Tribunal for settlement in BoR case

Securities Appellate Tribunal's move may hurt minority stakeholders

In a move that could hurt the interest of minority shareholders in Bank of Rajasthan (BoR), the Securities Appellate Tribunal (SAT) has suggested an out-of-court settlement in an appeal which challenges the Securities and Exchange Board of India (Sebi) order vindicating the stance of the bank's promoters in not making an open offer consequent to their stake going over the threshold limit.

The SAT presiding officer Justice Kumar Rajaratnam urged the appellant Ramprasad Somani to enter into an out-of court settlement with Bank of Rajasthan promoter P K Tayal.

The matter assumes significance as the appeal is against the Sebi order, and if the order were to be overturned by SAT, following the normal judicial course, the promoter will have to make an open offer to all public shareholders - not just to the appellant.

The case which was adjourned for September 20 on request from Sebi, was heard last on July 20 when the judge had suggested a amicable out-of-court settlement for the first time.

In today's hearing the judge re-iterated the same. This is the second instance where the SAT Presiding Officer has been insistant on an out-of-court settlement.

Earlier, the SAT presiding officer had resigned on controversies surrounding his suggestion to Sebi to consider plea bargaining in the UBS case though his resignation was not accepted.

A Sebi order passed in 1999 by the then chairman D R Mehta maintained that there was no violation of take-over code by the promoters of Bank of Rajasthan when its stake in the bank went up significantly from a little over 10 per cent to 44 per cent, consequent to a rights issue made in 1999.

Bank of Rajasthan shares were hovering around Rs 80 in 1999. Adding an interest cost of 18 per cent per annum payable from the time of the open-offer date, the public offer price would not be less than Rs 200.

A representative of R P Somani said he was agreeable to a settlement; however, since the terms of the issue were not acceptable to the counsel of P K Tayal, no settlement was possible.

Interestingly, the SAT officer maintained that the appellant can seek redressal of personal grievance only and can't talk for other shareholders as part of the settlement. Compensation for other shareholders would tantamount to an open offer which was not feasible as part of an out-of-court settlement.

Justice Rajaratnam told Business Standard that the court should not have any problem if the two parties can amicable resolve the case and the appellant is willing to withdraw the appeal.

Since the case is not in the nature of a class action suit, the scope of settlement could be limited only to the two concerned parties.

SAT has been actively pushing for out-of-court settlement, citing the load on the judicial system and the prolonged judicial process.