The Adjudicating Authority under the Foreign Exchange Management Act (FEMA) has imposed a penalty of ₹100 crore on the Standard Chartered Bank (SCB), ₹17 crore on the Tamil Nadu Mercantile Bank Limited (TMBL) and ₹35 crore on its former chairman, M.G.M. Maran, for alleged violations of the Act, according to the Enforcement Directorate (ED).
The ED said on Friday that the Adjudicating Authority found them and some others contravening the FEMA provisions in a case related to unauthorised allocation of shares. In its adjudication order, the Authority imposed penalties on the SCB, the TMBL and Mr. Maran.
Based on a reference from Reserve Bank of India (RBI), the ED started probing the advance remittances received by certain entities for purchasing the shares of Tuticorin-headquartered TMBL, through a escrow mechanism maintained with the SCB, Mumbai.
The ED investigation “culminated in the issue of a show-cause notice to the TMBL, its directors, the SCB and an official of the SCB for various contraventions of the provisions” of the FEMA. The case was adjudicated by the Adjudicating Authority, the charge held by ED Special Director (Southern Region).
Transfer of shares
In the order, he imposed a penalty of ₹11.33 crore on the TMBL for recording in books the transfer of its 46,862 shares in the name of seven foreign entities that were not approved by RBI for acquiring the shares.
The entities were identified by the ED as RST Limited (wholly owned by Ravi S. Trehan); Katra Holdings Limited (wholly owned by Ramesh Vangal); GHI I Limited (wholly owned by Rajat Gupta); Kamehameha (Mauritius) Limited; FI Investments (Mauritius) Limited; Cuna Group (Mauritius) Limited; and Swiss Re Investors (Mauritius) Limited.
The ED statement said “a further penalty of ₹5.66 crore was imposed on the TMBL for its act of recording in its books the subsequent transfer of 27,289 shares out of the above 46,862 shares in the names of two foreign entities, Sub-Continental Equities Ltd, Mauritius and Robert & Adris James Company Limited, Mauritius”, without the RBI permission.
Penalty has also been imposed on the TMBL board directors, who approved the recording of the transfer of shares, it said.
Escrow account
The SCB allegedly opened one SCB Project Windmill (sale consideration) escrow account, without prior the RBI approval, allowing deposits totalling to ₹113 crore. It also held over 1.12 lakh shares of the TMBL in the SCB Project Windmill (shares) escrow account. Accordingly, a penalty of ₹34 crore was imposed.
An additional penalty of ₹66 crore was imposed on the SCB for providing collateral/guarantee, taking custody of the TMBL shares and original sale deeds of a land.
In lieu of the securities, the SCB (Mauritius) allegedly granted $55.40 million (₹221 crore) in loans to three foreign entities: Katra Holdings Limited, Mauritius; RST Limited, Cayman Islands; and GHI I Limited, Cayman Islands, without any special permission from RBI.
Mr. Maran allegedly opened, without the RBI permission, a bank account in Singapore and received foreign exchange to the tune of $68.50 lakh (₹28.08 crore) in the account from a foreign entity as consideration for facilitating and assigning the rights towards transfer of the TMBL shares in favour of Katra Holdings Limited. He failed to repatriate the foreign exchange to India, the ED alleged.
