things it considered was, it seems, a proposal for Madhu Kapur's nomination to the Board.19 The NGC formed an opinion that the nomination would have to be subject to the RBI-specified criteria "and also meet the standards of Yes Bank". The NGC recommended, therefore, that:
Mrs Madhu Kapur or any other family member would have to satisfy these conditions or alternatively nominate in consultation with the other Indian promoter any other person who may fulfil the same.
(Emphasis supplied) 18 Joint Compilation, pp. 503-504 19 I am setting aside for this discussion the fact that nobody seems to have made a nomination for Madhu Kapur in the first place.
70 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.40 Yes Bank's Board took up this matter at its meeting on 22nd April 2009, a few days later.20 It noted the NGC recommendation. It concurred.
8.41 There is no dispute that in interpreting a contract, and the Articles are nothing if not that, the conduct of parties is relevant. It shows how they understood it. As the Supreme Court said in The Godhra Electricity Co Ltd. & Anr. v The State of Gujarat & Anr.21
11. In the process of interpretation of the terms of a contract, the court can frequently get great assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or in receiving performance under it. Parties can, by mutual agreement, make their own contracts; they can also, by mutual agreement, remake them. The process of practical interpretation and application, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it is merely a further expression by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of 20 Joint Compilation, pp. 505-507 21 (1975) 1 SCC 199 71 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc contract that they had originally. The American Courts receive subsequent actions as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. This concurrence may be evidenced by the other party's express assent thereto, by his acting in accordance with it, by his receipt without objection of performances that indicate it, or by saying nothing when he knows that the first party is acting on reliance upon the interpretation (see Corbin on contracts, Vol. 3, pp. 249 and 254-55).
8.42 Unless explained, an admission furnishes the best evidence.22 If ever there was unequivocal admission by conduct as to the meaning of a contractual document, this is probably it. Neither Yes Bank's NGC nor its Board said that the right in question was unavailable to Madhu Kapur; they only questioned her credentials.
Indeed, they went further, and said it was open to her to 'nominate' an eligible candidate. It was not till much later, in the Affidavits in Reply to this Notice of Motion, that Yes Bank and Rana Kapoor reversed course and claimed that Madhu Kapur never had that right once Ashok Kapur passed on.
22Ramji Dayawala & Sons (P) Ltd v Invest Import, (1981) 1 SCC 80 72 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.43 But, as in many things, the admission that Mr. Khambata relies on is not without a sting in its tail; Yes Bank has said that the right can be exercised jointly with Rana Kapoor. That, too, in unambiguous. If Mr. Khambata relies on this admission, then he must of necessity accept that the right in question can only be exercised jointly. In fairness, he does precisely this; but the consequence of this does not necessarily yield the results he desires.
8.44 This takes us immediately to the second question: how is that right to be exercised? I believe this question more or less answers itself. The right in Articles 110(b), 127(b) and 127A(a) must be exercised jointly or not at all. Nothing in either of those Articles lends itself to an understanding that each Indian Partner was entitled to exercise that right unilaterally, i.e., to the exclusion of the other. In fact, this follows directly from my conclusion that the right was not personal to the two individuals in question but accrued and accrues also to their successors. The words in the clauses do not employ the disjunctive at any stage. Nothing suggests that Ashok Kapur and Rana Kapoor each were entitled to a separate exercise of the right. The term 'Indian Partners' means both of them and though it is true that the singular is defined to mean each of them, in Article 110, 127 and 127A when the exercise of a particular right is introduced it is only vis-à-vis both of them together. For instance, Article 110(b) says that so long 73 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc as the Indian Partners have the necessary qualifying shares, the Indian Partners 'shall have the right to ..."; it does not say that each of the Indian Partners shall have that right. This distinction is material and unambiguously tells us that Ashok Kapur and Rana Kapoor were, under these Articles, conceived to be acting together.
8.45 The scenario before me today is one that was as likely had Ashok Kapur survived. What might have been the result of a disagreement between him and Rana Kapoor? This, I think, lies at the heart of the matter. No one disputes that Ashok Kapur was entitled to these rights. Leaving aside the question of these rights inuring to his successors, how might Ashok Kapur have been entitled to exercise those rights? Could he have done so unilaterally or were he and Rana Kapoor required to act together? Nothing in these Articles suggests that either of these two men could have done so. They were entitled to exercise that right jointly or not at all. Finding that the right passes on to their successors does not and cannot alter this position. The rights in the Articles are, consequently, are ones that can only be exercised jointly, never singly.
8.46 This may seem obvious; it is. It may also seem innocuous; it is not. For the consequences of this are to throw into jeopardy every single non-joint or unilateral exercise of those rights. In every case where the right 74 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc has been purported to be exercised but not jointly, the results must stand vitiated as being ultra vires the Articles. Several directorships will then be impeached.
For clarity, and on this basis, I have dealt with each of these below while discussing the individual situations at hand, but the summary of that analysis is that several directorships are rendered vulnerable.
8.47 What precisely is the nature of the right in the Articles, specifically, the right in Article 110(b), Article 127(b) and Article 127A? Is it, as Mr. Khambata says, a right to nominate or is it, as Mr. Kapadia and Dr. Tulzapurkar would have it, merely a right to suggest, the final decision always being left to the Board? Mr. Khambata says that context and common sense demand that the right to recommend must be read to mean a right to nominate. Nothing else gives them business efficacy.
He is careful to say that this is, of course, subject to applicable laws and RBI directives; it will not do, for instance, to have someone wholly unsuitable and unqualified sit on Yes Bank's Board only because she or he is a 'nominee'.
8.48 There is much to what Mr. Khambata says. First, there is the contextual material. Article 110(c), for instance, says that upon Rabo approving the names of the first three Independent Directors proposed by the Indian Partners, they "shall be appointed". Curiously, this phrase is used only in this clause. This is because 75 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Rabobank's approval was a precondition; without it, there could be no appointment. Where no such approval is necessary, the appointment must happen straightaway. This is also the necessary result of the next provision of Article 110(c) regarding the other Independent Directors. Here, Rabobank and the Indian Partners were given the option of recommending the names of these other Independent Directors to the NGC. This marks a clear distinction between a recommendation as a nomination and a recommendation as a mere suggestion.
8.49 There is more. Article 118(b) for instance allows casual vacancies of IP Representative Directors to be filled by the Indian Partners; not the Board. This could not be if the right was merely recommendatory. Article 121 provides that two of the three IP Representative Directors are not liable to retire by rotation. Only the other directors are to appointed by the general body. The initial appointment of these IP Representative Directors is, therefore, not subject to general body approval. If Article 110(b) is merely a right to suggest, Article 121 is meaningless.
8.50 But what appears to be determinative is this: if the right to recommend is merely a right to suggest, why have it in the Articles at all? Article 110(b) is then entirely redundant. After all, Section 160 of the 2013 Act gives all members of the company the very same right. Nor is 76 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc this new. The section corresponds to Section 257 of the 1956 Act. If every member -- and this would include the Indian Partners -- have this right by law, what need was there for it in the Articles? The answer must be that the provision in the Articles went above and beyond that which the law already permitted. It conferred a right not to be found in statute. Given that the statutory right is one to suggest, the right in the Articles can only be a right to nominate.
8.51 I am not in the least persuaded by the arguments by Mr. Kapadia that the right in Article 110(b), worded as it is, can never be the right to nominate but is only a limited right to suggest. The authorities he cites do not, I think, carry the case at hand further.23 Matters of Constitutional and statutory interpretation do not always exactly match those in matters contractual.
There are many ways to discern contractual intent; conduct, for instance, being one. These are not applicable when assessing statutes or Constitutional provisions. Lexical definitions take us only so far, and often spiral in different directions, depending on which particular dictionary one chooses to consult. Thesaurus Lex should hold no terrors in a matter such as this.
23A. Panduranga Rao v State of Andhra Pradesh, (1975) 4 SCC 709; Naraindas Indurkhya v State of Madhya Pradesh, (1974) 4 SCC 788; Union of India v Telecom Regulatory Authority of India, (1998) 3 Comp LJ 400 (Del) 77 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.52 Mr. Kapadia insists that the rights in question were personal because of the special expertise, experience and abilities of Ashok Kapur and Rana Kapoor. This, he says, allowed them the privilege of suggesting names to the Board; and this is qualitatively different from the right of an ordinary member to suggest a name at a general meeting. But, Mr. Khambata ripostes, such a limited right surely yields only a trivial advantage, hardly commensurate with the much-vaunted special status of the two gentlemen. I do not think Mr. Kapadia is correct in this. Rana Kapoor has himself not exercised his rights in so deferential or submissive manner; it cannot be happenstance that his 'suggestions' have not once been denied.
8.53 Dr. Tulzapurkar's submission is somewhat different.
He says there is no ambiguity about the words in the Articles and they must receive their quotidian meaning;24 not one that results in a manifest absurdity or futility.25 I regret that I am unable to understand what this absurdity might be, or why it should be treated as manifest. The mistake is, I think, to treat these rights as ones that endure for eternity. That is not so. The right in Article 110(b), for instance, requires a 24 Provash Chandra Dauli v Biswanath Banerjee & Anr., 1989 Supp 1 SCC 487; Modi Co v Union of India, AIR 1969 SC 9; V. S. Talwar v Prem Chandra Sharma, (1984) 2 SCC 420.
25American Home Products Corp v Mac Laboratories Pvt Ltd, (1986) 1 SCC 465; Tillmanns & Co v SS Knutsford Ltd, (1908) 2 KB 385.
78 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc threshold shareholding. If the Indian Partners' holding falls below that limit, the right evaporates. As to the other Articles, it is always within the powers of the company to suitably amend these, regard being had to the progress and development of the enterprise. There is nothing so very absurd in a provision that allows the two progenitors of a commercial enterprise certain special privileges unavailable to others; and it is nobody's case that such a provision is contrary to law.
This is the common business sense that Mr. Khambata advocates. Yes Bank's argument seems to be that to extend these rights to 'successors' is absurd. I have already held it is not, and, indeed, would venture to suggest that clear-words argument is one that can with success be deployed against Yes Bank itself. It is today Yes Bank that seeks to have unambiguous words read out of the Articles.
8.54 This is the pudding. What might we make of Yes Bank's and Rana Kapoor's consumption of it? Mr. Khambata has culled a list of what he describes as 'admissions' by both Yes Bank and Rana Kapoor that the right under Articles 110(b) and 127(b) was a right to nominate and not merely to suggest. I will assume for the present that the word 'admissions' is something of 79 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc a trope to describe a general pattern of conduct, for it includes material of widely varying origin.26
(a) In his Affidavits in Reply dated 1st July 2013 and 24th July 2013, Rana Kapoor says that his 'nomination' of Mr. S. L. Kapur was made without any reference to the Plaintiffs.
He similarly made 'nominations' of
Defendant No.8 (Ravish Chopra) and
Defendant No. 9 (M. R. Srinivasan) on his ig own. They were not shareholders' suggestions, recommendations or nominations. They were made by Rana Kapoor to the Board. If indeed they were merely suggestions, they met with curious and telling warmth.
(b) The IPO Prospectus of 24th June 2005 puts it unambiguously:27 it speaks of the parties to the SSA having, subject to the holding 10% of the equity, the right to nominate three Independent Directors to the Board (in addition to the posts to be held by Ashok Kapur and Rana Kapoor). Rabobank too was said to have the right to nominate one non- rotational director to the Board.
