Unity Bank sought consent three times, then listed the item anyway: Delhi HC upholds the bar

A Division Bench of Justice C. Hari Shankar and Justice Vinod Kumar refused to disturb a single judge ad interim order, holding that Clause 8 of the shareholders agreement bars even the tabling of a Reserved Matter without written consent from Resilient.

Three times, Unity Small Finance Bank wrote to its shareholders asking for written consent to put a share-capital proposal before its board. Resilient Innovations, which held 49 per cent of the bank, did not give it.

The bank listed the item for its 25 July 2026 board meeting anyway. On 5 November 2026 the Delhi High Court refused to lift the bar that a single judge had placed on it.

Justice C. Hari Shankar wrote the judgment for a Division Bench that also included Justice Vinod Kumar. The appeal, under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996, challenged an interim order passed under Section 9 of the same Act.

The item that could not be tabled

Agenda Item 18 asked the bank’s board to raise authorised capital from Rs 4,000 crore to Rs 4,900 crore. That meant creating 90 crore more preference shares of Rs 10 each and amending Clause V of the bank’s Memorandum of Association.

The bank said it needed the headroom because warrants issued in 2021 were due to convert into compulsorily convertible preference shares. The court recorded that 181 individuals held warrants worth Rs 90 crore, and that unconverted warrants lapse after 60 months, with the money forfeited.

Resilient and Centrum Financial Services Ltd held 49 per cent and 51 per cent of Unity under a Shareholders Agreement dated 26 October 2021. Resilient told the court that the conversion would cut its stake from 49 per cent to 21 per cent, and described the exercise as a ploy to shrink its holding.

Three emails and a refusal

Unity wrote on 23 October 2025, 1 May 2026 and 8 July 2026, each time asking for consent before the item went to the board. The May email called the proposal a reserved matter that needed written consent from Resilient and Centrum.

Resilient rejected the proposal in writing on 5 May and 9 July 2026. Even so, Unity circulated the agenda for the 25 July meeting on 18 July, with Item 18 on it.

Resilient objected on 20 July and moved the Delhi High Court under Section 9, since the agreement sends disputes to arbitration seated in New Delhi. As the judgment records, the single judge heard arguments on 21 July, reserved orders on 23 July and ruled on 24 July, a day before the meeting.

What the agreement says

Clause 8 of the agreement overrides everything else in it, and the Memorandum and Articles too. It bars the company from any decision on a Reserved Matter unless Centrum and Resilient each approve it, and it requires the company to seek their written consent first.

Clause 6.11(d) goes further. No Reserved Matter may even be taken up for discussion by the directors without that written consent. Schedule 2 lists the Reserved Matters, including any change in capital structure through a new issue of shares.

Clause 5.2 deals with fresh capital beyond the initial investment. It makes new securities subject to Clause 8, and it requires the consent of Centrum and Resilient for any issue to persons other than the promoter or Resilient and their affiliates.

What the single judge held

The single judge restrained Unity from tabling, considering, deliberating or approving Item 18. The meeting itself could go ahead on every other item.

He reasoned that the agenda item itself admitted that the proposal was a Reserved Matter, so Unity could not argue the opposite in court. Its own letters, he noted, had sought Resilient’s consent for exactly this item.

He also held that the terms of the warrants were subject to the shareholders agreement. Resilient’s fear of falling from 49 per cent to 21 per cent had to be addressed before the item reached the board, which showed that prior consent was not a formality.

Unity had argued public interest, and Centrum had pointed to penalties under the Banking Regulation Act for breaching RBI conditions. The single judge found the public interest argument unappealing in the face of the express covenants, and found a prima facie case, balance of convenience and irreparable loss all in Resilient’s favour.

Unity’s case: the RBI deadline

Unity argued that a Reserve Bank of India letter of 18 June 2021 required Centrum to dilute below 40 per cent, and Resilient to fall to 10 per cent, within eight years of the bank starting business. That period ends on 31 October 2026.

Mr Mukul Rohatgi, Senior Advocate, led for the bank before the Division Bench. He said the single judge could not injunct compliance with the RBI’s statutory directions.

He added that the RBI had directed the removal of the Reserved Matters clause from the bank’s Articles of Association, and that the Articles were changed in 2021. A shareholders agreement, he argued, cannot override the Articles, and directions under Section 35-A of the Banking Regulation Act bind the bank.

On the facts, he said Item 18 was not a Reserved Matter at all. The earlier emails, written by a company secretary, described it as one by mistake. He also said Clause 5.1, the Rs 900 crore initial infusion, applied rather than Clause 5.2.

