ED fines Standard Chartered Bank, TNMB over Rs 150 crore for FEMA violations

The Enforcement Directorate (ED) has imposed penalties running to over Rs 150 crore on Standard Chartered Bank (SCB) and Tamil Nadu Mercantile Bank (TNMB) and the latter’s chairman and director M G M Maran for violating rules of the Foreign Exchange Management Act in a case relating to unauthorized allocation of shares.

While SCB has been awarded a penalty of Rs 100 crore, the TNMB has been asked to pay Rs 17 crore, and Maran Rs 35 crore for violating the provisions of the said act.

The investigations were taken up after the Reserve Bank of India (RBI) asked ED to investigate advance remittances received by certain entities for the purchase of the shares of TMBL through the escrow mechanism maintained with SCB.

In his order, the Adjudicating Authority imposed a penalty of Rs. 11.33 Crores on TNMB for recording in its books the transfer of 46,862 shares of TMBL in the names of seven foreign entities and Rs. 5.66 crores 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.

“Penalty has also been imposed on the directors of the Board of TMBL, who approved the recording of the transfer of shares of TMBL,” a statement from the ED said.

It added that the SCB has been held guilty of contraventions of the provisions of FEMA for opening the SCB Project Windmill (Sale Consideration) Escrow Account, without prior permission of the RBI and for having allowed deposits totalling to Rs. 113 crores in the said account and for having held 1,12,151 shares of TMBL in SCB Project Windmill (Shares) Escrow Account.

“Accordingly, a penalty of Rs. 34 crore has been imposed on SCB for the above contraventions. In addition, a penalty of Rs. 66 crore has been imposed on SCB for providing collateral/ guarantee/taking into custody of TMBL shares and original sale deeds of land in lieu of which SCB, Mauritius granted a loan of $55.40 million (equivalent to Rs. 221 crore) to three foreign entities, without any special permission from the Reserve Bank of India,” the ED said.

Maran, then Chairman and Director of TMBL, has been asked to pay a penalty of Rs 35 crore 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 transfer of shares of TMBL in favour Katra Holdings Limited.