Highlights
Unity Small Finance Bank has been restricted by the Delhi High Court from proceeding with its plan to enhance authorised share capital, offering interim protection to BharatPe amidst a shareholder contention involving the two main stakeholders.
Court documents reveal that the bank intended to raise its authorised share capital from Rs 4,000 crore to Rs 4,900 crore. This initiative was meant to enable the conversion of specific warrants into compulsorily convertible preference shares (CCPS) before their expiry later this year.
BharatPe challenged this initiative, asserting that the move could not occur without its approval as per the shareholders’ agreement. Furthermore, the fintech organisation contended that the conversion would have a substantial impact on its ownership percentage in Unity SFB.
Interim High Court Order
The High Court has instructed the bank to refrain from presenting the proposal to its board for the time being while the dispute is being addressed via arbitration. This ruling is interim and does not resolve the details of the case.
Background of Dispute
This dispute highlights the ongoing dynamics between BharatPe and Centrum Group, who are both principal shareholders in Unity SFB. The establishment of Unity Small Finance Bank took place in 2021, following a consortium led by BharatPe and Centrum Financial Services gaining control of the distressed Punjab and Maharashtra Cooperative (PMC) Bank under a Reserve Bank of India-supported reconstruction scheme. BharatPe initially became one of the top stakeholders in the bank, holding nearly 49% of the shares.
However, conflicts have arisen among the shareholders regarding governance and capital-related decisions. BharatPe has claimed that the proposed capital restructuring could significantly diminish its ownership stake in the bank without the necessary authorisations stipulated in the shareholder agreement.
Significance of the Case
This case underscores the critical nature of shareholder rights and governance within financial institutions, especially those established under regulatory reconstruction plans. The forthcoming arbitration proceedings will assess whether the proposed capital augmentation and share conversion align with the agreements made between the involved parties.