Legal tussle between YES Bank promoters is far from over

In the 153-page order on the prolonged legal battle between Rana Kapoor and Madhu Kapur over the latter's rights to nominate directors on the board of YES Bank, the Bombay High Court has hinted amendments to the articles of association (AoA), while ruling in favour of the petitioner. "I have very little doubt that there are articles that require amendments, both for consistency, going forward, and also to resolve the present disputes," Justice G.S. Patel observed.

While the Kapur camp maintains that it was not a direction, but a mere observation by the court, YES Bank is emphasising on Justice Patel's observations. "AoA was written way back in 2003. Now, the purpose is to clean up the article so that it reflects the current realities and to institutionalise the ethos of the bank," says Sanjay Nambiar, Group President, YES Bank. An amendment to the AoA can be initiated through a special resolution at a general body meeting of shareholders.

But, any such move is expected to boil down to yet another long-drawn legal tussle, as it could impact the rights of the Kapurs. And, neither Madhu nor her children - Shagun and Gaurav - are ready to give up without a fight. "There are lots of strictures against YES Bank and Rana Kapoor. There are governance and transparency issues in the way the bank is functioning," says Shagun.

Clearly, however, the reference to Rabo Bank, which had initially offered financial and strategic support to YES Bank but exited in 2012, must be omitted from the AoA. Under Section 110(b), Rabo had the right to recommend one director on the board. But, the bigger need, perhaps, is to address issues related to the bank's Indian partners - Rana and Madhu - who have the rights to jointly recommend three directors on the board, as long as each holds a 10 per cent stake.

There is a view that the Indian partners' rights existed to balance it with Rabo Bank. There could be a case of taking away the rights of both the Indian partners if one has to balance out the rights argument. This could be yet another flashpoint. Says Shagun: "As the Indian partners have the right to choose the managing director and the chairman, they also have a right to choose whole-time directors. That is not balancing with Rabo Bank." Says Nambiar: "The court has said it is not necessary that Indian partners' representative directors' positions have to be filled in. The board can appoint suitable directors, not necessarily as Indian partners representative directors."

The clause relating to appointment of whole-time directors from top management executives is another article where Madhu Kapur has joint rights. The other route to appoint a whole-time director is selection by the board. Two years ago, YES Bank had recommended three employees as director on the board. This decision was set aside by the court. This clause again creates a logjam for the bank if it wants to promote its executive on the board. Madhu Kapur is not going to give up her rights. There is a view in the bank that the court has gone wrong on the facts, which they would be pointing out.

Whatever it may be, amid all this confusion, one thing is clear: the Kapur vs Kapoor battle is not going to be over anytime soon.