26I propose to ignore, for instance, the use of the word 'nomination' in correspondence after this litigation began.
27Joint Compilation, p. 279 at p. 375 80 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc
(c) The NGC Minutes of 21st April 2009 to which I have earlier referred also speak of Madhu Kapur's right to 'alternatively nominate' (not merely 'suggest') another candidate. This is carried forward in the Board's minutes of 22nd April 2009, ones that contain a wholehearted approval of the NGC's recommendations.
(d) At a 20th October 2009 meeting of the ig NGC,28 Rana Kapoor "informed" the NGC that he was "recommending" Mr. S. L. Kapur as the nominee of the Indian Promoter as Executive Part Time Chairman of the Board. The next day, Yes Bank's Board said that Rana Kapoor had the right to make this nomination. Again, the Board was informed of Rana Kapoor's nomination. This was repeated at the 15 January 2013 NGC meeting in respect of the "nomination" of M. R. Srinivasan, Defendant No.9, as the non-executive chairman of Yes Bank;29 and at the ensuing Board meeting on 16th January 2013.30 28 Joint Compilation, p. 649 at p. 650 29 Joint Compilation, p. 1199 at p. 1200 30 Joint Compilation, p. 1203 at p. 1204 81 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc
(e) On 22nd October 2012, the NGC had before it the name of the 8th Defendant, Ravish Chopra, as the "proposed Promoter Nominee";
not as the person recommended or
suggested, but as a nominee.31
(f) The appointments of both Ravish Chopra
and M. R. Srinivasan were placed before the general body at the AGM on 8th June 2013.32 These were not routine shareholder ig recommendations (which require an accompanying fee). These were clearly stated to be nominations by Rana Kapoor, described as the Indian Promoter.
8.55 There is other material too: Clause 8.3 of the Master Investment Agreement yields yet another clue; while the promoters have a right to 'recommend' directors, those directors are referred to as their 'nominees'.
8.56 Although I did not hear any response from the Defendants to this line of argument by Mr. Khambata, there is one important distinction to be drawn here.
The essence of Mr. Kapadia's argument here is that if these recommendations or nominations -- a rose by whatever name -- are always subject to regulatory 31 Joint Compilation, p. 1190 at p. 1192 32 Joint Compilation, pgs. 1242-1243 82 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc statutes and general body approval then they are nothing but suggestions properly so called. They can always be rejected by the general body (something that has, of course, never happened). But that, in my view, is misdirection. Everything a company and especially a banking company does is subject to oversight by statutory regulators. That does not detract from the nature of the right. What we must consider is the manner in which these 'suggestions' come to be placed before the General Body. Does the NGC ever consider them on merits, and reject those it finds unsound?
There is no evidence, even anecdotal, of this, except of course in the case of Shagun Kapur Gogia. Does the Board look askance at these 'suggestions'? It would appear not. Both seem to accept these suggestions precisely as nominations and I do not think it is even remotely possible to say now that the right to recommend is a paltry and piffling right to suggest. That could never have been the contractual intent.
8.57 Mr. Khambata correctly says that in this situation once a 'recommendation' is made, the Board, bound by Yes Bank's Articles, has no choice in the matter of that appointment, one that is subject only to the mandated eligibility criteria and statutory compliance. It is only where a person is disqualified under the Banking Regulation Act, that the nomination can be rejected; and that is not because the Board disagrees with the nomination, for it cannot, but simply because the law 83 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc will not allow it. The Board is required in these cases only to ensure compliance with law. There is he says, and I think correctly, no conflict between this interpretation and the relevant RBI directives empowering the Board to assess eligibility.33 The right in the Articles is not the right to recommend anyone and everyone; it must be someone suitable. Even the additional qualifications and experience, applicable to 51% of the Board under Section 10A(2) of the Banking Regulation Act 1949, would not operate in respect of these nominees. At least as far as the Board is concerned, a nomination is akin to a reserved seat. But it must be jointly made or not at all.
8.58 Mr. Kapadia asks me to read certain paragraphs of the Plaint with him. He says that the Plaintiffs have admitted in their pleading that the Articles confer only a right to recommend the appointment of directors. I do not see what possible difference this makes. That phrase is the one used in the Articles. In at least a dozen other places, the Plaintiffs have canvassed the right as being a right to nominate and not only merely to suggest. Not to put too fine a point on it, Mr. Kapadia sails a tad too close to the wind. Rana Kapoor's own Affidavits in Reply assert that the Plaintiffs' contention amounts to a 'fetter' on the 33 RBI circular of 25th June 2004 setting out the 'fit and proper' criteria for bank directors; Joint Compilation, Vol. I, p. 268 84 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Board, i.e., that the Plaintiffs' case was precisely that of the right being a right to nominate and appoint and not merely to suggest.
8.59 This submission, that the powers of the Board are and must always remain unfettered, is one for which I can find no authority when stated in such absolute terms. Indeed, it seems to me that the law, the authorities and the commentaries all point to the contrary. A Board's powers are always subject to the company's Articles. Were it not so, the Board would be entitled to do things wholly outside the confines of the Articles; and here we do have a manifest absurdity. The Articles of every company exist for a reason. That reason is not merely to constitute the Board and then unleash it. Section 179(1) of the 2013 Act in terms makes the powers of the Board of every company subject to its Articles. Article 140(a) of Yes Bank's Articles is consistent with this: it says, as it must, that the Board has all powers, subject to the provisions of the Memorandum & Articles of Association. In my reading of it, this has been settled nearly three decades ago in LIC of India v Escorts Ltd.34 We need not travel further afield, but should we be of a mind to do so, the terrain is no different. Even the authorities cited by Yes Bank do not, correctly read, support its case.35 I do not think it is necessary to 34 Supra.
35Pennington, Company Law, 5th ed, pp. 696-699 at p. 697; John Shaw & Sons (Salford) Ltd v Peter Shaw & John Shaw, (1935) 2 KB 113.
85 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc repeat again and again that a company is bound by its Articles. That is far too well settled to admit of the least debate.36 8.60 Mr. Kapadia cites Scott v Scott,37 Boulting v Association of Cinematograph, Television and Allied Technicians,38 and Rolta India Ltd & Anr. v Venire Industries Ltd. & Ors.39 to press his point. Scott was not in relation to restrictions in the Articles. Boulting is also inappropriate. That was an entirely different case. The questions before the Appeal Court were whether there was any principle that prevented every employee from becoming a union member; whether 'employee' could include a 'manager'; and the true scope of the conflict of interest provision. Dissenting from Lord Justices Upjohn and Diplock, Lord Denning, MR held it would be unlawful to force managers, who could not be said to be employees within the meaning of the rule in question, to join the union absent a provision for possible conflicts of interest. He said, inter alia:
Suppose a Member of Parliament should be in the pay of some outside body, in return for which he binds himself to vote as he is directed to do. The agreement would 36 Naresh Chandra Sanyal v Calcutta Stock Exchange Association Ltd, (1971) 1 SCC 50; Vodafone, supra.37
(1943) 1 All ER 582 38 (1963) 1 All ER 716 : [1963] 2 QB 606 39 (2000) 2 Bom CR 241 : [2000] 100 Comp Cas 19 (Bom) 86 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc clearly be void as against public policy ... Or take a nominee director, that is, a director of a company who is nominated by a large shareholder to represent his interests. There is nothing wrong in it. It is done every day. Nothing wrong, that is, so long as the director is left free to exercise his best judgment in the interests of the company which he serves. But if he is put upon terms that he is bound to act in the affairs of the company in accordance with the directions of his patron, it is beyond doubt unlawful, or if he agrees to subordinate the interests of the company to the interests of his patron, it is conduct oppressive to the other shareholders for which the patron can be brought to book ...
8.61 I am unable to understand how Rolta can be usefully applied to this case. As I read it, that decision tested the enforceability of an agreement that stood outside the Articles, not one embodied in them. The agreement in question was a pooling agreement, and it seems to have been urged before the Rolta Court that that agreement resulted in a denuding of the powers of the Board or its 'sterilization'. The observations in paragraph 3240 seem to me to be very context-specific:
The shareholders cannot infringe upon the Directors' fiduciary rights and duties. Even Directors cannot enter into an agreement, 40 In the Bom CR Report; para 31 in the Manupatra equivalent.
87 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc thereby agreeing not to increase the number of Directors when there is no such restriction in the Articles of Association.
8.62 But the same paragraph goes on to say:
The shareholders cannot dictate the terms to the Directors, except by amendment of Articles of Association or by removal of Directors.
8.63 Mr. Kapadia says, on the basis of Rolta and Boulting (cited in the former), that no agreement or contract can trump a statutory fiduciary duty. Therefore, the contractual right in the Articles cannot impinge on the Board's discretion and fiduciary duties. No interpretation that fetters the Board's discretion in selecting directors and managing director should, for that reason, be accepted. Mr. Khambata's interpretation, Mr. Kapadia says, denies members and shareholders of valuable rights to elect directors; and to take away the Board's discretion, even in the slightest, is contrary to the interests of the company, and Rolta says these are paramount. It is for this reason that the Articles advisedly use the phrase 'right to recommend' and not 'right to nominate'. I think this overstates the position, and it is not at all what Mr. Khambata advocates. As we have seen, there is an inherent limitation in Article 110(b) (though not in the other Articles), requiring a qualifying threshold shareholding.
This is an inbuilt safeguard. Secondly, the curtailment 88 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc of a discretion, even one conferred by a statute, is not the same as a denial of the right to exercise a statutory power or discharge a statutory duty. Mr. Kapadia's interpretation seems to me to be an unwarranted extrapolation: the fact that certain limited seats on the Board may be subjected to a nomination (they do not have to be; the Indian Partners can simply opt to pass on the exercise of those rights) does not mean that all the powers of the Board are denuded or that it is prevented from discharging any of its fiduciary duties. These rights are targeted and specific. They are restricted to certain numbers and certain posts. They do not dictate the entirety of the composition of Yes Bank's 15-member Board. What Mr. Kapadia suggests is some sort of forensic synecdoche, where the nominee positions represent the entirety of the Board.
They do not. The Board's powers are not constrained, and here the powerful dissent in Boulting may actually work against Mr. Kapadia, for the nominees owe no allegiance to their nominator, nor are they required to.
They are not there to protect or safeguard the two families' holdings or interests. The power of nomination is conferred because at the time when this enterprise was conceived and shaped, it was believed that between them, Ashok Kapur and Rana Kapoor, assumed implicitly to be acting together and without discord, could choose the correct men and women for the job; the job, that is, of conducting the affairs of Yes Bank.
89 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.64 There is also no statutory bar to such nominations. The Defendants argue that the RBI suitability criteria cannot be met if Mr. Khambata's interpretation is accepted. That is a patent misreading of his submission. I have not understood him to suggest, even remotely, that this right confers a power to nominate a person entirely unsuitable to the task. Mr. Khambata does not say that the Articles must be read such that the two Indian Partners, acting together, can 'nominate', say, a bus driver. That is the Defendants' portrayal of Mr. Khambata's argument and it is unfair.
