Other than these, there was Article 127A (d), which continues to be in the MoA till date. It states: ‘The Whole time Director/s appointed shall, subject to the supervision, direction and control of the CEO and Managing Director and subject to the provisions of these Articles, the Act and the Banking Act, exercise such powers and authority and discharge such functions and responsibilities as may be delegated to him/them by the CEO and Managing Director from time to time.’
I spoke to multiple lawyers and company secretaries to understand this. There is a clear-cut narrative of a power grab in all this. Article 110 (b) seems to help the Indian partners (Rana Kapoor and Ashok Kapur) with more than 10 per cent of the share capital by giving them the power to recommend three directors. The thing to be noted is that it gives them the power to ‘recommend’, not the power to elect, these people as directors. On the other hand, the duo didn’t want to give Rabobank the same power as the Indian directors, because for fulfilling the same condition they got to recommend one director as opposed to three by the Indian directors.
Article 127 (b) again strengthens the Indian partners’ positions by giving them the power to ‘recommend’ (not elect) the chairman, CEO and MD. Now, the interesting thing about this article is that if you observe its language, it says that the Rabobank director shall vote ‘along with the Indian directors’. So, here we have four people on the board voting for the same guy as chairman/CEO/MD.
Article 127A (a) and (b) offer two modes to appoint these whole-time directors (WTDs). Firstly, they could be appointed on the promoters’ (Rana and Ashok’s) recommendation. Secondly, they could be appointed from amongst the already existing directors who form the board of directors. In this situation, there is a cap that, amongst themselves, more than one-third cannot be appointed as WTDs. However, it’s not an either/or position, in the sense that only one of them can be used to appoint WTDs. Some WTDs can be appointed on the basis of Article 127A (a) and some on the basis of Article 127A (b). There are also two kinds of checks and balances on the board of directors for the appointment of WTDs. They either need to be recommended by the promoters, as per Article 127A (a), or they need to be approved as per Article 127A (b). So, in a way it meant it was less strict for nominees of board members, in which case no external approval is needed, based on the MoA. If you see 127A (d), it puts these WTDs under the control of the CEO and MD, Rana Kapoor. In effect, the power structure was putting everything in the hands of two brothers-in-law.
With the bank commencing its operations, everyone thought that it would be a case of happily ever after. But that did not happen as Rana’s behaviour started to rattle everyone. There seemed to be no decentralization of power. Rana, who was now being referred to as a control freak and maverick banker, wanted to do it all by himself. In fact, when the bank was buying tiles for office floors, Rana personally spent hours on selecting them, which pissed Ashok off.
While the popular narrative in the media has been that things started getting messy only after Ashok Kapur’s death, truth be told, not everything was fine between the two even before that.
One fine day, Ashok reached office to see that his cabin was locked. When he inquired about this, it came to the fore that it was Rana’s doing. He tried to reason with Rana as per former employees of the bank and people who Ashok had confided in. According to a person who knew of this episode, Rana told him: ‘There is no need for you to come to office from now. You are a non-executive chairman; just come for the board meetings.’ Thus, yet another feud had started, one which would go on for years. Sometime after this, Ashok allegedly spoke to two very powerful industrialists about wanting to remove Rana Kapoor from YES Bank, a person privy to that conversation told me.
But why was there friction? Ashok, who seemed to be the stabler among the two, wanted to go slow, while Rana was in a lot of hurry. Ashok wanted him to decentralize a bit, but Rana was all about controlling things. Also, Ashok wanted the bank to focus more on retail growth, while Rana wanted to grow the corporate side.
In fact, there was so much resentment against Rana that within two years of starting the bank, two directors resigned. ‘YES Bank has informed BSE that P.R. Srinivasan and Ashish Dhawan, Director(s), have resigned from the Board and the same has been taken on record by the Board of Directors at its meeting held on April 28, 2006,’ the bank said in an April 2006 filing to the stock exchanges. But all hell broke loose on 26 November 2008. In what would be one of the worst terror attacks in recent history, ten members of the Lashkar-e-Taiba, an extremist Islamist terrorist organization based in Pakistan, carried out twelve coordinated shooting and bombing attacks that lasted four days across Mumbai.
