NCLT Kochi Allows First Motion In ESAF Financial Holdings Scheme To Meet RBI Shareholding Limits

The National Company Law Tribunal (NCLT), Kochi, on Friday allowed a first motion application filed by ESAF Financial Holdings Pvt Ltd in relation to its proposed scheme of arrangement involving selective reduction of share capital and restructuring of its investment in ESAF Small Finance Bank.

The scheme is aimed at complying with RBI directions requiring its shareholder, Dia Vikas Capital Pvt Ltd, a foreign-owned and controlled entity, to reduce its shareholding below 5% in the bank and 20% in the holding company.

ESAF Financial Holdings is the holding company of ESAF Small Finance Bank and currently holds 52.87% of its paid-up share capital.

The company stated that the scheme provides for selective reduction of its share capital through cancellation and extinguishment of equity shares held by certain identified shareholders, with consideration based on fair market value as on the appointed date.

Such consideration will be discharged by transferring shares of ESAF Small Finance Bank held by it to the concerned shareholders in a specified ratio after adjusting tax liabilities.

The scheme was revised in line with RBI directions on the shareholding structure of Dia Vikas Capital Pvt Ltd. The Board of Directors approved the revised scheme, which was subsequently acknowledged and cleared by the RBI, subject to compliance with applicable laws and regulations.

Under the scheme, Dia Vikas Capital will be provided a partial exit through the transfer of shares amounting to 4.99% of the bank's equity, thereby facilitating compliance with RBI-prescribed limits.

The company further submitted that consent affidavits had been obtained from 99.96% of equity shareholders and 100% of preference shareholders and that it has no secured or unsecured creditors.

A Bench of Judicial Member Vinay Goel, taking note of the submissions and documents on record, observed:

“The Scheme appears to be a structured arrangement between the Applicant Company and its shareholders, aimed at selective reduction of share capital and restructuring of its investment in ESAF Small Finance Bank Limited in compliance with regulatory requirements prescribed by the Reserve Bank of India.”

The tribunal held that the classification of members was proper and found no legal impediment to proceeding further. It also noted that statutory requirements have been complied with, subject to further scrutiny at the stage of final approval.

Accordingly, the tribunal dispensed with the requirement of convening meetings of equity shareholders and preference shareholders and also obviated the need to convene meetings of creditors, noting that none existed.

The Tribunal directed the company to issue notices to statutory authorities, including the Regional Director, Registrar of Companies, Income Tax Department, GST authorities, Official Liquidator, RBI, SEBI, BSE and NSE, and to file compliance affidavits.

Clarifying the limited scope of the order, the tribunal observed:

“This order shall not be construed as an expression of opinion on the merits of the Scheme.”

Accordingly, the application was allowed.

For Applicant: Dr.K.S Ravichandran, PCS and Advocate Manjula Devi