The Delhi High Court has restrained Unity Small Finance Bank (Unity SFB) from proceeding with a proposal to increase its authorised share capital, granting interim relief to BharatPe in an escalating shareholder dispute. The order temporarily halts the bank’s plan to raise its authorised share capital from ₹4,000 crore to ₹4,900 crore, pending arbitration between the two shareholders.
The dispute centers on a proposed conversion of warrants into Compulsorily Convertible Preference Shares (CCPS), which BharatPe argues would significantly dilute its stake in the bank without the approvals required under the shareholders’ agreement. The court’s interim order prevents Unity SFB from placing the proposal before its board until the arbitration process progresses, without expressing any opinion on the merits of the case.
Delhi High Court Grants Interim Relief to BharatPe
According to court proceedings, Unity SFB planned to increase its authorised share capital by ₹900 crore, from ₹4,000 crore to ₹4,900 crore.
The additional authorised capital was intended to facilitate:
- Conversion of outstanding warrants.
- Issuance of Compulsorily Convertible Preference Shares (CCPS).
- Completion of the conversion before the warrants expire later this year.
However, BharatPe challenged the proposal, arguing that the move required its consent under the shareholder agreement and could materially reduce its ownership in the bank.
Case Snapshot
| Item | Details |
|---|---|
| Court | Delhi High Court |
| Petitioner | BharatPe |
| Respondent | Unity Small Finance Bank |
| Proposal Challenged | Increase authorised share capital from ₹4,000 crore to ₹4,900 crore |
| Interim Order | Bank restrained from placing proposal before its board |
| Current Status | Matter to be resolved through arbitration |
BharatPe Alleges Potential Stake Dilution
BharatPe contends that the proposed capital restructuring would:
- Dilute its shareholding in Unity SFB.
- Violate provisions of the shareholders’ agreement.
- Proceed without obtaining approvals contractually required from existing shareholders.
The fintech company sought interim protection from the court while arbitration determines whether the proposed transaction complies with the agreements governing the bank’s ownership structure.
The High Court accepted the request for interim relief, directing Unity SFB not to move forward with the proposal for the time being.
Court Leaves Merits to Arbitration
The High Court clarified that its order is interim in nature.
The court has:
- Not ruled on whether the proposed capital increase is lawful.
- Not decided whether the shareholders’ agreement has been violated.
- Simply preserved the existing position until the arbitration process examines the dispute.
The arbitration proceedings will determine whether the proposed warrant conversion and share capital increase are consistent with contractual obligations between the shareholders.
Background: BharatPe and Centrum’s Partnership
Unity Small Finance Bank was established in 2021 after a consortium led by BharatPe and Centrum Financial Services acquired the troubled Punjab and Maharashtra Cooperative (PMC) Bank under a reconstruction plan approved by the Reserve Bank of India (RBI).
Initially:
- BharatPe emerged as one of the bank’s largest shareholders, holding close to a 49% stake.
- Centrum became the other principal shareholder responsible for managing the reconstructed bank.
Since then, disagreements have reportedly emerged over governance matters and future capital requirements.
Governance Implications
The dispute highlights several broader issues for India’s banking sector:
- Protection of minority shareholder rights.
- Governance standards in regulated financial institutions.
- Capital-raising procedures under shareholder agreements.
- Balancing fresh capital requirements with ownership protections.
Because Unity SFB was created through an RBI-backed reconstruction process, the outcome could be closely watched by investors, financial institutions, and regulators involved in similar restructuring exercises.
Looking Ahead
The Delhi High Court’s interim order temporarily pauses Unity Small Finance Bank’s proposed share capital expansion while arbitration determines whether the transaction complies with the shareholders’ agreement governing the bank’s ownership structure. Although the court has not ruled on the legality of the proposal, the decision preserves the existing shareholding position until contractual issues are resolved.
Looking ahead, the arbitration outcome could have important implications for shareholder rights, governance practices, and capital-raising decisions in regulated financial institutions. The case will be closely watched by India’s banking and fintech sectors, particularly given Unity SFB’s origins as an RBI-backed reconstruction of PMC Bank and the strategic partnership between BharatPe and Centrum.
Get the day’s top stories in your inbox
One concise email. No spam, unsubscribe anytime.