On that fateful day, Ashok had gone for dinner with his wife, Madhu, to Trident Hotel’s Kandahar restaurant. Trident was one of the twelve places that the terrorists attacked. In the chaos, the couple was separated. Madhu was able to escape with the help of security officers. However, Ashok could not make it outside. His body was later found on the nineteenth floor of the hotel. The chairman of YES Bank, Ashok Kapur, had fallen to the bullets of terrorist and was one among the 166 killed.
The family was just getting over this tragic loss when a disagreement, which had started when Ashok was alive, between Madhu Kapur and Rana Kapoor came to the fore. This was just the beginning of one of the biggest power battles in India’s corporate history.
In January 2009, after coming to terms with losing her husband, Madhu approached Rana Kapoor, who was family to them, to nominate her daughter Shagun Gogia Kapur to the YES Bank board. She had a right to do so, according to the clauses discussed earlier. Rana Kapoor delayed it by saying: ‘Why don’t you come and meet the board in April, so that we can get it through?’ At that time, Rana held 14.8 per cent stake and Madhu, who had now replaced Ashok, held 12.68 per cent.
Shagun had done her bachelor’s in economics from Tufts University. She had done her master’s in business administration (finance) from the Indian School of Business. By 2004, she had started working in ICICI’s venture capital and private equity arm, ICICI Venture.
Unlike her cousin sisters, Shagun had started on her own and was heading Tuscan Ventures Pvt. Ltd—an investment firm that provided creative financing solutions to entrepreneurs building large businesses. The company was started in September 2007. By April 2008, she was joined by two veterans on the board of the company—Arvind Uppal and Bharat Suman Raut. Arvind is now chairman of Whirlpool India, while Bharat is a director at Bharti Axa Life Insurance Company Limited. Her mother, Madhu Kapur, only joined the board in December 2009. This runs completely contrary to the way her cousins used to run their companies. More about those later, here let’s focus on the differences: Shagun used to professionally manage the companies; and, secondly, she was trying to carve her own identity.
In April, the mother-daughter duo went to meet the board, who were under Rana’s complete control by then. The board told them that Shagun didn’t have the experience needed and requested that she wait for two more years. They waited for two years, as Shagun continued to work on her newly started venture. In 2011, a meeting was held between the families at Rana Kapoor’s residence. Unwilling to share power, Rana said, ‘The RBI won’t approve it. They would need someone else. Why don’t you appoint someone else?’
Now Ashok Kapur’s family knew some bankers and they started suggesting different names. At this point, Rana, according to people present in that meeting, started to deride these names, saying things like: ‘Arey yeh toh jamadaar hai (Oh, he is worthy of only sweeping homes and offices as a job).’ Madhu and Shagun realized the manipulation and left Rana’s home dejected.
There was no application made. Also, neither Madhu nor her daughter knew what the bank’s MoA empowered them with. The board of YES Bank had one person at time, Ajay Vohra. Ajay was the managing partner of the corporate, tax and business advisory law firm Vaish Associates, which is a part of the World Law Group. In 2008, months before Ashok died, Ajay was appointed as an independent director
on the board of YES Bank. This wasn’t Ajay’s only connection with YES Bank. He was also the first cousin of Bindu Rana Kapoor and Madhu Kapur.
Shagun thought that since Ajay was on the board and her mother’s cousin, she could approach him for help. She asked Ajay if the memorandum gave her any rights. Ajay asked Shagun to send him an email containing the MoA. Some days later, Ajay informed Shagun that she didn’t have any rights. Dissatisfied, Shagun didn’t stop. She spoke to more people.
In fact, she also went on to meet the person who had helped Ashok and Rana draft the MoA. By this time, thanks to Rana’s attitude, the lawyer and Rana had had a falling-out. ‘See, Shagun, I can’t help you here. We still do a lot of business with YES Bank,’ the lawyer told her. Then, in late 2012, Shagun got in touch with a lawyer based in south Mumbai, who was more or less a one-man show at his firm. On sending him the MoA, this lawyer said that the articles of the MOA gave her full rights. But he had riders: ‘See, the family disputes are consuming time, energy and money. Be sure that you want to go ahead with it.’