Unity relied on a mutual waiver letter of 10 June 2024 between Resilient and Centrum, and on Jai Kumar Arya v. Chhaya Devi for the point that a court should not injunct a meeting. It also said the single judge had acted in haste. Centrum had backed Unity before the single judge.

Resilient answers on the RBI

Mr Gopal Subramanium, Senior Advocate, appeared for Resilient. He pointed to the three requests for consent and said Unity could not now brush them off as an inadvertent error. If the board passed the resolution, he said, Resilient’s shareholding would fall from 49 per cent to 21 per cent and the arbitration would become academic.

On the RBI, he said its letter of 28 September 2021 asked only for the deletion of Articles 169 and 170, and said nothing about Reserved Matters in the agreement. The agreement was later sent to the RBI for approval, he added, and drew no objection.

He told the court that the waiver letter of 10 June 2024 was followed by an addendum of 19 June 2024 allowing third-party transfers only through Rothschild & Co, whose mandate, Resilient wrote on 26 August 2025, had expired. He also said a notice under Section 21 of the Arbitration Act, sent on 11 August 2026, had drawn no reply.

An appeal on principle

The bench began with the limits of its own jurisdiction. Relying on Wander Ltd v. Antox India Pvt Ltd, it said an appellate court interferes with a discretionary injunction only if the discretion was exercised arbitrarily, capriciously or perversely, or ignored settled principles.

The judges noted that they had to treat the matter as

“an appeal on principle” (para 87)

and could not substitute their own view for the single judge’s, even if theirs seemed more apposite.

Why each argument failed

On haste, the bench said the single judge heard both sides and had to rule before the 25 July meeting. It added that it had itself offered to fix an early date for the arbitration petition, and that Mr Rohatgi, on instructions, could not agree.

The order did not injunct the board meeting, the court said. It stopped only Item 18, and other business could go on.

On the RBI letters, the bench held that deleting Reserved Matters from the Articles did not touch Clause 8 or Schedule 2 of the agreement. Clause 8 begins with a non obstante clause, so it prevails over the Articles and the Memorandum.

The court also noted that the agreement went to the RBI after its September 2021 letter and drew no reservation. Unity, it held, could not escape Clause 8 by pointing to the regulator’s directions.

The bench added that, once the Articles drop the clause, they contain nothing contrary to Clause 8. Enforcing the agreement therefore breaches no provision of the Articles.

The admission in the agenda itself

The bench found that Item 18 identified itself as a Reserved Matter needing prior consent from Resilient and Centrum. It said the three emails sought that consent in terms.

The plea of inadvertent error could not be raised in an appeal of such limited scope, the court held. On merits it did not commend itself either, since the emails specifically asked for Resilient’s concurrence.

Item 18 also fell squarely within clause (f) of Schedule 2, the judges said, because it changed the capital structure and threw open shareholding to third parties while reducing Resilient’s share. They added that Item 18 also infringed Clause 5.2, since Unity itself had admitted that the resolution required an increase in authorised capital.

On Clause 5.1, the bench noted that it deals with the initial Rs 900 crore infusion in line with the business plan. Clause 5.2, it held, covers additional capital beyond the initial investment, including new securities issued to outsiders.

Jai Kumar Arya and the RBI

Justice Hari Shankar had authored Jai Kumar Arya for an earlier Division Bench. The court said none of the passages cited was of significance here, and that the decision concerned the removal of a director at a general meeting, where reasons need not be disclosed in advance.

It said Unity could not cite the observation against injuncting a meeting in isolation, as though it were an absolute rule. The court held that the case was clearly distinguishable.

On the RBI, the bench said the single judge had not blocked the warrants. He had directed, in effect, that they be enforced in terms of Clause 8, and no directive of the RBI was breached.

On the plea that the emails were an inadvertent error, the bench called it

“merely an argument of desperation, and nothing more” (para 108)

It held that the single judge, in barring Item 18 without Resilient’s consent,

“has merely conformed to the rigour of Clause 8 of the SHA” (para 109)

Order

The Division Bench found no cause to interfere and dismissed the appeal on 5 November 2026. The order of 24 July 2026 therefore stands, restraining Unity from tabling, considering, deliberating or approving Agenda Item 18.

The Section 9 petition, OMP (I) (Comm) 293/2026, had not been finally decided by the single judge when the Division Bench ruled. The bench had offered to advance its hearing, and Resilient agreed. Unity and Centrum did not.