Supreme Court Stays Madras HC Order on LVB-DBS Merger

The Supreme Court has stayed a Madras High Court order that instructed the Reserve Bank of India to determine the value of shares, assets, and investor bonds of Lakshmi Vilas Bank and DBS Bank India Limited. The court emphasized that halting the merger would affect investor confidence in the regulatory system.

In a significant relief to the Reserve Bank of India, the Supreme Court has stayed a Madras High Court order that instructed it to determine the value of shares, assets, and investor bonds tied to the financially troubled Lakshmi Vilas Bank (LVB) and the Indian subsidiary of DBS Bank of Singapore.

The merger proposal involving LVB and DBS Bank India Limited (DBIL), which acts as the Indian arm of the Singaporean bank, had been approved in 2020. The Supreme Court, however, decided not to accept investors' submissions that around 92,000 people could lose their money if the high court order were paused.

The court highlighted that stalling the merger would have significant repercussions, particularly the loss of foreign investor confidence in India's regulatory framework. A bench led by Chief Justice D Y Chandrachud stayed the high court order and issued notices to Aum Capital, representing the investors, and others on separate appeals made by the RBI and DBS Bank against the HC judgment.

Represented by Solicitor General Tushar Mehta, the RBI cited banking amalgamation laws to argue that investors, who were receiving higher returns than ordinary depositors, would lose their investments if the LVB-DBS merger proceeded. Senior advocates Mukul Rohatgi and Shaym Divan, representing DBS Bank India Ltd, also supported these arguments, noting that the RBI and the government had requested DBS Bank's intervention in 2020.

On the investor side, senior advocates Abhishek Singhvi and Arvind Datar contended that while investors were not opposed to the merger, they demanded a proper valuation to ensure their investments were not reduced to zero.

The Madras High Court had initially approved the merger but had directed the RBI to ascertain the value of shares and assets before making any decisions regarding the write-off of Tier II bonds. However, the Supreme Court's stay has temporarily halted this directive, pending further hearings.

(With inputs from agencies.)