Rana used to deride the family on various occasions. In November, there was a family gathering where both Madhu and Rana were present. The guests were congratulating Rana when Madhu asked him: ‘Rana, why are they congratulating you?’ Rana replied, ‘Oh, you don’t know? It is my twenty-fifth wedding anniversary. It is on the same day that your husband died.’ On yet another occasion, Rana derided Shagun, who was seeking directorship on the board, saying: ‘You are getting free money. Aren’t you happy with that?’
Around January 2013, Madhu and Bindu, the sisters, were at their maternal home. They were getting ready to leave for an outing. Madhu received a call from her sister-in-law, asking whether she was coming for the YES Bank function. Madhu, unaware, asked her what the occasion was? The lady replied, ‘Oh, you don’t know? YES Bank is starting its first branch in Delhi. Sheila Dikshit (then chief minister of Delhi) is inaugurating it.’ The branch was inaugurated with the who’s who of Delhi’s power circles present, but sans Madhu Kapur.
Such was Rana Kapoor’s brazenness that when in 2012 he came out with a brief history of YES Bank, there was no mention of Ashok Kapur in it. So, here was a man who had been brought in to the elite circle of powerful bankers and had then conveniently sidelined the very same family that had included him in the fold. This was Rana Kapoor for you.
Even as all of this was going on, Rana got M.R. Srinivasan on the board in October 2012. Yes, the same man who was the head of the department that gave YES Bank its licence back in 2002. In my mind, this is nothing but a conflict of interest. But that was not it. Soon, he was made the chairman of the bank.
In April 2013, YES Bank moved a resolution at the annual general meeting seeking approval of its shareholders for the appointment of Srinivasan, who had by then assumed the post of part-time chairman, and another person, Diwan Arun Nanda, a brand guru. This was seen as a unilateral decision by Madhu and Shagun. From 1 to 15 May, Shagun wrote letters to her uncle Rana Kapoor, objecting to the appointments. The first letter went unanswered. The second also unanswered. After the third letter, Shagun received a call from her aunt Bindu Kapoor. But since Shagun was leaving for a family vacation to New York at that point, they fixed a meeting for after her return. Shagun and Madhu wanted one director to be appointed from their side, which the bank’s articles allowed them to do.
On 1 June, the Kapoors (Rana Kapoor, Bindu Kapoor and daughter Radha Kapoor) dropped in at the Kapurs’ residence. After the exchange of pleasantries, Rana, according to people present in that meeting, said, ‘Who the f*** are you to write these letters? Can’t your mother communicate this to me?’ At this moment, Madhu Kapur cut him short. ‘She has been vetting these letters with me, and I am with her in this.’ This was when Rana got agitated and started throwing his weight around, trying to show that he was very well-connected, one person who was present then told me. Many people who have worked with Rana have said that at his peak he was ‘drunk on power’. ‘I can spurt millions to get you to stop. No lawyer is going to touch me,’ he allegedly told Shagun at that moment.
After a heated discussion, Rana directed them to meet Srinivasan the next day at the Wellington Club. When they went there the next morning, Srinivasan was waiting for them. Deep inside, he knew Rana wasn’t right, but he had things at stake. His tone was demeaning for a man of his stature. He told the mother-daughter duo: ‘Rana Sahab ne bheja hai (Rana Sir has sent me).’ Here was a man, the chairman of a bank, the same bank he granted licence to a decade ago, taking orders from a rookie banker. After discussion, he asked Shagun to mail him her resume. By afternoon, the resume was sitting in his mail. He replied, ‘Excellent resume. Will get back to you.’ After two days, Srinivasan reverted saying: ‘Sorry! I have inadvertently intervened into a family matter. I would like to recuse myself.’
But Shagun, by now, had decided to put up a fight against her dictatorial uncle. She prepared a case by 5 June, and on 6 June 2013, a Thursday morning, she went with the case file to YES Bank. While she did meet Srinivasan there, he chose to not respond to her grievances citing pressure from Rana Kapoor. By 1.30 p.m. that day, she was driving towards the court. On her way, she received a call from Srinivasan who said ‘Please don’t file the case without having a concrete counter-offer.’
The court did not immediately stop the annual general meeting, which was on 8 June, but the appointment of directors was made the subject of court. When the hearing began, the Bombay High Court asked the two families to amicably settle the dispute. At this time, Shagun formally applied for the directorship, which was rejected on 27 July.
