MUMBAI: In an unprecedented move, Kotak Mahindra Bank has filed a writ petition in the Bombay high court challenging RBI’s stand on dilution of promoter’s stake. The writ petition comes less than three weeks ahead of RBI’s deadline for promoter Uday Kotak to dilute his stake from 30 per cent to 20 per cent and resulted in the bank’s share price falling 6 per cent.Kotak Bank’s urgency can be gauged from the fact that failing to meet the deadline could result in regulatory action. In the case of Bandhan Bank, RBI had ordered freezing the salary of promoter-CEO Chandra Sekhar Ghosh and prevented the bank from opening new branches.Kotak Bank had in August sought to comply with RBI guidelines by issuing perpetual non-convertible preference shares that would expand the equity base of the bank. The bank claimed that by issuing these shares it had diluted promoter’s stake to 19.7 per cent of the paid up capital from 30.3 by issuing Rs 500 crore worth PCNPS on top of its paid up capital base of Rs 953 crore.While the details of the petition are not available, in the past, the bank’s promoter Uday Kotak had indirectly argued against diversified shareholding. He had pointed out that even in companies with diversified foreign portfolio investor shareholding, the decision was taken by a couple of proxy investors whose recommendations form the basis for voting by foreign investors.Analysts say that there is a legal point here as well because the amended Banking Regulation Act allows for voting rights up to 26 per cent. “The fact that the law was amended to allow higher voting rights indicate that authorities had envisaged promoters holding up to 26 per cent,” said an analyst.However, RBI was of the view that the issue of these preference shares does not meet promoter holding dilution requirement. In a filing with the stock exchanges, Kotak Bank said that it has ‘clarified and covered to the RBI our position in relation to PNCPS being a part of paid up capital and the legal basis on the matter of dilution of shareholding under the Banking Regulation Act’. The bank said that it has also shared the opinion of eminent jurists and senior most legal counsels.“There is no precedence of any entity having challenged RBI in the past. In most cases the verdict usually is in favour of regulator. The regulator still has powers to impose penalties and restrictions on Kotak as is the case with some other institutions who have failed to comply with promoter stake norms. However here there is legal dispute here,” said Suresh Ganapathy, research analyst, Macquarie in a note. He added that this action adds uncertainty to the stock as investors will keep questioning a stake reduction till final clarity emerges.The writ petition also appears to go against earlier rumours of Berkshire Hathaway picking up 10 per cent in the bank. The rumour was triggered by the fact that the bank had to dilute stake by the end of December. While Kotak Bank had said that it was unaware of any plans by Berkshire Hathaway.The challenge to the RBI comes at a time when the central bank has been taking an activist stand on bank governance. In 2018 the central bank had forced CEOs of Axis Bank and Yes Bank to step down ahead of their board-approved tenure.Some feel that Kotak is trying to broaden the debate on foreign ownership. With the RBI board now deciding on the prudential guidelines like capital adequacy for banks, there is a possibility that shareholding might also get taken up by the board.