What Mr. Khambata has been at some pains to stress is that while there is a power to nominate, that power is subject to all applicable laws, regulations, directives and requirements. Our bus driver may be quite excellent at what he does, but it is unlikely that he would be suited to, in the words of Rolta, charter the course of anything but his bus. Who is to decide his eligibility (i.e., whether he meets statutorily mandated standards)? Here again, Mr. Khambata is entirely candid, and the Defendants only attempt to sidestep his direct answer: it is for the Board to determine compliance with eligibility criteria and none else. In fact, this in itself wholly undermines Mr. Kapadia's Rolta-based submission. Essential discretion is not taken away at all. The Board may well tell the Indian Partners that the person they nominate, suggest or recommend does not meet the necessary criteria, and the matter ends at that.
90 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:18 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 8.65 Nor am I able to accept Mr. Kapadia's submission that all this is 'unworkable'. I do not see why. There is a positive embarrassment of choices available to the two groups. They can choose to act together. They can choose not to act at all. They can opt to reduce their shareholdings below 10% and thus give up their qualification to the Article 110(b) right. How long can this continue and till when? asks Mr. Kapadia. I should imagine the answer to that suggests itself: till the company amends its Articles, obviously. The one option that is not available to either group is to take the Articles as they stand and then, on the basis of some very latter-day epiphany, attempt to warp and metamorphose them into what is, for all intents and purposes, not so much a professionals' bank but one professional's bank.
8.66 There is one submission by Mr. Khambata that I must reject. It is simply not possible, on any interpretation, to accept that the Plaintiffs can unilaterally place any one of their choice, no matter how qualified, on the Board. The recommendation as a nomination must be jointly made. This is, in fact, Mr. Khambata's submission. If that is so, then his argument that Shagun Kapur Gogia's nomination must be held to be a 'deemed' joint nomination must fail; for Rana Kapoor made it abundantly plain that he did not join in that nomination, and that if the NGC was considering her nomination it was only under an order of the Court.
91 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Consistent with what I have held, neither the Plaintiffs' nor the 1st Defendant's (Rana Kapoor's) group has the right or authority to make unilateral nomination to the exclusion of the other.
9. INDIVIDUAL DIRECTORSHIPS 9.1 Mr. Khambata makes an elaborate exposition of 'Board packing', suggesting that Rana Kapoor is deliberately filling up 'vacant' seats on the Board, ones that are 'available for the second non-retiring IP Representative Director and to cause a frustration of the Plaintiffs' rights.' This argument must be rejected. The reasons are many. For one thing, it implicitly posits an interpretation of a unilateral (non-joint) nomination and the existence of a permanently reserved seat for the Plaintiffs on Yes Bank's Board. No such interpretation is possible and the Plaintiffs have no such right. Second, to accept this is necessarily to fly in the face of Rolta and to allow a wholesale curtailment of the Board's powers in respect of a very large number of directorships. Third, Mr. Khambata suggests that Yes Bank's Board can only appoint the minimum number of Independent Directors, i.e., one-third of the total strength, or five of the 15-member Board. It can appoint no more for that would "exhaust the seats required for IP Representative Directors". More than 92 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc one-third, he says, is not a statutory requirement; and to appoint more is ultra vires the Articles.
9.2 I must disagree. The argument again proceeds on the basis that there must necessarily be IP Representative Directors. That is not so. There are at least three scenarios in which there would be none: (1) if the two groups reduce their respective shareholdings below 10%; (2) if they cannot jointly agree on a nomination;
or, (3) if they simply decline to exercise the right. There is, therefore, no 'reservation' on the Board for IP Representative Directors. Further, the statute clearly requires a minimum of one-third of the total strength to be independent. The reason is obvious, and it is in the larger interests of the company. I do not think this can be construed to mean a cap or an outer limit. That would mean serving a narrow, private interest of one group (the two families taken as one) as opposed to the interests of the company itself. Finally, Article 110(b) is not compulsory. It does not say that the Ashok Kapur and Rana Kapoor 'shall recommend'. It says they will have the right to recommend (subject to conditions, of course, as discussed). The existence of the right is embodied in the Articles; the exercise of that right is clearly a matter of volition, not mandatory. If this be so, then there is no question of 'Board packing' or of there being only a maximum of five independent directors on Yes Bank's Board.
93 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 9.3 The appointments of Defendants Nos. 1 (Rana Kapoor), 8 (Ravish Chopra), 9 (M. R. Srinivasan), 7 (Diwan Arun Nanda) and 18 (Ajay Vohra), and 10 (Rajat Monga), 11 (Sanjay Palve) and 12 (Pralay Mondal) are all impeached as being ultra vires.
9.4 Defendant No.1 : the appointment of Rana Kapoor as Managing Director and CEO
(a) The Plaintiffs' assail Rana Kapoor's ig appointment on the ground that it was not a joint recommendation as required by Article 127(b). Mr. Khambata also submits that the RBI's approval to this appointment was procured by way of a misleading application. Yes Bank represented that its Board was competent to make this appointment, citing only Articles 127(a) and 127(c) but omitting the crucial Article 127(b). A submission is made to quash the RBI approval. At this prima facie stage, without the necessary evidence, it is not possible to do this. Alleging ill motives to Rana Kapoor does not carry the matter further.
(b) Similarly, the argument that the notice of Yes Bank's 10th AGM is tricky and insufficient as far as it relates to Rana Kapoor's appointment, Item no.11 on the agenda of 94 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc that meeting. Again, this argument is based on the form and nature of the application made to the RBI for its approval. It is also submitted that Rana Kapoor's appointment was not placed for shareholder approval at the previous AGM, though it ought to have been since the Board resolution for his appointment was of 25th April 2012 and should have come up for shareholder approval at the 2013 AGM. In other words, ig Rana Kapoor continued to act as Managing Director and CEO from 2012 without shareholder approval till as late as 2014.
(c) Mr. Kapadia and Dr. Tulzapurkar point out that this argument incorrectly places the appointment of the Managing Director and CEO under Article 127(b) on the same footing as the appointment of IP Representative Directors under Article 110(b). I believe they are correct. The appointment of a Managing Director and CEO is a statutorily recognized appointment. The Board always has the power to make that appointment, even without Article 127(b). IP Representative Directors are a creation of the Articles. The Board cannot appoint an IP Representative Director absent a valid nomination. This distinction is crucial.
95 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Further, as in the case of Article 110(b), the Indian Partners are not required to make a recommendation of the Managing Director and CEO; they have that option. The non- exercise of that option does not result in that appointment not being made because the Board's powers immediately and automatically come into play. This does not happen under Article 110(b).
(d) ig Mr. Kapadia also submits that Article 127(b) clearly contemplates an election, in that it requires the Rabo Representative Director to vote along with the IP Representative Directors to the appointment of the Chairman and the Managing Director/CEO to the 'relevant Committees of Directors (as indicated by the Indian Partners'. It is possible that this is a reference to various committees other than the Board (such as the NGC, audit committees and so on), and that the reference is to the election of the Chairman and the Managing Director/CEO to these 'Committees of Directors'. But even that makes little difference.
(e) At the heart of Mr. Khambata's argument is the case that Rana Kapoor and Yes Bank proceeded on the footing, vis-à-vis the RBI, 96 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc that his appointment was in fact under Article 127(b), not in exercise of any inherent powers of the Board. The application to the RBI is dated 18th June 2012.41 The covering letter is innocuous.42 It has several enclosures. One of these is 'Form (Particulars)'.43 This form requires a statement of who is the competent authority to make the re-appointment in question and to fix the terms thereof. The response refers ig clearly to Article 127(b); and the particulars (name, age, qualifications, etc) then follow. A certified true copy of the relevant Articles was attached.44 This copy mentioned no Article number. It merely extracted Article 127(a) and Article 127(c) and wholly excluded Article 127(b).
(f) The result is an internal conflict in the application: one form mentions Article 127(b), but the annexure with the relevant Articles does not. What is not in doubt that is that the appointment did in fact receive RBI approval and, too, shareholder approval (by an overwhelming majority of over 80%). The 41 Plaint, Vol II, pp. 525-535, Exhibit M-XXIII 42 Plaint, Vol II, p. 525 43 Plaint, Vol II, p. 527 44 Plaint, Vol II, p. 534 97 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Plaintiffs' case hinges entirely on the solitary reference to Article 127(b) in Form B on the application to the RBI. I am asked to infer from this that the RBI was misled. No such inference is possible. The RBI is not a party here. It previously approved the Articles and I think it is reasonable to assume that the RBI does not mindlessly grant approvals. The RBI was within its powers to seek a clarification;
to demand to know the Article numbers, ig since Form B mentioned only one, but the certified copy of the Articles set out two. It did not. Even otherwise, it is not even the Plaintiffs' case (at least in my understanding of it) that the Board is powerless and, for want of a joint recommendation, cannot ever appoint a Managing Director and CEO.
(g) In fact, the Plaintiffs have made it clear, even in their written submissions, that they will support the continuance of Rana Kapoor as Managing Director and CEO provided a full disclosure is made and Yes Bank's seeks his reappointment as a special resolution (on the footing that he is a 'Related Party'). I will turn to this argument regarding the need for a special resolution in a moment; but the rest seems to me to be clutching at straws. Before the general body a sufficient disclosure was 98 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc made. The Plaintiffs complain that inspection was not fully given to Shagun, or not given in an appropriate manner. With tensions running high, this is the kind of thing that sometimes happens, but it is an unsure foundation for so mountainous a case to unseat one of the founders of the enterprise and send him packing to the corporate dungeons. There is also a submission that the AGM notice elides ig necessary information about the extent of Rana Kapoor's remuneration and perquisites. This is an argument of, if I might be permitted the liberty, 'pique not substance'. At the end of the day, all these arguments are based in equity; supposedly for the betterment of the company. This branch of the submission (the insufficiency of notice and inspection) has nothing to do with special rights available to the Plaintiff. They are equally available to all other members. None appear to have complained. Whether or not his remuneration was appropriate was something the general body could, and did, decide. Given that it is nobody's case that the Board is hamstrung in this appointment for want of the Plaintiffs' concurrence, I do not think it is remotely possible to invalidate the reappointment of Rana Kapoor. Mr. Kapadia 99 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc is correct in saying that it makes no difference at all whence the proposal emanated.
(h) There is also a submission based on Section 188 of the Companies Act 2013, that the reappointment of Rana Kapoor was a 'related party transaction' and therefore required a special resolution; and that he could not have been reappointed in law by means of an ig ordinary resolution at an Annual General Meeting. Mr. Khambata submits that Rana Kapoor is a 'related party' vis-à-vis Yes Bank and that under Section 188 of the 2013 Act, this requires a special resolution.
(i) Section 314 of the 1956 Act required a special
resolution for the appointment (or
reappointments) of Directors holding an office or place of profit, but it specifically excluded Managing Directors, who could, therefore, be appointed by an ordinary resolution.
