SPECIAL RESOLUTION PASSED FOR THE APPOINTMENT OF INDEPENDENT DIRECTOR FAILED – BUT STILL DCB BANK IS ABLE TO APPOINT THAT INDEPENDENT DIRECTOR – HOW ?

 SPECIAL RESOLUTION PASSED FOR THE APPOINTMENT OF INDEPENDENT DIRECTOR FAILED – BUT STILL DCB BANK IS ABLE TO APPOINT THAT INDEPENDENT DIRECTOR – HOW ?

APPOINTMENT OF ID- THOUGH LOST AS SPECIAL RESOLUTION- BUT REGULATION 25 (2A) OF SEBI LODR COMES TO THE RESCUE !! INTERESTING CASE STUDY OF DCB BANK LTD

FAILURE OF SPECIAL RESOLUTION

DCB BANK LTD’s recent case of appointment of Suhail Amin Nathani  as Independent director of the bank highlights how Regulation 25(2A) of SEBI LODR saved the appointment of an Independent Director even though the special resolution failed—since a majority of shareholders (including public shareholders) voted in favor, the appointment was deemed valid.

SHAREHOLDERS’ VOTES IN FAVOR EXCEEDED THOSE AGAINST

The special resolution did not achieve the required 75% majority.

More than 50% of shareholders voted in favor, and crucially, public shareholders’ votes in favor exceeded those against.

Under Regulation 25(2A) of SEBI LODR, the appointment was still deemed valid despite failing as a special resolution.

REGULATION 25(2A) – THE RESCUE CLAUSE

 This provision was Introduced in 2022 to prevent governance deadlocks in LODR by SEBI.

PROVISION:

If a special resolution for appointment/reappointment/removal of an Independent Director fails, but:

Votes in favor > votes against, and

Public shareholders’ votes in favor > votes against,

→ then the appointment/removal is deemed approved.

DCB BANK CASE – LESSONS

SHAREHOLDER DEMOCRACY:

Even though the special resolution failed, the majority’s will have prevailed.

PRACTICAL SAFEGUARD:

Regulation 25(2A) ensures Independent Directors aren’t hostage to promoter disagreements.

CORPORATE GOVERNANCE IMPACT:

Reinforces SEBI’s intent to balance transparency, independence, and shareholder rights.

QUICK COMPARISON WITH NORMAL WITH THAT OF REGULATION 25(2A) EXCEPTION

REQUIREMENT	NORMAL RULE	REGULATION 25(2A) EXCEPTION
Appointment of ID	Needs special resolution (75%)	Valid if majority + public shareholders’ majority support
Risk	Appointment blocked despite majority	Appointment goes through
Beneficiaries	Promoters can block	Public shareholders’ voice prevails

TAKEAWAY:

DCB Bank’s case is a textbook example of how Regulation 25(2A) of SEBI LODR acts as a safety net—ensuring Independent Directors can be appointed when majority support exists, even if the special resolution technically fails.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,