The investigation under FEMA was taken up by ED based on a reference received from RBI to investigate advance remittances received by certain entities for the purchase of the shares of Tamil Nadu Mercantile Bank through escrow mechanism maintained with Standard Chartered Bank, Mumbai.
The Enforcement Directorate (ED) has imposed penalties of Rs 100 crore on Standard Chartered Bank, Rs 17 crore on Tamil Nadu Mercantile Bank Limited (TMBL) and Rs 35 crore on MGM Maran, then chairman and director of TMBL after finding them in contravention of provisions of Foreign Exchange Management Act, 1999 (FEMA), in a case relating to the unauthorised allocation of shares.
The investigation under FEMA was taken up by ED based on a reference received from the Reserve Bank of India (RBI) to investigate advance remittances received by certain entities for the purchase of the shares of TMBL through escrow mechanism maintained with Standard Chartered Bank, Mumbai (SCB), ED said in a release.
Accordingly, ED conducted investigations which culminated in the issuance of show cause notices to TMBL, its directors, SCB and an official of the SCB for various contraventions of the provisions of the Foreign Exchange Management Act, 1999 (FEMA).
"The case was adjudicated by the Adjudicating Authority which is the Special Director, ED Southern Region. In his order, the Adjudicating Authority imposed a penalty of Rs 11.33 crore on TMBL, headquartered in Tuticorin for recording in its books the transfer of 46,862 shares of TMBL in the names of seven foreign entities which were not approved by the Reserve Bank of India for acquiring the shares of TMBL," ED said.
A further penalty of Rs 5.66 crore was imposed on 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 without the permission of the RBI.
The penalty has also been imposed on the directors of the Board of TMBL, who approved the recording of the transfer of shares of TMBL.
The Adjudicating Authority has held SCB guilty of contraventions of the provisions of FEMA for opening the SCB Project Windmill (sale consideration) Escrow Account, without prior permission of the Reserve Bank of India and for having allowed deposits totalling to Rs 113 crore in the said account and for having held 1,12,151 shares of TMBL in SCB Project Windmill (shares) Escrow Account, ED said.
Accordingly, a penalty of Rs 34 crore has been imposed on Standard Chartered Bank for the contraventions.
In addition, a penalty of Rs 66 crore has been imposed on Standard Chartered Bank for providing collateral/ guarantee/taking into custody of TMBL shares and original sale deeds of land in lieu of which Standard Chartered Bank, Mauritius granted a loan of US$ 55.40 million (equivalent to Rs 221 crore) to three foreign entities without any special permission from the Reserve Bank of India.
According to the agency, the penalty of Rs 35 crore was also imposed on M.G.M. Maran, then Chairman and Director of TMBL for having opened, without the permission of the Reserve Bank of India, a bank account in Singapore and for having received foreign exchange to the tune of $68,50,000 (equivalent to Rs 28.08 crore) in the said account from a foreign entity as consideration for facilitating and assigning the rights towards the transfer of shares of TMBL in favour of Katra Holdings Limited and for having failed to repatriate the said foreign exchange of US$68,50,000 into India.
Photograph: Bobby Yip/Reuters