(j) Mr. Khambata says this scheme has now changed with the introduction of Section 188 ('Related party transactions') and Section 196, which separately deals with the appointment of a Managing Director, Whole 100 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Time Director and a Manager. The 1956 Act had no provision corresponding to Section
196. This is a separate provision for the appointment of Managing Directors. Section 188 requires a special resolution for related party transactions, and I understand Mr. Khambata's case to mean that Rana Kapoor is covered by this since his remuneration package includes certain perquisites (accommodation and so on). Section 196, ig which deals with appointments of Managing Directors, only speaks of a 'resolution', not specifically an ordinary or special resolution, and this section is, therefore, in Mr. Khambata's formulation, subject to the discipline of Section 188. Any Managing Director who receives, say, rent-free accommodation, must be appointed by a special resolution and in no other fashion. Section 188(1)(f ) says in terms that it applies to the 'related party's' appointment to any office or place of profit in the company; and 'office or place of profit' is defined in the explanation to that section:
Explanation.-- In this sub-section,--
(a) the expression "office or place
of profit" means any office
or place--
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(i) where such office or place is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-
ig free accommodation, or
otherwise;
(k) The change in law is, I think, in the direction
Mr. Kapadia suggests, viz., that under the 1956 Act, a Managing Director could possibly have been appointed a sole selling agent without a special resolution. This is no longer possible. The appointment of a Managing Director is separately carved out and placed in Section 196. A special resolution is required if he is to be appointed a sole selling agent, etc and to receive additional perquisites not available to a Managing Director. The distinction is between a Managing Director and a Director. The latter may not be entitled to these additional benefits; a Managing Director may. Mr. Kapadia is correct when he says, therefore, that the appointment of a Managing Director 102 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc is not an 'office or place of profit' per se. Rana Kapoor's appointment is one of the matters in the ordinary course of Yes Bank's business. It is an arms-length transaction, and is excluded by the third proviso to Section 188(1). Critically, the RBI while granting approval, and before whom the remuneration details were placed,45 did not demand that his appointment be by way of a special resolution under Section 188.
(l) ig The argument that Rana Kapoor's reappointment was not sought at the immediately next (i.e., the 9th) AGM in 2013 though approved by the RBI in 2012 is also incorrect. Section 269 of the 1956 Act was in force in 2012 and 2013. It did not require shareholder approval at the next AGM. This is now a statutory requirement under Section 196(4) of the 2013 Act, effective 1st April 2014. The reappointment was immediately placed for shareholder approval on the 2013 Act coming into force. In any case, I do not see how this can be said to be fatal. Some regard must be had to shareholder approval obtained in such numbers and to the RBI 45 Form D, Plaint, Vol II, p. 529. This specifically mentions 'free furnished house', the free use of the bank's car for official purposes and, on reimbursement to the bank, for private use, telephones, etc. 103 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc approval. It is not as if Yes Bank is operating entirely without shareholder and regulatory oversight.
(m) It is not possible to accept the Plaintiffs' submissions in relation to the appointment of Rana Kapoor at this interim stage.
9.5 The appointment of Defendant No.8 (Ravish Chopra) as an IP Representative Director and as an Independent Directorig
(a) In October 2012, Ravish Chopra was nominated as a director by Rana Kapoor claiming to be the sole surviving Indian Partner. Rana Kapoor says so in terms in paragraph 9 of his Affidavit in Reply dated 24th July 2013.46 This was also part of the Defendants' evidence at the time of the trial on the preliminary issue. DW-1 admitted that Ravish Chopra was Rana Kapoor's nominee in October 2012.
(b) As a purported nomination under Article 110(b), this could not have been done. It was an impermissible unilateral nomination. It cannot be saved. It is ultra vires the Articles 46 Notice of Motion, Vol II, p. 246 104 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc and is void. The subsequent election at the Annual General Meeting is irrelevant; the initial appointment was bad.
(c) At the 10th AGM on 14th June 2014, Ravish
Chopra was 're-designated' as an
independent director. This just cannot be. Yes Bank itself says, as of 19th February 2014, that he was a promoter nominee non independent director.47 The fact that the ig initial appointment was as a promoter nominee in October 2012 is accepted on affidavit by Yes Bank.48 In that affidavit, there is some attempt at obfuscation by saying that Mr. Chopra is now not what he once was, and that he was 'nominated' as an additional director. A later Report on Corporate Governance, part of Yes Bank's 2013-14 Annual Report49 refers to Mr. Chopra as a non-independent director.
(d) Article 110 speaks of Independent Directors and IP Representative Directors. Article 127A introduced a category of Whole Time Directors. These are the only 'nominations' 47 Notice of Motion, Vol IV, p. 869 48 Affidavit in Reply dated 27th February 2014, Notice of Motion, Vol IV, para 6, p. 872.
49Plaint, Vol. II, p. 412 105 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc that can be made by the Indian Partners. Mr. Chopra was not nominated as a Whole Time Director. He was, by the Defendants' own admission, not nominated as an Independent Director. His nomination could, therefore, only fall into the category of IP Representative Director. This nomination could not have been made without the Plaintiffs' concurrence. It was not sought.
(e) ig Yes Bank and the Directors argue that Ravish Chopra's name was proposed by a member on 17th April 2013,50 and that therefore even if initially appointed as a nominee, this ceased to matter since he was at the 9th AGM of the company voted in as an additional director under Section 257 of the 1956 Act. This is a very problematic formulation. Agenda Item 7 of the notice of the 9th AGM51 deals with Mr. Chopra's appointment. The explanatory note says that the company has received written notices proposing his name. But the same note also says:
Further since Mr. Ravish Chopra has been nominated 50 Joint Compilation, Vol. III, p. 1232 51 Joint Compilation, Vol. III, from p. 1238 at p. 1242
106 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc by the Indian Promoter, Mr. Rana Kapoor may be deemed to be interested or concerned in the above resolution.
(f) How could this possibly be? Mr. Chopra could not both be a nominee of Rana Kapoor and separately proposed by any member. If the latter was true, he was not Rana Kapoor's nominee and Rana Kapoor could not have been said to have been 'interested' in his ig appointment. I notice, too, that the explanatory note speaks of Rana Kapoor as 'the Indian Promoter' (in the singular), suggesting that there is no other. To play ducks and drakes like this with director appointments is entirely impermissible.
(g) What followed at the 10th AGM was even
more peculiar. Mr. Chopra was 're-
designated' as an Independent Director. I do not see how this was possible, or even true. Even later, Yes Bank continued to show him as non-Independent. Mr. Chopra, given his status as supposed promoter director's nominee, is not within the definition of an independent director under Section 149(6) of the 2013 Act.
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(h) On 14th June 2013, M. R. Srinivasan, Defendant No.9, wrote to Shagun Kapur Gogia in response to her letter of the previous day.52 In this response, Srinivasan claimed that Ravish Chopra had been 'inadvertently characterised as a non-
Independent Director though he fulfils all the criterion [sic] of an Independent Director as specified in law.' He also claimed that Rana Kapoor's nomination of Ravish Chopra was ig good for only one year. As we have seen, neither of these statements is accurate.
(i) The Defendants' case contradicts itself in another aspect too. If Mr. Chopra was appointed as what they call a 'normal' director at the 9th AGM, he was not due for rotational retirement at the 10th AGM. The only manner in which he could be 'redesignated', being a non-retiring director, was if the company received notice from a member proposing him with a deposit of Rs. 1 lakh (up from the Rs.500 in the earlier statutory scheme). There was no such proposal, and Mr. Chopra could not have been validly appointed even at the 10th AGM under Section 160 of the 2013 Act.
52Plaint, Vol. III, p. 568 108 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 9.6 The appointment of Defendant No. 9 (M. R. Srinivasan) as Director and Chairman
(a) Srinivasan was apparently appointed as an Additional Director, designated "non- executive non-independent" by a Board Resolution of 23rd October 2012.53
(b) The NGC, at its meeting on 15th January 2013, and the Board at its meeting on 16th ig January 2013, 'changed' Srinivasan's 'classification' from 'Non-Executive Non- Independent Director' to 'Non-Executive Non-Independent Director (Promoter Nominee)', effective 28th January 2013.54 The minutes indicate that he was Rana Kapoor's nominee.55
(c) Before his induction on the Board, Srinivasan functioned as an advisor with remuneration to Yes Bank.56 He was in no sense 'independent'. Like Ravish Chopra, since Srinivasan was not a Whole Time Director or an Independent Director, he could only have been an IP Representative Director, as a 53 Joint Compilation, Vol. III, p. 1196 54 Joint Compilation, Vol. III, pp. 1201, 1206 55 Joint Compilation, Vol. III, pp. 1204 and 1206 56 Joint Compilation, Vol. III, p. 1214 109 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc purported nominee of Rana Kapoor. This nomination is ultra vires and bad for want of the Plaintiffs' concurrence and assent.
(d) I must clarify that the Defendants' submission that there are not only three classes of directors is correct. Other directors can be appointed as permissible in law. The distinction here is that Srinivasan's appointment was specifically as a nominee, ig and that could only have been under the Articles.
(e) The trajectory of Srinivasan's later appointments and re-designation is also flawed. He was appointed as Non-Executive Part-Time Chairman of the Board on 16th January 2013.57 The validity of that appointment depends on the validity of his appointment as a director in the first place. If the latter fails, so must the former.
(f) To the RBI, Yes Bank represented that Srinivasan was his nominee under Article 127(b). This is set out in Yes Bank's letter dated 7th March 2013 to the RBI.58 Paragraph 57 Joint Compilation, Vol. III, p. 1203 58 Joint Compilation, Vol. III, p. 1209 110 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 1 of that letter expressly refers to the Article and to Rana Kapoor's nomination of Srinivasan as Non Executive Part Time Chairman of the Board. This letter was not disclosed by the Defendants. The Plaintiffs obtained it under the Right to Information Act.
(g) RBI approval was obtained on 25th April 2013.59 But the Board minutes of 16th ig February 201360 required shareholder approval to (a) the change in classification from Non Executive Non Independent Director to Non Executive Non Independent Director (Promoter Nominee) and (b) the appointment of Srinivasan as Non Executive Part Time Chairman of the Board. This approval was not sought at the 9th or 10th AGMs of Yes Bank. Shareholder approval was sought only to his remuneration.
(h) Srinivasan's appointment at the 8th AGM is also bad since the Notice for that AGM61 proceeds on the basis that Srinivasan could have been validly nominated by Rana Kapoor in the first place.
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(i) In any case, Srinivasan is age-ineligible under the current RBI directives. The result is that the initial appointment of Srinivasan as a Director is ultra vires and non-est; his subsequent re-classification and appointment to Chairmanship also fails. It matters not a whit that the law does not require chairmanship to be approved in general meeting. The Board resolution asked for this, and it was necessary therefore to act strictly ig according to that resolution. It is not permissible for the Board to make an appointment subject to certain conditions and then to step around those on the footing that the law does not demand them. The law also does not prohibit them, and the Board might have been within its rights not to insist on shareholder approval for the chairmanship of Srinivasan. It did insist and it was bound to obtain it.
(j) As a matter of fact, Srinivasan is no longer Chairman of the Board.
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(a) Both Nanda and Vohra were directors before the 10th AGM and before the 2013 Act came into force. They were appointed as Independent Directors liable to retire by rotation under Article 110(c). Explanatory ig Note 11 to the Agenda Notice for the 10th AGM62 purports to have both Nanda and Vohra 'treated' as Independent Directors under Section 149(6) of the 2013 Act, i.e., as Independent Directors not liable to rotational retirement.
(b) This cannot be done. A shareholder resolution appointing them as such directors is necessary under Section 152(2) of the 2013 Act. This kind of corporate bypass operation is unknown to law. But is this necessarily fatal to the appointment? The Plaintiffs were present at the 9th AGM. No point of order seems to have been raised about these appointments. Is it not, as Mr. Cooper for the directors argues, a mere irregularity, one that 62 Plaint, Vol. II, p. 168 113 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc is by its nature curable in general meeting?63 Mr. Khambata says that Mr. Cooper's submissions, though correct, do not apply, because the appointments of Nanda and Vohra violate both the Articles and the statutory requirements.
