Unity SFB cannot sidestep BharatPe's consent, says Delhi High Court

The Delhi High Court has upheld BharatPe's right to approve key decisions at Unity SFB, rejecting the lender's appeal in a dispute over a proposed capital increase and stake dilution.

The Delhi High Court has upheld BharatPe parent Resilient Innovations’ (RIPL’s) right to a say in key corporate decisions at Unity Small Finance Bank (SFB), dismissing an appeal by the lender against an interim order requiring it to obtain the shareholder’s prior written consent.

 

A Division Bench of Justices C Hari Shankar and Vinod Kumar, in a November 5 judgment, declined to overturn an earlier order restraining Unity SFB from pursuing a proposal to increase its authorised share capital without the approval of its two shareholders — RIPL and Centrum Financial Services.

 

The proposed increase from ₹4,000 crore to ₹4,900 crore was intended to facilitate the conversion of previously issued warrants into compulsorily convertible preference shares. The exercise could dilute RIPL’s stake in the bank from 49 per cent to 21 per cent, according to submissions recorded in the judgment.

 

 

At the centre of the dispute is a shareholders’ agreement signed by Unity SFB, RIPL and Centrum on October 26, 2021. It requires the bank to obtain the prior written approval of representatives of both shareholders before acting on specified strategic and corporate decisions, classified as ‘Reserved Matters’.

 

The lender had repeatedly sought RIPL’s consent for the proposed capital increase but subsequently argued that its references to the proposal as a Reserved Matter had been made inadvertently.

 

The Division Bench dismissed this explanation as an “argument of desperation, and nothing more”. It noted that the bank had acknowledged the requirement for shareholder approval in its own board agenda and written communications, and could not subsequently disown those acknowledgements to evade its contractual obligations.

 

Unity SFB also contended that the shareholders’ agreement could not override the bank’s articles of association. The court rejected this argument, pointing to Clause 8 of the agreement, which contains a non obstante provision giving the contractual arrangement precedence over any conflicting provisions in the bank’s memorandum and articles of association.

 

The bank’s argument that the Reserve Bank of India (RBI) had directed it to remove Reserved Matter provisions from its articles of association also failed. The Bench said such regulatory directions did not extinguish the contractual obligations voluntarily assumed by the shareholders. It also noted that the agreement had been placed before the RBI, which had not objected to Clause 8.

 

Reacting to the judgment, a BharatPe spokesperson said the bank’s board should comply with the court’s directions and exercise independent judgment, keeping the interests of all stakeholders, including minority shareholders, in mind. “The Board must ensure that the Bank complies with the Court’s directions in letter and spirit. We expect the Board to exercise independent judgment, free from undue influence, and act in the interests of the Bank and all its stakeholders, including minority shareholders,” the spokesperson said.

 

BharatPe said the governance arrangements agreed upon when the joint venture was established in 2021 should be consistently honoured and not altered to favour one shareholder group. Upholding the agreed framework, it added, was essential to maintaining trust between shareholders and protecting the bank’s long-term interests.

 

Centrum declined to comment on the judgment, citing the ongoing legal proceedings, but stressed: “The discussions are solely between the bank’s promoter and a financial investor. The bank remains operationally unaffected, and continues to serve its customers and stakeholders as usual.”

 

The Division Bench found no grounds to interfere with the single judge’s interim order and dismissed Unity SFB’s appeal. The underlying dispute, however, remains pending before the single judge and has yet to be finally adjudicated.