The major shareholders of MCB Bank Limited have filed a suit against the State Bank of Pakistan and MCB Bank (as a pro forma defendant) in Sindh High Court, said a press release issued by the shareholders on Friday.

The case was filed against the State Bank's decision not to allow the MCB Bank to acquire Royal Bank of Scotland (RBS) 'unless the bank meets the SBP's requirement.'

MCB Bank on August 12, 2009, signed a deal to acquire 99.37 per cent shares of Royal Bank of Scotland operations in Pakistan but the last date for acquiring the RBS passed with the end of the previous year.

According to the press release the shareholders have urged the court to pass a decree for the recovery of Rs4.6 billion against SBP to cover the losses made by the MCB's shareholders because the final approval for the purchase of RBS was withheld by the State Bank.

"The loss to MCB has been estimated by its auditors as being not less than Rs3.6 billion from the tax point of view and an additional loss (actual or potential) from the business point of view, which is estimated at not less than Rs1 billion of additional income per year," said the detailed paper prepared to file the case in the High Court.

The case was filed by eminent lawyer Khalid Anwer representing the following major shareholders of the MCB Bank: Siddiqsons Denim Mills, Nishat Mills, Adamjee Insurance Company, Mr. S. M. Pervez & Mr. Hassan Mansha.

In this suit it is stated that the action of the State Bank in demanding, that MCB should compel its major shareholders to deposit their shares with it, is gross violation of their constitutional rights, said the release while adding that the SBP has no legal right to deprive the shareholders of their fundamental right under the Constitution to deal with their shares.

"It has been maintained that it is a matter of profound regret that on the one hand SBP is not discharging its legal responsibilities in relation to the functioning of and management of banks in which the deposits of ordinary persons may be in potential danger, and on the other hand, it is seeking to penalise the most successful bank in Pakistan," said the release.

The plaint has submitted that it is a matter of surprise that SBP is showing an amazing reluctance to enforce the clear cut provisions of banking law in circumstances in which the violations are manifest and crystal clear.

"It is simply amazing that recently SBP has allowed such an individual to become the chief executive officer of a bank, which changed hands last year. Not merely that, but recent media reports indicate that the same group is being favourably considered by SBP to acquire two additional banks in association with one Haji Abdul Razzaq," said the release.

It further said that these people have managed to escape cases against them by claiming amnesty under the infamous NRO. However, now these cases stand revived after the historic Supreme Court decision but it is alleged that SBP remains unmoved in this case.

"This highlights the discriminatory approach of the SBP."

The plaintiffs have maintained that the present suit arises out of the refusal of the SBP to consider the application of MCB to acquire the entire operations of the Royal Bank of Scotland (RBS) in Pakistan on the ground that it should first comply with its demand regarding a circular (BRPD Circular No.4/2008), which in the submission of the plaintiffs is illegal.

They have pointed out that it is, however, necessary to emphasise the fact that if SBP was of the opinion that it would not allow the transaction to go forward merely on the basis of the completely unrelated issue relating to circular 4 of 2008, it ought not to have given the approval in principle to MCB to proceed in the matter. In that event MCB would not have conducted the due diligence and entered into an agreement with RBS.

"It is clear, however, that SBP lured MCB onward and allowed it to spend many months negotiating and finalising an agreement and then at the last moment unilaterally and arbitrarily imposed a veto, which could be extremely costly to MCB," said the release.

"The SBP by means of a letter dated 20.10.2009 flatly refused to consider the application for the approval of MCB on the merits until its arbitrary and illegal demands regarding Circular 4 of 2008 were met, said the MCB and added that the MCB shareholders submitted that this action on its part was manifestly illegal and contrary to law.