Madras HC restrains FIIs from voting in Tamilnad Mercantile Bank

The Madurai Bench of Madras High Court today gave an interim injunction, which will take away the powers of Foreign Institutional Investor (FIIs) to vote in any of the meetings of the Tamilnad Mercantile Bank (TMB).

The FIIs, who held shares in TMB include Ramesh Vangal, Former Mckinsey Chief Rajat Gupta. They were also on the race to take over control of the 92-year old Tuticorin-based TMB, set up by Nadar community.

The order, copy of which is available with Business Standard, was based on RBI's Amendment in Section 12 B(3) of the Banking Regulation Act, 1949.

The court noted, that the RBI has declined to acknowledge the holding of five% or more of the paid up capital o the TMB by the Group, consisting of the respondents (FIIs). In view of the refusal to acknowledge the holding of shares by the FIIs, the Bank should be directed not to give effect to the transfer of shares and in case, the transfer has been registered, the transferee shall not be entitled to exercise voting rights on poll, as per the RBI's Regulation.

Quoting the RBI's regulation, the court stated, "In view of the above, there shall be an order of interim injunction as prayed for.”

When contacted Ramesh Vangal was not available for comment.

The court's order was in response to a petition which sought an injunction restraining the Bank from permitting any voting rights based on the acknowledged shares transfered in contravention to Section 12B (3) of the Banking Regulation Act as declared by the order of the Reserve Bank of India.

The petition was filed by TMB's founder's son P S P K Maragathraapandian, who is 75 years old now.

The order will restrain FIIs, who are holding 93,563 shares or 30% of the the Bank's shareholding, from voting in any of the meetings of the TMB. It may be noted, in the next 5-6 months the Bank is expecting that it may conduct an AGM, during which some of the important resolutions are expected to be tabled. These includes nod for IPO, dividend pay out and others.

Total shares in the privately held Bank is 2,84,454 shares of which FIIs holds 1,12,151 shares in escrow accounts of a private Bank in Mumbai and Mauritius. These shareholding constitute to 40% of the total shareholding of the Bank. It was said shares of the Bank was quoted at around Rs 80,000 a share in a private market.

In 2007, FIIs came on Board, Nadar community led by B Ramachandra Adityan and MGM Maran signed an agreement with the Sterling group to buy the 95,418 shares held by the group for a consideration of around Rs 166 crore. This was the first time that shares have been transferred — on books — to members of the non-Nadar community, which has sparked off protests and a legal battle in the past.

The investors were led by Ramesh Vangal (Katra Holdings) (10,364 shares or 3.64% stake), Rajat Gupta (14,080, 4.95%), Ravi S Trehan (2,845, 1%), Kamehameha Mauritius (2025, 0.71%), Cuna Group Mauritius (2,025, 0.71%), FI Investments Mauritius, (5,399, 1.90%), Swiss Re Investors (10,124, 3.56%).

The non-Nadar Indian investors include Gokul Patnaik (10,589, 3.72%) and Vector Program (13455, 4.73%) came on board and these investors paid Rs 24,182 a share to pick up a 24.93% stake. These shares were bought from four companies belonging to NRI businessman C Sivasankaran's Sterling Group.

It is interesting to note in 2007 the six foreign and two Indian investors, who picked up the stake in TMB, paid nearly four times more than what B Ramachandra Adityan, MGM Maran and other members of the Nadar community shelled out for their eight% stake.

The higher price paid by the foreign and the two Indian investors could be seen as a 'premium' for not belonging to the Nadar community, said an analyst, who have been tracking the Bank for over a decade now.

Sources in the Board said that the FIIs have infused around Rs 166 crore in the Bank and they bailed out the community. Today the investment of these FIIs have grown by three times, said the source.