The Delhi High Court has restrained Unity Small Finance Bank from increasing its authorised share capital without BharatPe's written consent, as reported by Business Standard and Economic Times. The dispute centers on warrants authorised in October 2021 that are due to lapse by the end of October 2026. BharatPe has refused to consent to the capital increase on three occasions over the past year, creating a standoff between the two major shareholders. The court's restraint order comes as the matter is scheduled for hearing on October 28, with an out-of-court settlement remaining possible given the time available before the warrants expire.
At the heart of the dispute is the potential dilution of BharatPe's 49% stake in Unity SFB, according to sources cited by Business Standard. BharatPe's counsel told the Delhi High Court that the proposed conversion could reduce its holding to 21%. The warrants are proposed to be converted into compulsorily convertible preference shares (CCPS), which would eventually convert into equity upon an initial public offering (IPO), leading to overall share base expansion and reduced ownership percentage.
Under the shareholders' agreement, Centrum can subscribe to up to 51% of the warrants and BharatPe up to 49%, as reported by Business Standard. If either shareholder declines to participate, the unsubscribed portion can be offered to other investors. The proposal involves increasing the authorised share capital from ₹4,000 crore to ₹4,900 crore, which requires amendment to the bank's memorandum of association - a reserved matter under the October 2021 shareholders' agreement that requires written consent of both shareholders. Centrum Financial Services holds 51% in Unity SFB and is its promoter, while Resilient Innovations holds 49%, as reported by Business Standard.
Despite the dispute, sources indicate that Unity SFB remains well capitalised with a capital adequacy ratio of around 26% against the regulatory requirement of 15%, according to Business Standard. The bank's internal capital assessment concluded that no additional capital was required this financial year. BharatPe invested approximately ₹746 crore for its 49% stake under the October 2021 shareholders' agreement, with the investment funding Unity SFB's operations under the condition of taking over the failed PMC Bank.
BharatPe is required to reduce its stake to 10% within eight years of the bank commencing operations, which is by 2029, as reported by Business Standard. The matter is listed for hearing on October 28, with an out-of-court settlement remaining possible given the time available before the warrants expire. Centrum Group declined to comment citing the sub judice nature of the matter. The dispute highlights the complexities of shareholders' agreements in the financial services sector, particularly when involving major stakeholders with different strategic objectives.
