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CS Professional · Banking and Insurance - Laws and Practice · Control over Organization of Banks

Three investors agree informally to each buy 2% of Deccan Bank Ltd so that together they obtain 6% and influence its board. Each individually stays below 5%. Under Section 12B, how are they treated?

They are acting in concert, so previous RBI approval is needed. Under Section 12B, persons cooperating under a formal or informal understanding to acquire shares beyond five per cent are aggregated, so each staying below 5% individually does not avoid the requirement.

  1. AThey are free to proceed because each stays below 5%
  2. BThey are persons acting in concert, so previous RBI approval is needed for the acquisitionCorrect
  3. CThey need approval only after the acquisition is completed
  4. DThey need only inform the bank's registrar of members

Explanation

Explanation 1(c) deems persons acting in concert where, under a formal or informal understanding, they cooperate to acquire shares beyond the threshold for a common objective. Their holdings are aggregated to 6%, so prior approval is needed. The first option ignores aggregation.

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