Court stays transfer of Tamilnad Bank shares

The legal wrangle over the Tuticorin-based Tamilnad Mercantile Bank (TMB) took a fresh turn today, with the Madurai bench of the Madras High Court staying the transfer of 95,418 shares, representing a 33 per cent stake in the bank, by NRI investor C Sivasankaran to others.

This is another setback for Sivasankaran. In February, the Reserve Bank of India (RBI) had refused to recognise the transfer of shares by Sivasankaran to seven individual Nadar investors for about Rs 130 crore.

The deal, signed in the presence of the then Deputy Prime Minister LK Advani, was mediated by Chennai-based chartered accountant S Gurumurthy.

In a directive to Tamilnad Mercantile Bank, Justice NV Balasubramanian and Justice S Sardar Zackria Hussain asked it not to consider any application for transfer of shares, till the appeal filed by about 30 shareholders, who hold about 12 per cent in the bank, is not dealt with.

These shareholders fear that Sivasankaran may transfer his stake in the bank to 33 individual investors, who will hold 1 per cent each, in a possible benami transaction, bypassing RBI norms.

In its August 13 order, the RBI had said: "We advise that the terms of the sale agreements neither effect nor indicate the intention to effect, transfer of ownership in the shares in favour of the purchasers. Moreover, the terms of the sale deed show that whatever rights are transferred to the purchasers, only under the direction of the sellers."

"Thus, the rights and beneficial interest connected with the ownership remain with the sellers, transfer in whose favour was not acknowledged by us and in substance there was no sale of the shares," the RBI order had added.

The court's decision to stay the transfer of shares comes soon after two premier Nadar associations, the Nadar Mahajana Sabha and the Dakshina Mara Nadar Sangam, sent a representation on August 16 to the Union finance minister and the RBI Governor.

Their request was that the voting rights on the shares should be frozen and an investigation launched on how no consideration was paid for their sale and purchase.

According to the deal reached in February, Sivasankaran would have offloaded 95,418 shares in the Nadar community bank in favour of seven individual Nadar investors and the deal would need to be sewn up before December 31, 2004.

The RBI had earlier rejected Sivasankaran's application to transfer the 95,418 shares to four shell companies controlled by him. If the RBI had allowed Sivasankaran to transfer the shares, he would have gained control of the bank and its management.

Sivasankaran had, in his application to the RBI, requested permission to transfer his 33 per cent holding into four companies "" Mansiri Investment & Leasing Private Limited (28,114 shares), Mrinalini Leasing & Finance Private Limited (30,397 shares), Essar Investments Pvt Limited (27,324 shares), and Hemangini Finance & Leasing Private Limited (9,583 shares).

The RBI had in early February summoned TMB Chairman R Natarajan and told him that it was rejecting Sivasankaran's application for transferring his 33 per cent stake in the bank to these four companies.