ED slaps notice to StanChart, TMB for FEMA violations

Total amount of contravention estimated to be around Rs 608 cr

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

The shares were sold by businessman C Sivasankaran to foreign institutional investors (FIIs).

K R Udaya Bhaskar, special director, Enforcement Directorate (southern regional office), said in May 2007, a few non-resident Indians had acquired TMB shares from Indian shareholders. The Reserve Bank of India (RBI) suspected the transfer of shares violated Fema norms. Subsequently, it referred the issue to the Enforcement Directorate.

While a Standard Chartered Bank spokesperson refused to comment on the matter, TMB officials weren’t available for comment.

Sources said in 2007, a total of 112,151 shares were acquired by FIIs, including Rajat Gupta, Ramesh Vangal and Swiss RE Investors. These names couldn’t be verified independently.

Following a probe into the matter, the Enforcement Directorate said TMB, along with its former chairman, directors and company secretary, had violated Fema provisions in transferring 46,862 shares of the bank to foreign entities in May 2007, without the prior approval of RBI. Further, these entities had also allowed similar transfers of shares of foreign banks in December 2011 and June 2012, without the permission of the central bank. Overall, the contravention was said to have been worth Rs 274.03 crore.

Bhaskar said during the investigation, the directorate also identified contravention of Fema provisions by Standard Chartered Bank, Mumbai, in the opening of an escrow account for the transfer of shares to 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 of by the foreign investors in the Mauritius branch of Standard Chartered Bank. The contravention by Standard Chartered Bank was identified to be worth Rs 334.32 crore,” the directorate said in a statement.

Bhaskar said M G M Maran, chairman of TMB in 2007, had facilitated the transfer of shares from Indian investors to foreign ones and had received $6.85 million from foreign investors in his account in Singapore. “As maintenance of such an account and a transfer is against the provisions of FEMA, the Enforcement Directorate is also proposing action against M G M Maran,” Bhaskar said, adding all the parties concerned were given 30 days to reply to the show-cause notice.

The Tuticorin-based TMB is largely seen as controlled by the Nadar community. Sources say the bank’s annual net profit stands at about Rs 450 crore.