Dish TV vs Yes Bank battle: A matter of principle for both companies

The Supreme Court's interim order that the police have no right to freeze voting rights has set an important precedent for the practice of applying criminal law in civil-contractual disputes

Dish TV India, a company set up by Essel Group, and its largest shareholder, Yes Bank, are set for a face-off in the shareholders’ meeting to be held next week.

Armed with a Supreme Court interim order that has reinstated its voting rights for a 24.7 per cent stake in the direct-to-home broadcaster, Yes Bank is likely to vote against one of the directors, Ashok Kurien, whose re-nomination is coming up for voting. The promoters hold 6 per cent in the company and will have less say in the proceedings unless other shareholders support their candidate.

Yes Bank has already made it clear that it wants to remove all the directors of the company and appoint its own nominees to the board. The bank had acquired a stake in the company after private entities owned by Essel Group promoter Subhash Chandra defaulted on the Rs 5,270-crore loan taken from Yes Bank. The bank decided to seize the pledged shares and acquired the shareholding in May last year.

In September last year, Chandra filed a police complaint alleging fraud by Yes Bank’s former management led by Rana Kapoor forced him to take over Videocon D2H, a rival company, so as to bail out the promoters of Videocon group. The police decided to freeze the voting rights on Yes Bank shares just before the annual general meeting, leading to a legal dispute between the bank and Dish TV — with the matter landing in the Supreme Court. Kapil Sibal, senior counsel, appearing on behalf of Chandra, submitted that there was neither a genuine loan transaction nor a valid pledge of shares in favour of Yes Bank.

But in its interim order, the apex court said that at this stage, it was of the view that it would be necessary to protect the interests of Yes Bank in respect of the pledged shares and made it clear that the police have no right to freeze voting rights.

Legal experts said it is being widely observed that contractual-civil matters are now being pursued under criminal law to exert pressure on the counter party, so the Supreme Court’s judgment is a step in the right direction. “In order to protect the interest of the lenders, the court has stayed the criminal proceedings with respect to the loan and the pledge transaction,” said Ajay Shaw, partner of law firm, DSK Legal.

Bankers said the Supreme Court order has made it clear that the defaulters cannot take refuge under criminal law while pursuing civil matters. “The lenders invoke shares or seize collateral on a daily basis belonging to erring promoters. If every defaulter files a police complaint then the banking system will collapse,” said a banker requesting anonymity.

What next?

The showdown between Yes Bank and Chandra ignited in February this year when Dish TV cleared a rights issue to raise up to Rs 1,000 crore. This, according to Yes Bank, would have diluted their stake in the company and raised the promoter shareholding in Dish TV. “It is clear that the end and intent of the proposed rights issue is to dilute the value of Yes Bank stake in Dish TV and gravely prejudice recovery of the outstanding loan amo­u­nts,” the bank said in its petition to the Supreme Court.

The bank then issued a notice to the company asking it to convene an extraordinary general meeting (EGM) of Dish TV’s shareholders to restructure the board. Since the company did not take any action to call the EGM, the bank filed a petition before the National Company Law Tribunal, Mumbai, under Section 98 of the Companies Act 2013, asking it to direct Dish TV to convene an EGM. These proceedings are pending before the NCLT.

Though there are reports that Dish TV is in talks to merge with Bharti Airtel’s direct-to-home satellite business, Yes Bank officials said they are not aware of any such discussions. Taking into account the market capitalisation of Dish TV India as of Monday, Yes Bank’s stake is valued at Rs 924 crore. Even if the bank decides to sell the shares in the market, it will not be able to make up for its exposure of Rs 5,270 crore.

With the Supreme Court’s interim order going against Dish TV, legal experts said there are strong chances that Dish TV will come to the negotiating table and try for an out-of-court settlement. On the other hand, Indian lenders usually avoid unsett­ling the present management. Yes Bank has claimed in the past that it has support of other Dish TV shareholders with 45 per cent voting rights.

The Supreme Court has listed the next hearing for January 12, and both parties have time to come out with a settlement till then. But with Yes Bank taking an aggressive stand, the ball is clearly in Chandra’s court.

THE STORY SO FAR

• March 2018: Dish TV, Videocon D2H announce merger; Yes Bank brokers deal
• May 2020: Yes Bank seizes promoter pledged shares after promoters default on loans
• Sept 2020: Subhash Chandra files police complaint against Yes Bank saying merger proposal was flawed
• Feb 2021: Dish TV announces Rs 1,000 cr rights issues; bank opposes rights issues
• Nov 2021: UP police freezes Yes Bank’s voting rights
• Dec 2021: SC stays FIR filed against bank