ED slaps Rs 5 cr penalty on Shriram Transport Finance for issue of warrants

Firm asserts it did not contravene FEMA and is exploring all options, including contest

The Enforcement Directorate has imposed a penalty of Rs 5 crore on Shriram Transport Finance Company Ltd (STFC) in connection with the issue of warrants by erstwhile Shriram Holdings (Madras) Pvt Ltd (SHMPL), to a person resident outside India in 2006. SHMPL had been amalgamated with STFC on April 1, 2012,  The company said today in a regulatory filing that it is examining the order and is weighing all options, including a contest.

According to a regulatory filing by STFC, it had responded to a show-cause notice by ED on the matter by providing relevant information and facts to prove that it had not contravened the provisions of the Foreign Exchange Management Act (FEMA).

"However, the Company received an Order dated March 4, 2020 from ED yesterday (March 9, 2020). The Order imposes on the Company a penalty of Rs 5 crore in connection with the above matter citing contravention of provisions of Section 6(3)(b) of FEMA, 1999 read with Regulation 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000," the company said in a filing with the exchange.

It added that the ED has also levied a penalty of Rs 50 lakh each on three persons, the then directors of the erstwhile SHMPL.

STFC added that it continues to hold the view that SHMPL had the relevant approval for foreign equity participation of up to 74 per cent. Warrants worth Rs 243.60 crore that it had issued in 2006 were converted into equity shares within the mentioned limit. STFC said its stance was further strengthened by the clarifications it obtained from the Department of Economic Affairs.

"The Company is currently examining the above order and examining all options to take the matter to closure, including the option to contest the same with the relevant authorities," it added.