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ED slaps notice to StanChart, TMB for FEMA violations

Enforcement Directorate has issued a show cause notice to Tamilnad Mercantile Bank (TMB), Standard Chartered Bank and others for contraventions of Foreign Exchange Management Act, 1999 (FEMA) in the transfer of shares of TMB.

Violation is estimated to the tune of around Rs 608 crore and the shares were sold by maverick businessman C Sivasankaran to FIIs.

K R Udaya Bhaskar, special director – Directorate of Enforcement – Southern Regional Office has said that during May 2007, certain NRIs acquired shares of TMB from Indian shareholders, who were residing in India.

The Reserve Bank of India (RBI) suspected FEMA contraventions in these transfer of shares and referred the issue to Directorate of Enforcement for necessary action.

According to the Bank sources, the issue was related to transfer of 1,12,151 shares, acquired by FIIs including Rajat Gupta, Ramesh Vangal, Swiss RE Investors and others from Sivasankaran in 2007. Independently the names could not be verified immediately.

Standard Chartered Bank spokesperson refused to comment while TMB officials were not available for comment.

The Directorate conducted investigations under FEMA and identified that TMB, its the then Chairman, Directors, Company Secretary have all contravened the provisions of FEMA in transferring 46,862 shares of their Bank to foreign entities in May 2007 without the prior approval of RBI and further allowing similar transfer of shares of foreign banks in December 2011 and June 2012, without the permission of Reserve Bank.

The total amount of contravention was identified as Rs 274.03 crore.

Bhaskar added, during the investigation it was also identified contravention of FEMA by Standard Chartered Bank, Mumbai in the opening of operation of an Escrow Account for the purpose of the said transfer of foreign investors.

“Standard Chartered Bank was also found to have contravened the provisions of FEMA in taking custody of immovable properties in India and shares of TMBL, for providing collateral/ guarantee to a loan availed by the foreign investors in the Mauritius Branch of Standard Chartered Bank. The contravention of Standard Chartered Bank was identified to be Rs 334.32 crore,” according to the Directorate statement.

The Director said, M G M Maran, who was the Chairman of TMB in 2007 when the share transfer happened, has facilitated the during the transfer 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 is against the provisions of FEMA, the Enforcement Directorate is also proposing action against M G M Maran,” said the Special Director, adding that 30 days time was given to all the parties to reply for the Show Cause Notice to the adjudicating authority under FEMA.

The 93-year old private sector Tamilnad Mercantile Bank (TMB). The Tuticorin-based TMB largely carries the tag of a Bank controlled by the Nadar community in the State.

According to sources, every year the Bank is clocking around Rs 450 crore of net profit, which no private sector bank is reporting and that is why investors have been so much of interest in the Bank.

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