The bank has been functioning with 3 directors.
The Madras High Court today ended the 16-month suspense over the control of Tamilnad Mercantile Bank (TMB) and ruled that the 10-member group led by Sivanthi Adityan could take control of the 13-member board.
Since July 2008, when the election of eight members of the board was challenged in the Madras High Court, the bank, which reported a net profit of Rs 52.96 crore for the half year ended March 2009 and over Rs 1,000 crore of accumulated profit, has been functioning with only three directors, including G Nagamal Reddy, managing director and chief executive officer of the bank, and two Reserve Bank of India (RBI) nominees. These members were only authorised to take operational decisions. Any policy decision including a public offer of shares or a bonus issue was kept out of their purview.
Over the last decade-and-a-half, the bank headquartered in the southern port town of Tuticorin, has been in the eye of a storm with two factions of the Nadar community -- the Nadar Mahajana Sangam and a group headed by B Ramachandra Adityan, a former executive director – fighting for board control. A third group of foreign investors was also eying control of the bank.
The first battle for TMB board was fought with the Essar group. The two shareholder groups at TMB, unable to wrest control, were preparing to sell their 25 per cent stake. When it emerged that Shashi Ruia of the Essar Group had bought shares accounting for 67 per cent of the paid-up capital and was eyeing management control, the Nadar community approached RBI.
The regulator stepped in and rejected the deal, ruling that an industrial group could not run a bank. Ruia agreed to sell back the stake to the community, but at a very high price.
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Then another investor, Chinnakannan Sivasankaran, bought the Essar stake for around Rs 65 crore and started negotiations with the Nadars to sell it back — but for Rs 155 crore. For over 10 years, the community struggled to pay him off, but could garner only half the money. Sivasankaran sold back half the stake.
By 2007, things became more complicated with foreign investors led by Ramesh Vangal and his associates, including Ravi Trehan and former global managing director of McKinsey Rajat Gupta picking up nearly 25 per cent stake in the bank.
Vangal’s attempt to get his nominees on the board met with stiff resistance from the Nadars, who feared the outsiders would take control of the community bank.
Things came to a boil in July 2008, when following court orders, TMB held its 83rd and 85th annual general meetings (AGMs) on the same day and the 84th AGM did not take place due to the court’s direction. The bank did not hold an AGM for three years due to the factional war.
The pro-outsider group, led by Sivanthi Adityan, walked away with eight seats. RBI nominees apart, there were two seats left. The group of new investors led by Ramesh Vangal, would have easily won the two seats, but the outgoing board members led by Ramachandra Adityan blocked the formation of the new board with resolutions over voting rights of the new investors. They also approached the Madras High Court seeking to block the election of the other eight directors.
Hearing the case for almost over 18 months now, the Madras High Court today said that all the 10 directors, who were elected by the 83rd and 85th AGMs, could immediately take charge. The court also asked the bank to conduct the 86th and 87th AGMs by December 31.
The new board, which is going to take over on Friday, includes Sekar, Vikraman and SR Aravind Kumar, who were elected during the 83rd AGM and would continue for one month. The other seven include T Rajkumar, Mahindra Vel, Prabhakaran, Shankar Jagannathan, S Ganapathy, Tirukumaran Vedanayagam and Y Jesudass. These seven members who were elected by the 85th AGM will continue till the new board gets elected by the 87th AGM.