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Among the legal questions clouding the merger of Bank of Rajasthan with ICICI Bank is whether the Tayals’ shares, lying in a demat account frozen on SEBI directions, can be extinguished.A SEBI order, this March, restrained 100 entities, including BoR promoters — the Tayals — “from accessing the securities market and further buying, selling or dealing in securities in any manner whatsoever, with immediate effect, until further directions.”

SEBI also directed depositories NSDL and CDSL to freeze the beneficial owner accounts of the banned entities.

In the BoR-ICICI Bank merger, that is an all-swap deal, the Tayals’ shares, which are lying in their frozen demat accounts, will have to be swapped for ICICI Bank shares.

SEBI diktat

Whether this violates SEBI’s diktat preventing the Tayals from “dealing in securities in any manner” is not clear to many legal experts.

But, BoR and ICICI Bank are very clear about how they propose to go about their merger process.

The merging entities envisage that at the end of the deal, BoR shares lying in the Tayals’ frozen accounts will electronically disappear (since BoR would cease to exist). They will be replaced by ICICI shares to which SEBI’s ban will apply. SEBI’s ad interm ex-parte order had banned the 100 entities, including the Tayals, for fraudulent dealings in shares of BoR and non-disclosure of the promoter shareholdings in the bank. (The Tayals claim their shareholding in the bank is 28 per cent while the SEBI order says the promoter shareholding is actually 55 per cent).

The confidence with which the merger was proposed lies in the fact that BoR and ICICI Bank had sounded out SEBI officials on whether a share swap ending in a merger would constitute “dealing in securities in any manner whatsoever” and received a positive response.

How it works

As for the frozen accounts, this is how the merger process will work. Since it is a merger, the shares will not be “dealt” with, but extinguished. They will simply be replaced by ICICI Bank shares that the Tayals will own after the merger, said sources.

Legal experts are not clear on whether this is possible. “Though it may not strictly be ‘dealing’ — dealing normally implies buying, selling, pledging etc., — I don’t think frozen shares can be replaced like this,” ventured one of them.

But the merging parties are confident. “In the case of regular companies, a company court would sanction a merger. Since this case involves banks, the RBI sanctions the merger.

Because of operation of law (the Banking Regulations Act) the depositories would have to comply with or give adherence to this.

Shares of a company going out of existence are extinguished as part of law. BoR shares would vanish and ICICI Bank shares get credited. Now, the Tayals cannot deal in these ICICI Bank shares. All the SEBI restraints would automatically apply to dealing in ICICI shares,” said a source privy to the merger process.

It may be recalled that it was following a reference from the RBI that SEBI had initiated investigations into dealings in the shares of Bank of Rajasthan.

Although the parties had sought the opinion of some SEBI officials, it is learnt that a section is still debating whether this is possible and how the merger is being



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  1. CBI Probe needfed says:

    Legally, Tayal’s cannot swap holdings and they cannot move for merger. The Role of Regulators who are keeping mum over developments now becomes questionable.
    Now the CBI should probe why they are mum.

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July 2024