Attempt to remove Dhanlaxmi independent director may’ve led to abrupt exit

Even as an independent director of Dhanlaxmi Bank was planning a dramatic exit from the board of the Kerala-based lender, another story was unfolding.

The bank’s largest shareholder had initiated a special resolution to remove the same director from the board a few days before he raised strong accusations against other directors in a letter addressed to the board, which was filed with stock exchanges.

In his letter addressed to the board, the largest shareholder, B Ravindran Pillai, proposed “removal of Mr Sridhar Kalyanasundaram from the board of directors”, said two people aware of the development at the bank. Pillai proposed a special resolution at the annual general meeting scheduled on September 30 to remove Kalyanasundaram.

Pillai holds a 9.99% stake in the old-generation private bank.

The bank’s managing director and CEO JK Shivan declined to comment on the matter. Kalyanasundaram did not respond to ET’s email but replied to a message that he was on a religious trip and had poor internet connectivity.

Pillai’s letter to the board is dated September 13, while Kalyanasundaram tendered his resignation on September 16.The largest shareholder proposed to the board to place his notice to the AGM under provisions of the Companies Act, the people cited above said. As per regulation, a board member can be removed from office after the approval of majority shareholders voting at the meeting convened. “This development indicates that the independent director pre-empted that majority shareholders would vote for his exit and thus attempted to turn the tables in his favour,” said one of two people cited above.Now that the independent director has resigned, the agenda proposed by the largest shareholder becomes infructuous, he added.

In the resignation letter, Kalyanasundaram accused the board members of delaying the bank’s rights issue and questioned the merits of a one-time settlement with Jalan Hotel, among other things.

As per the regulations stipulated by Sebi, a rights issue would require approval from every board member. Dhanlaxmi Bank’s Rs 130 crore rights issue was delayed mainly because Kalyanasundaram gave a dissent note at every board meeting, blocking the bank from raising capital.

Regarding settlement with Jalan Hotel, the independent director claimed he was against accepting Rs 5.25 crore since it was at a huge discount. “However, the recovery depends on what the buyer is willing to pay if there is no competing bid,” a stressed asset business expert said.

The banking regulator, too, has taken note of the approach of the same independent director while directing the management to appoint a new director only after undertaking a thorough due diligence, the person said. The Reserve Bank of India does the ‘fit and proper scrutiny’ only of the chairman, MD and CEO, while the board does the scrutiny of independent directors.

Meanwhile, the three-year tenure of Shivan as MD and CEO is due to end in January 2024. The bank reported a net profit of Rs 49.5 crore in FY23 against Rs 35.9 crore a year ago.

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