(c) After the 2013 Act came into force, there is a transitional period for the appointment of Independent Directors. It is entirely possible ig for these two appointments to be validated under the 2013 Act and to stand wholly outside Article 110(c). That Article no longer occupies the entirety of the universe of appointment of Independent Directors. Indeed, it may well be redundant now; at the time when they were approved, the Articles presaged the statutory changes that would follow some years later.
(d) It is true that Nanda and Vohra are not yet validly appointed as required by law. Whether or not this can be rectified is for Yes Bank to determine. The challenge is to the appointments as they now stand.
63Sunil Dev v Delhi Cricket Association, 1990 (80) Comp Cas 174; V. N. Bhajekar v K. M. Shinkar, (1934) 35 Bom LR 483; MacDougall v Gardiner, [1965-66] 1 Ch D 13 114 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:19 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 9.8 The appointments of Defendant No.10 (Rajat Monga), Defendant No. 11 (Sanjay Palve) and Defendant No. 12 (Pralay Mondal) as Whole Time Directors
(a) All three were nominated by Rana Kapoor under Article 127A.64 These appointments are subject to a recommendation by the 'promoters'. There was no such 65 recommendation from the Plaintiffs. The other route for appointment of Whole Time ig Directors is by selection of members from the Board under Article 127A(b). Yes Bank says that the three appointments fell under this Article and did not need a recommendation. Defendants Nos. 7 to 18 veer from this course and suggest that the appointment under Article 127A(b) is not limited to sitting Board members, for that would result in the company being always unable to appoint its employees to whole time directorships. On a plain reading, this submission from the directors demands the complete effacing of the words "one or more of its members". The word "its" in Article 127A(b) clearly references the Board.
64Joint Compilation, Vol. I, p. 180 65 In the trial on the preliminary issue, it seems to have been admitted that Madhu Kapur falls within the definition of 'promoter'.
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(b) Monga, Palve and Mondal were not on Yes Bank's Board on 27th June 2012 when they were all appointed as Whole Time Directors by the Board. This is also admitted in the trial on the preliminary issue. There is as yet no shareholder approval to their appointments.
The directors contend that Monga, Palve and Mondal "are not yet" whole time directors.
(c) Another argument raised is that should, for ig any reason, Rana Kapoor cease to be the Managing Director/CEO, Yes Bank would be in an unviable position, being unable to appoint suitable employees to whole time directorship; and Section 203 of the 2013 Act requires a whole time director where there is no Managing Director. This argument by the directors proceeds on too stretched a hypothetical, and indeed there is nothing that prevents the company from appointing a suitable candidate from among the 15 who serve on its Board.
(d) I must note for completeness that Yes Bank's Sixth Annual Report for 2013-14 does not list Monga, Palve and Mondal as directors. Their appointments seem also not to be noted with the Registrar of Companies.
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10. SHAGUN GOGA KAPUR'S 'NOMINATION' 10.1 Mr. Khambata strenuously canvasses that Shagun Kapur Gogia's nomination placed before the NGC must be considered or held or deemed to have been a "joint nomination" under Article 110(b). I cannot accept this submission. The reasons are many. It is not necessary to set out again the huge welter of factual material. The essence of the Plaintiffs' case is that since Rana Kapoor did not at any time and Yes Bank did not, till very late in the day, specifically say that he and it did not support Shagun's nomination, that nomination must be deemed to be a joint one.
10.2 The Plaintiffs say that Rana Kapoor's silence coupled with his conduct are sufficient to constitute his acceptance of her nomination;66 alternatively, that some species of estoppel by conduct runs against Rana Kapoor.67 There is no doubt that there can, in a given case, be such a deemed acceptance or such an estoppel. The question is whether, in equity, it should be so read in this case. First, the consequence of this is that both Rana Kapoor and Yes Bank's Board must be deemed to have been foisted with Shagun's nomination. They 66 Bharat Petroleum Corporation Ltd v Great Eastern Shippping Co. Ltd., (2008) 1 SCC 503 67 B. L. Sreedhar v K. M. Munireddy, (2003) 2 SCC 355 117 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc have both consistently made it clear beyond all doubt that this is neither necessary nor desirable. What the Plaintiffs ask me to do is to hold that these views be relegated to the background and that conduct in correspondence be read to have this sort of an effect. I am not prepared to do anything of the kind. The correspondence indicates that there was much in discussion; including a proposal dated 5th June 2013, a day before the suit was filed, to have one IP Representative Director from each family and the third one by rotation,68 a proposal that lies wholly outside the Articles.
10.3 In June 2013, the Plaintiffs began agitating their rights.
I have already set out the relevant dates. Srinivasan met with Madhu Kapur and Shagun Kapur Gogia on 5th June 2013. From this, Mr. Khambata wants me to infer that Rana Kapoor and Yes Bank both accepted that Shagun's nomination would be joint. But it is equally possible that all that they were saying was that they would agree to the nomination being considered by Yes Bank; not that it would be a choiceless nomination under Article 110(b). Srinivasan's email of 6th June 2013 sets out his stand.69 He says that the Plaintiffs could suggest Shagun or anyone else as a joint proposal, but goes on to say that his role is limited and 68 Joint Compilation, Vol. IV, p. 1443, 1444 69 Joint Compilation, Vol. IV, p. 1454 118 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc does not extend to family issues. On that day this suit was filed and later that evening Rana Kapoor emailed Madhu Kapur.70 He said that he met her to understand her expectation and that Shagun's name was to be considered as "the family's nominee". Here, Mr. Khambata suggests that I should see this again as an admission of a joint nomination since Rana Kapoor was writing as an Indian Partner. He also says that this reference to the "the family's nominee" was in the context of the proposal of each-one-appoint-one floated by the Plaintiffs earlier. If that is so, then there is no question of the nomination being a joint one, for that proposal was entirely extraneous to the Articles.
10.4 It goes on in this vein: a word here, a phrase there.
These are not pleadings. These are not even letters by lawyers. These are emails and letters between parties and there is a certain lack of formality that attaches to them. I do not think that from these linguistic pebbles it is possible to define even a molehill let alone the mountain of which Mr. Khambata attempts an ascent. On 10th June 2013, this court passed an order directing the NGC to consider Shagun's nomination.71 On 15th June 2013 the Plaintiffs wrote to Rana Kapoor contending that he had agreed to the nomination and "assuming" that this had his concurrence.72 Since 70 Joint Compilation, Vol. IV, p. 1449 71 Plaint, Vol. II, p. 231 72 Joint Compilation, Vol. IV, p. 1500 119 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Rana Kapoor did not reply to this, I am asked to hold that the nomination was a joint one under Article 110(b).
10.5 On 17th June 2013, the Plaintiffs wrote to Yes Bank saying that they, the Plaintiffs, had nominated Shagun as an IP Representative Director under Article 110.73 This letter does not say that her nomination was a joint nomination with Rana Kapoor. The omission is critical;
for, if indeed the Plaintiffs' case then was what it is now, they ought to have said so. They did not, and that tells me that they did not understand this nomination to be a joint one. Rather, it was seen to be some sort of via media at finding a middle ground. Yes Bank's response, of that date,74 makes this plain: it says that the nomination would be considered in terms of the High Court order of 10th June 2013. Mr. Khambata says that Rana Kapoor did not dispute his concurrence or assent to the proposal then, and this binds him.
10.6 But on 26th June 2013, just a few days later, Yes Bank made it clear that this nomination would be considered according to the High Court order and the law, but not as a joint nomination under Article 110(b).75 This letter cannot be insignificant, nor can it be said that because it was not signed by Rana Kapoor, he must be deemed 73 Joint Compilation, Vol. IV, p. 1502 74 Joint Compilation, Vol. IV, p. 1501 75 Joint Compilation, Vol. IV, p. 1592.
120 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc or held not to have disputed that the nomination was joint.
10.7 The NGC rejected Shagun's nomination. It did so after calling for a welter of information, material it has not sought from others it considered for appointment to the Board. Mr. Khambata sees this as vindictive, an attempt to deny the Plaintiffs' their 'rights'. It is possibly only circumspection or caution. The nomination was not of a known figure in Indian banking circles, though Shagun's background is perhaps more impressive than most. It is, however, not neutral in any sense. Mr. Khambata says that the Board was bound to accept her nomination as one made under Article 110(b). That is not possible. That kind of nomination requires the explicit and unambiguous endorsement of both Indian Partners, not an inferential or tacit or deemed consent. The reason is obvious. But for an express consent, every single 'deemed' joint nomination would be suspect and would be liable to be questioned at any stage. This is not what the Articles envisage.
10.8 Mr. Khambata then wants me to sit in judgment over the Board's and NGC's rejection of Shagun's nomination or application and to render a finding that it's reasons for rejection are 'perverse' and 'untenable'. This is not something that I am prepared to do. It would set a wholly unhealthy and unwelcome 121 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc precedent. In short, what Mr. Khambata suggests is this: that because the Articles contain a certain stipulation regarding a joint nomination to the Board, one for which the Board can have no say, and because Shagun's nomination must be inferred to be such a joint nomination, therefore the Court must exercise judicial oversight or some sort of power of review over the Board's decision on merits. This is simply untenable. It is one thing if the Board acts in violation of law or a statutorily binding directive. Whether or not the Board found Shagun's work profile and background commensurate is not for me to assess. That is entirely outside my remit. The rightness of this decision can be debated ad infinitum, but to no end.
10.9 Nothing in the Articles leads to the conclusion that the Plaintiffs are entitled to a reserved seat on Yes Bank's Board.
11. OTHER MATTERS AND ISSUES 11.1 Two other matters must be addressed. First, the question of Yes Bank's (and Rana Kapoor's) applications to the RBI for a so-called 'de-classification' of the Plaintiffs' holdings, i.e., to have them treated as non-promoter holdings and the Plaintiffs as not being 122 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc covered by the definition of Indian Partners. The applications proceed on the basis that the right in question was personal to Ashok Kapur and did not survive to the present Plaintiffs. This is the subject of considerable correspondence between Yes Bank and the RBI. It was only disclosed under orders of this Court, and those orders required only the relevant parts to be disclosed. In itself, this recalcitrance on the part of the Defendants is decidedly odd. The Plaintiffs do not appear to have been given notice of the application, though it undoubtedly affected their rights.
The RBI has not yet taken any decision on this.
11.2 The substratum of the argument is the one that was vigorously canvassed before me, one that I have now decided. I do not believe it is open to the RBI to now go into the question and arrive, possibly, at a contrary view. The question indeed is at the core of the Plaintiffs' case and could not have been evaded here. Now that it has been decided, that application cannot possibly be pursued. The RBI is not a party before me. No injunction against it is possible for that limited reason. But an order is certainly possible against Rana Kapoor and Yes Bank from following up on that application or pursuing it. That seems to me to be necessary and inescapable. A relief is sought in just such terms.
