The Enforcement Directorate (ED) has charged Standard Chartered Bank (SCB) and Tamilnad Mercantile Bank (TMB) and its officials with violating the Foreign Exchange Management Act (FEMA) while transferring TMB shares to a group of non-resident Indians in 2007.

In a press release, the ED said it has asked them to reply to its notice in 30 days.

TMB, its then chairman MGM Maran, directors and company secretary “all contravened the provisions of FEMA in transferring 46,862 shares of their bank to foreign entities” in May 2007, without prior approval of the RBI, the release said. The ED found the share transfer to the foreign entities to be in contravention of FEMA provisions. The total value of “contravention” was found to be ₹274.03 crore.

Standard Chartered Bank had opened an Escrow Account to effect the transfer of the 46,862 shares and had taken custody of immovable properties and shares of TMB as collateral for a loan taken by the foreign investors from its (SCB’s) Mauritius branch. “The contravention of SCB was identified to be ₹334.32 crore,” the directorate said.

The release said then TMB Chairman Maran facilitated the transfer of shares and received $6.85 million from the foreign investors in an account in Singapore.

“As the maintenance of such an account and transfer is against the provisions of FEMA, the ED is also proposing action against Maran,” it added.

In 2007, a group of NRI investors, including Ramesh Vangal, Chairman of the Katra group, and Rajat Gupta, former MD of McKinsey, bought a 16.47 per cent stake in TMB from C Sivasankaran, Chairman of the Sterling group. Simultaneously, a section of the Nadar community also purchased 48,556 shares (17.06 per cent) from Sivasankaran.

This was done in order to “retrieve the bank” from Sivasankaran, who had in the mid-1990s acquired a stake in the bank. TMB was founded and run by the Nadars of Tamil Nadu for the development of the community.

TMB closed 2013-14 with a net profit of over ₹300 crore on a turnover of ₹2,922 crore. The earnings per share stood at ₹1.05 crore and the board declared a dividend of ₹1,600 for a share of ₹10 face value.

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