SHC allows equity injection into bank

KARACHI: The Sindh High Court has recalled its injunctive order with regard to public announcement of intention for acquiring 51 per cent shares of the Summit Bank by a foreign businessman and ordered that fresh equity be let to be injected by the acquirer in the bank forthwith.

The order came on a lawsuit filed by shareholders Atif Ahmed, Aqeel Karim Dhedhi and others, seeking injunction against public announcement with regard to acquiring 51 shares of the Summit bank by Nasser Abdullah Hussain Lootha as acquirer.

Plaintiffs have alleged that Lootha is not a proper person to acquire shares of the bank as prescribed in Part-II of the Corporate Governance Regulatory Framework for Banks to acquire 51pc shareholding and control of the Summit Bank. They alleged that Lootha not only obtained pardon from the National Accountability Bureau but also was a defaulter of a loan agreement obtained on June 30, 2011.

Being the previous chairman of the Summit Bank, he embroiled the bank in scams causing a loss to the bank shares. The State Bank of Pakistan filed a counter-affidavit to the injunction application with the plea that the Summit Bank is technically an insolvent entity with a negative equity of over Rs 15 billion and has been incurring operational losses, therefore, the SBP as part of its supervisory responsibilities is engaged with the bank to ensure its recapitalization.

The SBP submitted that a fresh injection of equity by Lootha has been authorized by the bank shareholders including Aqeel Karim Dhedhi by passing resolutions at the annual general meeting of the bank held on November 11, 2021.

The SBP submitted that the bank’s existing shareholding was not being transferred to Lootha. Rather he was acquiring the shares through a public offer and competency of Lootha would be judged as per law and regulation. The bank submitted that the lawsuit had been preferred by the plaintiffs just to undermine the bank and push the said ailing entity towards shutdown.

Bank counsel submitted that paid-up capital of the bank, net of losses, stood at negative Rs19.995 billion as of March 31, 2022 as against the statutory requirement of Rs 10 billion prescribed by SBP while the capital adequacy ratio of the bank stood at negative 63.20%.

The counsel submitted that bank has 2,143 employees, and pays tax worth Rs1573 million, provides banking services to 499,375 accountholders with a deposit base of Rs108 billion. He submitted that plaintiffs do not have the requisite shareholding that is 10 percent or more as per section 286 of the Companies Act, 2017 to initiate any such proceedings as the plaintiffs are the minority shareholders and do not even collectively own more than 0.0274 per cent shareholding of the bank, and through the list at hand, the plaintiffs are eager to undermine the well-established principle of rule of majority; therefore, the present action at law and the interlocutory application be dismissed.

The bank counsel submitted that plaintiff AKD participated in the 14th Annual General Meeting of the bank and voted in favour of increase in the authorised capital of the bank and issuance of new shares to Mr. Lootha, but under the garb of list at hand, the plaintiffs, while settling their score want to bring the bank to closure, leaving thousands of employees jobless.

He submitted that plaintiffs are not even inclined to inject the funds by themselves or have indicated any other alternate sources, where on the other hand, the investment being made by Mr. Lootha will benefit the bank in the form of increase in 41,686 shareholders while the value of shares will also enhance.

The counsel of Mr. Lootha denied the allegations leveled against him by the plaintiffs. SBP counsel submitted that no bank can commence business per Section 13 of the Banking Companies Ordinance, 1962, unless it has prescribed paid up capital, which for the defendant bank, net of losses, is lot lesser than the statutory requirement of Rs.10 billion prescribed by SBP.

He submitted that the case is a matter of public importance as 499,375 account holders of defendant bank will be benefited, therefore Mr. Lootha may be allowed to commence the transaction.

He submitted that fit and proper test is a continuous exercise and it is in the domain of the SBP to undertake the same; therefore, the plaintiffs do not have prima facie case on their own footing.

While concluding his submissions, he introduced on record that the shareholders have decided to get the funds from Mr. Lootha to run bank’s day-to-day affairs. SHC’s single bench headed by Justice Zulfiqar Ahmed Khan, after hearing the counsel at length, observed that plaintiffs have failed to make out prima facie case and in fact the balance of convenience lies in favour of the defendants.

The court observed that person eager to acquire share of any company/bank has to undergo a fit and proper test in advance before acquiring the same under the relevant statutory provision and SBP’s prior approval is required for any change in the existing sponsor shareholdings.

The court observed that Summit Bank has to ensure prior intimation to the SBP before dealing with any investor and seek SBP’s approval for allowing due diligence. Recalling its injunctive order, the court directed fresh equity which was being injected by Mr. Lootha into bank through public announcement of intention be let to be injected forthwith while keeping in mind that fit and proper test is undertaken by the SBP as per statutory prescriptions.

The court observed that since Summit Bank is undercapitalized and facing great hardship; therefore the exercise as mandated be accomplished forthwith.