123 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 11.3 Second, as regards the directorships. I must stress that in assessing these appointments, I have not examined the credentials, capabilities, competence and achievements of any of the directors whose appointments are assailed. For that matter, neither has Mr. Khambata. I cannot do this for obvious reasons: it means sitting in appeal over the Board and over the General Body, on merits. The assessment has been only on law and seeing whether the Defendants have adhered to the mandated processes. Where they have not, the results must follow. Some directors will have to step off the bus. But this is not necessarily catastrophic; it requires Yes Bank to take the necessary steps to revalidate, appoint or reappoint the persons in question (subject to them meeting statutory requirements of course, including the age limits). There is no finding of disqualification of any of these directors for want of ability or credentials.
12. CONCLUSIONS & FINDINGS 12.1 Yes Bank's Articles do contain a set of proprietary and participative rights; particularly in Article 110(b). These are rights that are attached to shares, and flow from, and only from the shareholding of Ashok Kapur and Rana Kapoor.
124 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 12.2 Of these various rights, the right to recommend under Article 110(b) decidedly is not and never was personal to either Ashok Kapur or Rana Kapoor. It endures to each of their successors, legal representatives and assigns. This right is not in the nature of a 'contract of personal service' and was not limited to the two individuals in question. There is no question of contextual repugnancy.
12.3 The right to recommend, read in context, is much more than the right to suggest. The very nature and context of Article 110 clearly indicates that this was always intended to be a right to nominate three "IP Representative Directors" to Yes Bank's Board. It was unnecessary to include in the Articles a mere 'right to suggest'; brute strength in shareholding and even mere shareholding would have done as well. It is the right to nominate. Also, the Defendants do not seem to have ever taken this right, when exercised by Rana Kapoor, to be a mere suggestion. His 'suggestions' or 'recommendations' have always only been taken to be nominations. It is inconceivable that he and only he is somehow qualified to 'nominate' directors, but that nobody else has that ability.
12.4 That this right is not and was not personal to the two individuals and was not restricted to merely making suggestions is belied by Yes Bank's and Rana Kapoor's repeated representations to the RBI. The fact that Yes 125 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Bank and Rana Kapoor applied to the RBI to 'declassify' the Plaintiffs' shareholding is itself an admission of sorts. Why, but for this right not being personal and not being the right merely to suggest, would they need to do so?
12.5 It is equally incorrect to suggest that the Plaintiffs have, only on account of Ashok Kapur's demise, transmogrified into some sort of non-promoter capacity. The applications to the RBI to this end are motivated, self-serving and prima facie unlawful.
12.6 It also follows that any recommendations made by the 1st Defendant, Rana Kapoor, without the concurrence and consent of the Plaintiffs are also ultra vires the Articles and are null and void.
12.7 Although the right to recommend is the right to nominate, it is an indivisible right and must be exercised jointly. It cannot be splintered into component rights with each group nominating its own person to Yes Bank's Board. The right to nominate is also distinct from the right to serve on Yes Bank's Board; there is no such right to serve, and the Plaintiffs do not have the right to demand that the 2nd Plaintiff be accepted onto the Board without Rana Kapoor's concurrence and consent. The suggestion that each group could nominate one person and a third IP Representative Director would be chosen for 126 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc alternating terms is wholly outside the scheme and frame of these Articles. The right must be exercised jointly or not at all. It is incorrect to say that Yes Bank's Board was bound to accept the nomination of the 2nd Plaintiff as a joint nomination made under Article 110(b). It is also not for a court to question the sufficiency of the Board's decision in that regard.
12.8 For the reasons previously discussed, Defendant No. 8 cannot have been validly appointed as an IP Representative Director or an Independent Director.
His appointment is invalid. The appointment of Defendant No.9 to the chairmanship of Yes Bank is ultra vires the Articles, and null and void, and the so- called approval of the RBI to that appointment is inconsequential. Similarly, the appointments of Defendants Nos. 10, 11 and 12 as whole time directors of Yes Bank's Board are also prima facie ultra vires its Articles and void. As regards Defendants Nos. 7 and 18, I am unable to understand how it could have been proposed to 'treat' them as Independent Directors. They were required to be appointed as such by validly passed resolutions at a properly called General Meeting and there is no provision in the 2013 Act to allow any person to be 'treated' as an independent director.
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13. THE THREE DETERMINANTS AT THE INTERIM STAGE 13.1 I turn now to the three determinants to which I must address myself at the stage of an application for interim reliefs. First, have the Plaintiffs made out a prima facie case. I have no hesitation in saying they have; and, indeed, that there is a very substantial prima facie case, not some fanciful construct conjured out of thin air.
The Plaintiffs claim is actually straightforward: they claim that under Yes Bank's articles, certain specific rights were assured to Ashok Kapur and, on his death, the Plaintiffs inherited these rights in full measure.
They are, they say, entitled in law and in equity to a reasonable enforcement or enunciation of these rights; the rights cannot be silenced or smothered only on account of Ashok Kapur's untimely and tragic demise.
Principal among these rights is the right to join Rana Kapoor in the recommendation of an Indian Representative Director to Yes Bank's Board. This right has been wholly denied to them and on a plain reading of the relevant Articles and statutes this denial is simply wrong and unsustainable. It must be given voice.
13.2 What of the balance of convenience and prejudice? Yes Bank is now a significant presence in the banking industry. Granting the Plaintiffs relief would jeopardize its operations, say the Defendants. This argument is as 128 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc misleading as it is mischievous. Rana Kapoor seems to have exercised those very rights that the Plaintiffs claim and which have been denied to the Plaintiffs, and he seems to have done so in the very manner that he says the Plaintiffs cannot. That is an incongruity never satisfactorily resolved or explained. Add to this the fact that, on the face of it, the record is littered with instances of the Defendants having accepted by their conduct and actions those rights that they now claim do not endure to the Plaintiffs. Nothing else explains the actions regarding the various meetings between the two sides, the correspondence and, most of all, Yes Bank's and Rana Kapoor's repeated entreaties to the RBI to declassify the Plaintiffs' shareholding and to have it treated as that of a non-promoter group. Again, there is no cogent explanation for this at all.
13.3 Would the Plaintiffs' interpretation necessarily and inevitably prejudice Rana Kapoor? It might; but this makes very little difference, because the question of balance of convenience is not to be assessed in a matter such as this by whether or not an individual benefits, or the power he is used to wielding is curbed. Against this must be balanced the wholesale denial of all rights to the Plaintiffs. Yet the Plaintiffs might not be entitled to relief if it be shown that granting them relief would necessarily prejudice Yes Bank. But I do not think that either the Plaintiffs or the Court can be presented with so complete a fait accompli. This is very like saying "we 129 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc may have acted in a way the Court has now found to be unjustified and unlawful, but what is done is done and this is irreversible."
13.4 Mr. Khambata says that Rana Kapoor runs Yes Bank like his personal fiefdom. His word is law. He bends the company to his will. What Rana Kapoor wants, Rana Kapoor gets. This seems to me to be excessive. It calls into question the bona fides and credentials of every single member of Yes Bank's Board, and it does not sit well with the undoubted progress that the company has made in the short years since its inception. Perhaps it is true that Rana Kapoor has not been opposed, or, at any rate, there is nothing on record to indicate any opposition. What of it? Possibly he is so consummate in his work that no opposition is necessary. That is not unknown in vibrant organisations often identified with a single individual. Rana Kapoor's pre-eminence or dominance in the affairs of Yes Bank does not per se show illegality or unlawfulness.
13.5 The problem is deeper. Both Rana Kapoor and Yes Bank have, vis-à-vis the Plaintiffs, chosen to adopt a course that is unsupported by the Articles or any fair reading of the relevant statutes. If that be so, neither can invoke any equity to continue acting in that vein. The result is an inevitability, and the chips must fall where they may. There is sufficient space and room for Yes Bank to correct its course in the time ahead.
130 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 13.6 There is, however, one problematic area for the Plaintiffs. The invocation of these rights, even construed to mean a right to nominate and not merely a right to suggest, does not in and of itself give the Plaintiffs a right to a seat on the Board. To that extent, the Defendants are correct in saying that a Board's powers cannot be curtailed, nor can Yes Bank find itself foisted by some wholly unsuitable person. I have already discussed the matter of a so-called 'deadlock', i.e., a situation where the Plaintiffs and Rana Kapoor's group are unable to agree on a nomination. That, as I have said, is a situation that could well have arisen had Ashok Kapur been alive today. It is not a situation that is in any way tied to Ashok Kapur's demise. The Plaintiffs' suggestion earlier in correspondence, and one that, in fairness, Mr. Khambata placed with evident hesitation, viz., that each side should 'nominate' one person to the Board, and then a third person should be appointed by alternate rotation, is obviously not something I can accept. It is entirely outside the Articles and the law. Apart from anything else, a demand for a seat on the Board seems to me to fly in the face of the Yes Bank's ethos. It is said to be the professional's bank. That necessarily means that it cannot be run like a family estate. Consequently, I do not believe it is open to the Plaintiffs to demand that any one of them take a seat reserved for them on Yes Bank's Board. One may find any number of faults with the way in which the Board went about the business of 131 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc considering Shagun's so-called nomination. It may be described as churlish or even vindictive. But adjectival descriptions do not create a right where none exists.
Nothing in Article 110 lends itself to an interpretation that the right to recommend, even when construed as a right to nominate, included a right to a unilaterally proposed reservation on the Board. This 'foisting' may be the inevitable consequence of a joint nomination, and there the Board might have no say; in fact, it has not ever claimed to have one. But Shagun's nomination was considered by the Board this Court's orders of 10th June 2013 and 1st July 2013. I do not think it is possible to hold that Shagun's nomination was, or can be deemed to have been, a joint recommendation for the purposes of Article 110. Equally, I do not think it is possible to so completely fetter the Board's discretion in the manner the Plaintiffs suggest.
13.7 I do realize that my findings on Articles 110 and 127A are likely to result in something of an impasse at least when it comes to the appointment of the three IP Representative Directors and Whole Time Directors. There is an alternative to Mr. Khambata's one-seat- each-and-the-third-alternating proposal, the one that I have expressly rejected. This is an alternative that will possibly displease both sides in its starkness: where the two groups cannot agree on a nomination, there simply will be none. There is, as I have noted, another distinct possibility, a matter on which the two warring groups 132 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:20 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc will have to make a studied decision, and that is to reduce their aggregate holding to below 10%. This would address entirely the conflict on Article 110, leaving only the question of how Article 127A should be treated going forward; but that, too, is a matter that might be easily and neatly solved.
13.8 I do think it necessary to observe at this stage that given the extent of their shareholding it might well be in the Plaintiffs' interest to support the continuance of key directorships, including the appointment of Rana Kapoor. Whatever may have been his conduct, this much cannot be denied: that under his stewardship, in the seven years since Ashok Kapur's death, Yes Bank has grown and progressed exponentially, to the benefit of all, not least the Plaintiffs themselves.
13.9 It is not possible, in my view, to monetize as it were the Plaintiffs' rights under the Articles. It is also no answer to say that since the value of their shares has gone up substantially the Plaintiffs have suffered no prejudice. To say this is not only to trivialize the Plaintiffs' cause, but, and perhaps more importantly, to trivialize the value of the rights under the Articles.
13.10 If, as I have earlier said, Yes Bank has before it even now a plenitude of options even when it comes to the directors whose appointments are in jeopardy, what need is there for an interim order? Here, too, I think 133 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc the answer is an inevitability: if something has been done that is illegal or ultra vires, to allow it to continue for the next two decades while the suit wends its tortuous way through a trial is patently unfair. On the question of balance of convenience, commercial expediency cannot trump acts ultra vires or illegal. If reliefs are not granted, the Articles' meaning is forever lost. The Articles of a company are to it very like what the Constitution is to citizens. Shareholders are truly 'invested' in the enterprise: not merely for making profits and earning dividends, but also with a view to ensure that their rights, enshrined in the Articles, are always protected. It is of little use to say that the Plaintiffs are not a minority because they have a large shareholding.