At this moment, Harkirat, who had remained quiet for almost a decade, broke his silence. ‘History is repeating itself at YES Bank,’ he said in an interview to Economic Times. Harkirat also nursed a grudge against Ashok for not supporting him. ‘They definitely conspired and teamed up to oust me from the venture,’ he said in the same interview.4
It was the first time that the truth had emerged. Harkirat had made it clear that he was the prime mover behind the banking licence, while Rana had joined later. As this unfolded, the in-laws silently sided with Rana Kapoor, trying to convince Madhu’s family by saying: ‘Why are you guys doing this to him? Look at him. He works till 12 at night.’ So, in a way, Rana and his associates used all kinds of tools—emotions, rudeness, loopholes in the law, connections—everything that was possible to keep him in power.
In July 2013, as he was locking horns with Madhu and Shagun Kapur, he became the president of the Associated Chambers of Commerce and Industry of India. The Assocham stint brought Rana closer to trade and the methods of the central government. To bring himself closer to those in power, in 2010, he bought M.F. Husain’s portrait of Rajiv Gandhi for Rs 2 crore from Priyanka Gandhi Vadra,5 who was part of the ruling party back then. But then years later, he welcomed the election of Prime Minister Narendra Modi by taking potshots at the Congress. In 2016, he was among the first industrialists who went into a frenzy to praise the ill-thought-out demonetization drive.
While the case filed by Shagun was against Rana and the board of directors, it was the bank that had borne most of the cost of fighting to keep Rana in full control by hiring expensive lawyers.
In 2015, a single-judge bench of Bombay High Court recognized Madhu Kapur’s right to nominate directors on the bank’s board. YES Bank challenged that ruling before a two-judge bench. So, it wasn’t before 2019 that Shagun Gogia Kapur made it to the board of YES Bank. Even as all this was going on, Shagun used to constantly write to the RBI without getting any response.
Simultaneously, Rana was also trying to seize remaining control from Rabobank, who had stayed away from the picture all this while. On 26 April 2012, Rabobank sold a majority of its stake in Indian private lender YES Bank, raising about $87 million (about Rs 435 crore). YES Bank Managing Director and CEO Rana Kapoor said in 2013, ‘Rabo is just a financial investor in YES Bank. We do not see it as a partner in the medium or longer term, given t
he fact that it is (already) operating through an NBFC here and that it has plans to set up banking operations,’ clearly indicating that he wanted them out with the part stake as well.6
It wasn’t before May 2019, however, that Rabobank parted with its remaining stake in the bank.
The bank, at times, also became part of controversies that it wasn’t directly responsible for. In February 2011, SEBI banned six individuals, all Mumbai residents from one Panchal family, from the share market for three months.
What was their crime? They were involved in an IPO scam between 2003 and 2005, making unlawful gains worth Rs 24 crore. Right during that time, the bank had gone for its IPO. One among them, Roopalben Panchal, had applied through 6315 applications in the IPO of YES Bank. Applications were made in the retail category and each of the 6315 applications (6221 from the same address in Ahmedabad) applied for 1050 shares. As the issue was oversubscribed by around ten times in this category, the shares were allotted proportionately, and each application received 150 shares—cornering a total of 9.47 lakh shares. She had invested Rs 29.83 crore, when the total allowed investment per retail investor was just Rs 50,000. She sold these shares in the first few days of listing and made Rs 1.37 crore from it.
THE BANK’S LOAN STORY
With Rabobank selling its shareholding by 2012, Rana was quick to grab control of the bank. As one of the senior executives at the bank told me once: ‘After that it was a one-man show. Rana was the actor, director, scriptwriter, producer—all by himself.’
And the show that this one man came up with is nothing less than a Hollywood thriller. Even though he had grabbed full control of the bank by 2013, it was still short of creating the mess that was to unfold over the next seven years. He had a problem: India was seeing unprecedented inflation at that time; the economic metrics were going through a low. There was a classical Indian-policymaker solution to that mess: increase the repo rate (the rate at which the RBI lends to the banks), which would increase the cost of funds in banks and reduce loan flow into the economy.
The Banker Who Crushed His Diamonds Page 5