The Enforcement Directorate (ED) on Thursday slapped notices on private sector lenders Tamilnad Mercantile Bank (TMB) and Standard Chartered Bank for contraventions of the Foreign Exchange Management Act (Fema) in the transfer of shares of TMB to non-resident Indian investors in 2007.
The notice issued by KR Udaya Bhaskar, ED special director in Chennai, asked the banks to reply within 30 days.
In 2007, some non-resident investors (NRIs) acquired the shares of unlisted TMB from the local shareholders. The Reserve Bank of India (RBI) suspected Fema contraventions in these transfer of shares and referred the issue to ED, for necessary action, said the notice.
ED conducted investigations and identified TMB, then chairman, directors and company secretary, had all contravened the provisions of Fema in transferring 46,862 shares of the bank to foreign entities in May 2007 without the prior approval of RBI.
ED also found the bank had allowed similar transfer of shares to foreign entities in December 2011 and June 2012 without the permission of the apex bank. The total contravention was identified to the tune of Rs 274.03 crore.
According to the ED notice, during the investigation, it also stumbled up on contravention by Standard Chartered Bank, Mumbai, in the opening and operation of an escrow account for the purpose of the said share transfer to foreign investors. Standard Chartered Bank was found to have contravened the provisions of Fema in taking custody of immovable properties in India and the shares of TMB, for providing collateral/guarantee to a loan availed by the foreign investors in the Mauritius branch of Standard Chartered Bank. The contraventions of Standard Chartered Bank was identified to be Rs 334.32 crore, said the ED communication.
Apart from being the chairman of TMB the shares changed hands in May 2007, MG Maran had facilitated the transfer of shares from Indian investors to foreign investors and, accordingly, received consideration from the foreign investors to the tune of $6.85 million in his overseas account at Singapore.
“As maintenance of such account and transfer were against the provisions of Fema, the enforcement directorate is also proposing action against MG Maran,” the notice said.
TMB has been in the news ever since Ramesh Vangal-led foreign investor group bought the shares of the bank to take control of the bank in 2007. Vangal was the promoter of the Bangalore-based Katra group.
In 2007, a group of foreign investors led by Vangal bought 24.93% holding of the Sterling group, promoted by C Sivasankaran, for a price Rs 186 crore. The investors were Vangal/Katra Holdings (10,364 shares, 3.64%), Rajat Gupta (14,080, 4.95%) Ravi S Trehan (2845, 1%), Kamehameha Mauritius (2025, 0.71%), Cuna Group Mauritius 2025, 0.71%), FI Investments Mauritius (5399, 1.90%), Swiss Re Investors (10124, 3.56%), Gokul Patnaik (10589, 3.72%) and Vector Program (13455, 4.73%).