13.11 Finally: the arguments have been extensive and prolonged, taking several days. As I have previously noted, the record itself is very considerable, nearly 4000 pages at the interlocutory stage. I am conscious that the Supreme Court has had occasion to hold that at this stage no Court should conduct a mini-trial,76 and also that, generally speaking, the purpose of a discretionary interim or interlocutory order should be to preserve the status quo where a prima facie case is made out and prejudice is shown.77 There is also a 76 Anand Prasad Agarwalla v Tarkeshwar Prasad & Ors., AIR 2001 SC 2367 77 Dalpat Kumar & Anr. v Prahlad Singh & Ors., AIR 1993 SC 276 134 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc possible argument that some of the interim reliefs sought are in the nature of final reliefs in the suit and should not, for that reason, be granted. But there is still a species of litigations in which the grant of such reliefs may be unavoidable. I believe this might well be one of them. The alternative, preserving the status quo, would in light of my findings, amount to allowing the Defendants to continue with actions that I have held to be ultra vires the Articles or contrary to law, or both.
That is not, I think, a situation that can be allowed to continue while the suit winds its tortuous way through a trial to a final disposal.
13.12 I placed this matter for pronouncing judgment on 7th May 2015. At that time, yielding to a final hope of a mutually acceptable resolution, I broadly indicated my findings, and asked the parties to find a via media. I heard them briefly again on two days in the ensuing May 2015 vacation. Rana Kapoor was personally unavailable to give instructions, and Mr. Khambata and Mr. Kapadia were unavailable as well. I stood the matter over to 2nd June 2015, again after some hearing. I must point out that the vacation hearings in May 2015 were, at my instance, in camera since the attempt was to find a resolution and I felt that press reports might cause positions to harden further. On 2nd June 2015, the matter was required to be stood over by two days for personal reasons of appearing counsel.
135 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc 13.13 Today, 4th June 2015, I heard Mr. Khambata, Mr. Kapadia and Mr. V. P. Singh, learned Counsel for Yes Bank. At this time, Mr. Singh and Mr. Kapadia both submitted that my suggestion of a possible mediation be accepted and invited an order to that effect. Mr. Kapadia relied upon the decision of the Supreme Court in Afcons Infrastructure Ltd & Anr. v Cherian Varkey Construction Co (P) Ltd & Ors.78 to submit that the terms of the reference to mediation be left open and only a summary of disputes be formulated at this stage. Ordinarily, there would have been no difficulty in accepting this submission, because this is undoubtedly what needs to be done in any reference to mediation under Section 89 of the Code of Civil Procedure, 1908. In this particular case, however, not only is the judgment ready but the reference to mediation must necessarily follow my findings to forge a solution in times ahead, particularly because only some of the Plaintiffs' reliefs have been granted, and not all of them. This means that some issues, in particular the question of whether the Plaintiffs are entitled to the exercise of rights under Article 110 and the question of Yes Bank's application to RBI for declassification, are among the matters that cannot be the subject matter of a mediation and cannot be left open. At the same time, I have very little doubt that there are Articles that require amendment, both for consistency going forward 78 2010 (3) ILR (Ker) 917 136 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc and also to resolve the present disputes. Although I have attempted over a last month to frame the summary of disputes, I believe an agreement is necessary if the reference is to be meaningful and not left open-ended. Mr. Khambata submits that this might in fact be possible once the judgment is made available and parties are made aware of their respective positions. There is, however, another concern, one that is expressed by Mr. Kapadia, viz., that once the judgment is made available and passes into the public domain, given the corporate status of Yes Bank, positions are likely to harden, making any resolution for the future almost impossible. For this reason, I have chosen to adopt some what unusual course but only in the hope that this will facilitate a possible resolution.
13.14 I am proceeding to pronounce this judgment today.
Authenticated copies of this order will be made available to the Advocates on record for the parties, namely, Federal & Rashmikant, M/s. Beri & Co. and M/s. Cyril Amarchand Mangaldas.79 The order is not to be uploaded at this stage. The parties are also directed for the present not to issue any press release or to communicate with the media the substance of this judgment. Yes Bank and its directors are also directed not to communicate this order to the regulators, 79 Mr. Singh undertakes to file a vakalatnama by M/s Cyril Amarchand Mangaldas in replacement of the earlier vakalatname by M/s Amarchand & Mangaldas & S. A. Shroff & Co.
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13.15 The next AGM of the Company is scheduled to be held on 6th June 2015. Mr. Khambata states that he opposes some of the agenda items at that AGM and may need to to move separate proceedings in that behalf. Should he do so, both sides will be at liberty to rely upon such portions of the judgment as they think necessary, keeping in mind that any such reliance may result in a possible settlement then becoming workable. This will be without prejudice to the rights and contentions of both sides.
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14. FINAL ORDER AND RELIEFS 14.1 The Notice of Motion is made partly absolute in terms of the following prayers: (a)(v), (a)(vi), (a)(vii), (a)(viii),
(a)(xv) and (a)(xx). It is clarified that as regards prayer
(a)(vii) in relation to Defendant No.9, M. R. Srinivasan, and as regards the injunction in that regard, this will not operate if, because of an age-bar, he is ineligible to continue on Yes Bank's Board.
14.2 It is not necessary to grant prayer (a)(xiii) since prayer
(a)(v) has been allowed. Similarly, prayer (a)(iii) is unnecessary, being covered by prayer (a)(vi).
14.3 Prayers (a)(iv) and (a)(xiv) are expressly rejected.
14.4 Given the nature of this order, the fact that arguments spanned so many days and the time it has taken to deliver this judgment, the operative part of this judgment in relation to the seven individual directorships is stayed for a period of five weeks from today. The order in terms of prayer clause (a)(iii) regarding future recommendations under Article 110(b) and in terms of prayer (a)(xx), regarding the de- classification application, is not stayed and will operate immediately.
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15. It remains only to thank Mr. Khambata, Mr. Kapadia, Dr. Tulzapurkar, Mr. Madan, Mr. Cooper, Mr. Shyam Mehta, Mr. Agarwal, Mr. Ankoosh Mehta, Mr. V. P. Singh and their respective attorneys for their very considerable assistance in this matter. Mr. Singh states that a vakalatnama by M/s Cyril Amarchand Mangaldas will be filed in substitution of the original vakalatnama filed by M/s Amarchand & Mangaldas & S. A. Shroff & Co. This is noted.
ig (G. S. PATEL, J.)
17th June 2015.
15. This Judgment was pronounced on 4th June 2015. For reasons recorded on that day, the matter was kept pending without the judgment being uploaded till today. However, copies were made available to the contesting parties for the purposes of exploring the possibility of agreeing on a set of disputes to be referred to mediation. Since it now appears that this is not possible, the Judgment may now be uploaded.
16. Mr. Khambata makes an application for speaking to the minutes to correct certain inadvertent errors in the judgment that was made available on 4th June 2015. The application is allowed. The necessary changes have now been carried out and incorporated in the foregoing judgment. In addition, I have myself noticed certain typographical errors which have been corrected. Parties are directed 140 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc to use copies of the judgement that will be uploaded later today and not the copies made available earlier.
17. It is further clarified that the stay granted in paragraph 14.4 above shall operate for a period of five weeks from today, 17th June 2015.
(G. S. PATEL, J.) 141 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc ANNEXURE "A"
PRAYERS IN THE NOTICE OF MOTION
(a) that pending the hearing and final disposal of the present suit this Hon'ble Court be pleased to:
(i) restrain the Defendants from holding any meeting as per the Notice dated 17th April 2013 to consider the proposed resolutions at item Nos. 6, 7 and 8; and
(ii) in the alternative to prayer clause (i), the Hon'ble Court be pleased to restrain the Defendants by a temporary order and injunction of this Hon'ble Court from in any manner putting the proposed resolution Nos. 6, 7 and 8 as set out in the Notice dated 17th April 2013, to vote at the AGM scheduled on 8th June 2013
(iii) that pending the hearing and final disposal of the present Suit, the Defendants be restrained by a temporary order and injunction from nominating and/or recommending the appointment of any Directors under clause 110(b) of the Articles of Association of Defendant No. 6 without consulting and obtaining the consent of the Plaintiffs.
(iv) that this Hon'ble Court be pleased to issue such orders or directions as are necessary to give full effect to its order of 10th June 2013 including directing the Board of Directors of Defendant No. 6 to reconsider the nominations of Plaintiff No. 2 to the Board of Directors of Defendant No. 6 as a joint nomination by the Indian
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(v) restrain Defendant No. 1 from nominating any Directors to fill up the two vacant slots for IP Representative Directors under Article 110(b) without the express concurrence of the Plaintiffs (or at least Plaintiff No. 1);
(vi) restrain Defendant No. 1 from exercising and Defendant No. 6 from acting upon any purported exercise of rights under Articles 110, 118, 121, 127 and 127A of the Articles of Association of Defendant No. 6 to the exclusion of the Plaintiffs (or at least Plaintiff No. 1) and without their express concurrence (or at least Plaintiff No. 1's express concurrence);
(vii) restrain Defendant Nos. 8 and 9 from acting or holding themselves out as Directors of Defendant No. 6;
(viii) restrain Defendant Nos. 10, 11 and 12 from acting or holding themselves out as Directors of Defendant No.6;
(ix) restrain Defendant No. 7 from acting or holding himself out as Director of Defendant No. 6;
(x) restrain Defendant No. 7 from acting or holding himself out as Chairman of Defendant No. 6;
(xi) Defendant No. 6 be directed by an appropriate order and direction of this Hon'ble Court to disclose and furnish a copy of the video recording of the 9th Annual General Meeting of Defendant No. 6;
(xii) Defendant No. 6 be directed to give inspection of the minutes of the Nomination & Governance Committee's 143 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc meetings and the Board of Directors meetings recorded in the minute books in ordinary course, particularly the minutes of the meetings of the Nomination & Governance Committee held on 21st April 2009, 20th October 2009, 22nd October 2012 and 27th June 2013 and the Board of Directors meetings held on 22nd April 2009, 21st October 2009, 23rd October 2012 and 27th June 2013, referred to and/or relied upon in the affidavits of Defendant Nos. 1/6 on such terms and within such time as this Hon'ble Court deems fit and proper;
(xiii) direct Defendant No. 6 by itself, its officers and agents by a mandatory order and injunction of this Hon'ble Court to constitute its Board of Directors at all times in such manner so that it has a sufficient number of directors who are liable to retire by rotation in accordance with Section 149 read with Section 152 of the Companies Act, 2013 so as to comply with the provisions of the aforesaid Sections without requiring either of the two IP Representative Directors to compulsorily retire by rotation contrary to Article 121 of the Articles of Association of Defendant No. 6 company.
(xiv) restrain Defendant No. 1 by a temporary order and injunction from acting or holding himself out as Managing Director or Chief Executive Officer of Defendant No. 6.
(xv) restrain the Defendants by themselves, their servants, agents and/or officers by a temporary order and injunction from acting upon Note No. 11 of the notice dated 23 April 2014 and from treating Defendant No. 7 144 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc and/or Defendant No. 18 as independent Directors without seeking the necessary approval in this regard from the shareholders of Defendant No. 6 company;
(xvi) that the Hon'ble Court be pleased to declare that Defendant No. 9 was not validly appointed the Non- Executive Part-time Chairman of Defendant No. 6 from the date of his purported appointment; (xvii) that the Hon'ble Court be pleased to order and direct Defendant No. 9 to repay to Defendant No. 6 all the payments received by him as the purported Non-
Executive Part-time Chairman from Defendant No. 6 from the date of his purported appointment till date; (xviii) restrain Defendant No. 7 and Defendant No. 18 from acting or holding themselves out to be Directors of Defendant No. 6;
(xix) restrain Defendant Nos. 1 and 6 by themselves, their servants, agents and officers by a temporary order and injunction from appointing any person either as chairman and/or as managing director without consulting and obtaining the prior written consent of the Plaintiffs in this regard.
(xx) restrain Defendant Nos. 1 to 6, by themselves, their servants, agents and officers by a temporary order and permanent injunction from in any manner initiating, taking or continuing any steps (including, making representations to any regulators/authorities and acting on the representations already made to regulators /authorities) for de-classifying and/or changing the 145 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc category of the Plaintiffs as the promoter of Defendant No. 6 in the Annual Reports of Defendant No. 6 or otherwise howsoever;
(b) for ad-interim reliefs in terms of prayer clause a(i) to (iii) above;
(c) for costs of the Notice of Motion;
(d) Such other reliefs as this Hon'ble Court may deem fit and
proper in the circumstances of this case.
146 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc ANNEXURE 'B' RELEVANT ARTICLES Article 3. Interpretation
(a) In these present, unless there be something in the subject or context inconsistent therewith:
"Affiliate" means any person which is a holding company or subsidiary of Rabo or any person including any subsidiary or holding company which, directly or indirectly, (a) Controls either Rarbo or the Indian Partners, (b) is Controlled by either Rabo or the Indian Partners, (c) is Controlled by the same person who, directly or indirectly, Controls Rabo or the Indian Partners, or (d) is a subsidiary of the same person of which Rabo is a subsidiary. For the purposes of this definition, the term "holding company"
and "subsidiary" shall have the meaning ascribed to under Section 4 of the Act.
"Ashok Kapur" means Mr. Ashok Kapur, an Indian National and resident of 11, Silver Arch, Napeasn Sea Road, Mumbai - 400006 and unless it be repugnant to the context, shall mean and includes his successors, legal representatives and assigns:
"Controlling" with respect to any person, means "Controlled ownership of more than 50% of voting by" or securities of such person and the "Control" possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by agreement or otherwise and the power to elect more than 50% of the
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"Indian Ashok Kapur and Rana Kapoor, are Partners" collectively referred to as the "Indian Partners" and each of Ashok Kapur, and Rarna Kapoor is individually referred to as the "Indian Partner";
"Rana Kapoor" means Mr. Rana Kapoor, an Indian National and resident of Grand Paradi Apartments, Rowhouse # 1, Mumbai - 400 036 and unless it be repugnant to the context, shall mean and includes his successors, legal representatives and assigns:
(b) Interpretation.
Any reference in these Articles to:-
(iv) "person" means any individual, firm or partnership or association, joint stock company, joint venture corporation, trust, unincorporated organization or government or agency or sub-division thereof;
(vii) a person shall include, in case of a body corporate, references to its successors and permitted assigns and in case of a natural person, to his heirs, executors, administrator and legal representatives;
49.(a) An application for the registration of a transfer of any share (s) debenture (s) or any other securities or other interest of a Member in the Company may be made either by the transferor or by the transferee.
(b) Where the application is made by the transferor and relates to partly paid Shares, the transfer shall not be registered, unless the Company gives notice of the application to the transferee and the transferee makes no objection to the transfer within two weeks from the receipt of the notice.
(c) For the purpose of sub-article (b) above, notice to the 148 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc transferee shall be deemed to have been duly given if it is dispatched by prepaid registered post to the transferee at the address given in the instrument of transfer and shall be deemed to have been duly delivered at the time at which it would have been delivered in the ordinary course of post.
(d) Acquisition of Shares by a person/group which would take in the aggregate his/her/its holding to a level of 5 per cent or more of the total issued capital of the Bank (or such other percentage as may be prescribed by the Reserve Bank from time to time) should be effected by such buyer(s) after obtaining prior approval of the Reserve Bank. The term 'group' will have the same meaning as contained in Section 2 (e) of the Monopolies and Restrictive Trade Practices Act, 1969 or any statutory enactment amending, modifying or repealing it.
(e) Neither Rabo nor the Indian Partners shall Transfer or Cause a Transfer of their respective shareholding in the Company to the extent of 9,80,00,000 (Nine Crores Eighty Lakhs) Equity Shares of the Company for a period of five years from May 24, 2004. Notwithstanding anything to the contrary contained in these presents, Article 49 (e) shall be subject to any guideline/instruction/direction whether oral or written issued/recommended/approved by the Reserve Bank with respect to the capital structure of the Company. Provided further that in the event that the Reserve Bank relaxes its requirement for the lock-in then the release of the aforesaid locked-in shares shall be effected in a manner that is proportionate to the shareholding of the Indian partners and Rabo in the Company.
110. a) Until otherwise determined by a General Meeting the number of Directors shall not be less than 3 (Three) and no more than 15 (Fifteen).
b) So long as the Indian Partners hold along with any of their Affiliates directly or indirectly, at least 10% of the issued and paid up share capital of the Company, the Indian Partners shall have the right to recommend the appointment of three directors collectively referred to as the "IP Representative Directors". So long as Rabo holds 149 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc along with any of its Affiliates directly or indirectly, at least 10% of the issued and paid up share capital of the Company, Rabo shall have the right to recommend the appointment of one director referred to as the "Rabo Representative Director".
c) Apart from the IP Representative Directors and the Rabo Representative Director, the other directors shall be independent ("Independent Directors"). The Indian Partners shall propose the names of the first three Independent Directors, who upon approval by Rabo, shall be appointed as such by the Board. Rabo and the Indian Partners may, recommend the names of the remaining Independent Directors to the nominations Committee of the Company.
For the purpose of this Article the expression "independent directors" means Directors who apart from receiving Director's remuneration, do not have any other material pecuniary relationship or transactions with the Company, its promoters, its management or its subsidiaries which in judgment of the Board may affect independence of judgment of the Director.
118. a) The Office of a Director shall become vacant as per the provisions contained in Section 283 of the Act and where:
i) he resigns office by notice in writing addressed to the Company or to the Board;
or
ii) he becomes disqualified under Article 112
(b); or
iii) he is disqualified for being appointed as a Director under any of the provisions of either of the said Acts.
b) If the office of any Director appointed by the Company is vacated before his term of office expires in the normal course, the resulting casual vacancy may be filled by the Board of Directors at a meeting of the Board and the Directors so appointed shall hold office only upto the 150 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc date on which the Director in whose place he is appointed would have held office if it had not been vacated. Such vacancy if that of the Rabo Representative Director or the IP Representative Directors shall be filled by individual(s) who shall be recommended for appointment by Rabo or the Indian Partners as the case may be.
127 (a) Subject to the provisions of the said Acts and these presents, the Board shall include a Non-Executive Chairman (the "Chairman") and a CEO and Managing Director.
(b) The Indian Partners shall have the right to recommend the name of the Chairman. Ashok Kapur shall be the first Chairman. The Indian Partners shall have the right to recommend the name of the CEO and Managing Director of the Company. Rana Kapoor shall be the first CEO and Managing Director. Rabo shall cause the Rabo Representative Director to vote along with the IP representative Directors for appointment of the Chairman and the CEO and Managing Director to the relevant Committees of Directors (as indicated by the Indian Partners).
(c) The CEO and Managing Director shall be entrusted with the management of the affairs of the Company subject to the Act and these Articles and he shall exercise his powers subject to the superintendence, control and direction of the Board.
(d) The Chairman if he possesses qualification, knowledge, experience or expertise useful to the Company, may, in addition to the duties as Chairman, be called upon, if he is willing, to render such extra services on day to day basis, or by way of special assignment or in any other manner as the Board may decide.
(e) The term for the Chairman, the CEO and Managing Director shall not exceed five years at a time, provided that the Chairman, the CEO and Managing Director 151 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc should be eligible for reappointment.
(f) Notwithstanding anything to the contrary, the Chairman and the CEO and Managing Director shall not be subject to retirement by rotation under Article 122 but shall;
subject to the provisions of any contracts between them and the Company, be subject to the same provisions as to resignation and removal as the other Directors of the Company and shall ipso facto immediately cease to be the Chairman, CEO and Managing Director as the case may be if he ceases to hold the office of Director for any cause.
(g) The remuneration of the Chairman, CEO and Managing Director or whole-time Director shall (subject to Section 309 of the Act and other applicable provisions of the said Acts and these presents and of any contract between him and the Company) be fixed by the Board, from time to time and may be by way of fixed salary and/or perquisites or by any or all these modes or any other mode not expressly prohibited by the Act.
(h) The appointment, reappointment, termination of appointment, remuneration payable to and other terms and conditions of service of the Chairman and the CEO and Managing Director shall be subject to the approval of the Reserve Bank and also subject to such approval as may be necessary under the Act.
127A. (a) Subject to the provisions of the said Acts and these presents, the Board shall subject to a recommendation made by the Promoters, also include such Whole time Director/s as may be appointed in terms of these Articles.
b) The Board may, subject to its obtaining approval from the Reserve Bank and also subject to such approval as may be necessary under the Act, and subject to the other provisions of these Articles, appoint and/or re-appoint from time to time one or more of its member(s) to be designated and to act as Whole Time Director/s of the 152 of 153 ::: Uploaded on - 17/06/2015 ::: Downloaded on - 10/09/2015 19:32:21 ::: NM 944-2013 suit 462-2013-yes bank-f3.doc Company, not in any case exceeding one third of the total number of the Directors of the Company for the time being.
(c) The Whole time Director/s appointed shall, subject to the supervision, direction and control of the CEO and Managing Director and subject to the provision of these Articles, the Act and the Banking Act, exercise such powers and authority and discharge such functions and responsibilities as may be delegated to him/them by the CEO and Managing Director from time to time.
(d) The term for the Whole time Director/s shall not exceed five years at a time, provided that the Whole time Director/s should be eligible for reappointment.
(e) Notwithstanding anything to the contrary, the Whole time Director/s shall not be subject to retirement by rotation under Article 122 but shall, subject to the provisions of any contracts between them and the Company, be subject to the same provisions as to resignation and removal as theother Directors of the Company and shall ipso facto immediately cease to be the Whole time Director/s as the case may be if he ceases to hold the office of Director for any cause.
(f) The remuneration of the Whole time Director/s shall (subject to Section 309 of the Act and other applicable provisions of the said Acts and these presents and of any contract between him and the Company) be fixed by the Board, from time to time and may be by way of fixed salary and/or perquisites or by any or all these modes or any other mode not expressly prohibited by the Act.
(g) The appointment, reappointment, termination of appointment, remuneration payable to and other terms and conditions of service of the Whole time Director/s shall be subject to the approval of the Reserve Bank and also subject to such approval as may be necessary under the Act.
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