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The billion-rupee war for the Tamilnadu Mercantile Bank

A Ganesh Nadar in Madras

The dispute over the control of the Tamilnadu Mercantile Bank took a turn last month, shocking the Nadar community in Tamil Nadu which has a stake in the bank. Early last month, the Nadars' representative, B Ramachandra Aditan, went to meet Sasi Ruia, head of the Essar industrial conglomerate, at a meeting called by Tamil Nadu Chief Minister M Karunanidhi. Instead of Ruia, Sivasankaran of Sterling Computers turned up. Sasi Ruia had agreed to sell the TMB shares back to the Nadars for Rs 1 billion. But now Sivasankaran demanded 1.86 billion!

The Tamilnadu Mercantile Bank had its origin as the Nadar Bank in 1912, promoted by a group of Nadar families in Tuticorin, Tamil Nadu. The ban grew rapidly over the decades, and also changed its name to the Tamilnadu Mercantile Bank Ltd. Today, it has 142 branches all over the country. On a share capital of 2.8 million, the bank has reserves of 1.15 billion and deposits worth 13.5 billion. A success story by any standard.

The shares of the bank were closely held among various Nadars. But trouble was brewing between the Nadars hailing from Tuticorin on the one side, and those hailing from Virudhunagar and Sivakasi on the other. Finally, three years ago, the Sivakasi and Virudhanagar Nadars secretly sold their shares to the Ruias of the Essar Group. The Ruias paid Rs 3,300 per share and acquired 67 per cent of the bank.

The sale came to the notice of the Tuticorin Nadars only when the representative of Essar turned up at the annual general meeting of the bank three years ago. Hell broke loose!

The Tuticorin and other Nadars then formed a retrieval committee and appointed press baron Sivanthan Aditan chairman. The committee approached both the Reserve Bank of India and file a plea in the Supreme Court.

A clause in the TMB's constitution states: "This bank will work for the upliftment of the Nadars" and on this basis, the Nadars won the case in the Supreme Court. The Supreme Court ruled that the TMB should be returned to the Nadars.

The next victory came when the usually staid RBI in 1996 refused to register the shares in the name of the Essars, wryly commenting, "People whose cheques bounce do not have any business running a bank." The reference was to the Essar group which was by then facing grave financial difficulties.

A meeting between the Nadars and the Ruias was arranged by Bharatiya Janata Party President L K Advani. The Nadars agreed to pay 900 million to the Ruias at the rate of Rs 5000 per share. Sivanthan Aditan planned to mortgage the property of the Dakshinamara Nara Sangam to raise the cash to pay back the Ruias. However, the Sangam members refused to allow the mortgage, forcing Aditan to resign. The deal fell through as the Nadars could not raise the cash in the stipulated time.

The Nadars then regrouped and formed the Nadars Mahajan Bank Investors Forum. They appointed B Ramachandra Aditan, another press baron and older brother of Sivanthan Aditan, as chairman.

In another twist to the saga, the cash-strapped Essar Group claimed it had "mortgaged" the bank shares with Sivasankaran of Sterling Computers.

A second meeting between the Nadars and Essar was arranged in June 1997 by Tamil Nadu Chief minister Muthuvel Karunanidhi. The Nadars struck to the earlier agreed price of Rs 900 million, while Sasi Ruia now demanded 1.3 billion. Karunanidhi then intervened and a deal was struck for Rs 1 billion. Both Ruia and the Nadars agreed. The deadline for the payment was December 31, 1997. It was an unwritten, gentlemen's agreement.

The Nadars went on a massive mobilisation drive. Sixtyfive per cent of the money was raised from the community, 10 per cent from the bank staff, and 25 per cent from Nadars residing abroad.

Ramachandra Aditan toured small villages like Kurumbur and cities like Coimbatore, Madras and Bombay. Money flowed in from the comparatively affluent Nadars. By December 1997, the Investors Forum had Rs 600 million in cash and Rs 400 million in commitment from rich Nadar industrialists. In Madras alone, 15 Nadars had promised Rs 10 million each.

Ramachandra Aditan tried to get in touch with Sasi Ruia in December 1997, only to be informed that Sasi Ruia has gone abroad. As the mediator, Karunanidhi then called a meeting on January 1, 1998. Instead of Sasi Ruia, Sivasankaran of Sterling Computers turned up.

The shares were supposed to have been mortgaged with Sivasankaran. But now he claimed that he had bought the shares from the Ruias for 1.35 billion. Sivasankaran then added that he had bought the bank with black (unaccounted) money. Moreover, to convert his black money into white (accountable), he had paid Rs 510 million under the Voluntary Disclosure of Income Scheme. He then said that since his entire cost had worked out to Rs 1,350 million (purchase) + 510 million (VDIS) = 1,860 million or Rs 1.86 billion, he would sell the bank at that price.

The Nadars were devastated. Tamil film star Sharatkumar, who had accompanied Ramachandra Aditan, got into a verbal duel with Sivasankaran, forcing even the normally astute Karunanidhi to only look on helplessly.

The Nadars quickly held an emergency meeting in Madras on January 4. They then decided to once again approach the RBI and the Supreme Court. They also observed a token fast on January 12 and held a protest rally in front of the RBI office in Madras on January 21.

B Ramachandran Aditan was appalled at Sasi Ruia's behaviour. "Sasi Ruia is among India's top ten businessmen. How can he go back on his word which he gave in front of the Tamil Nadu chief minister?"

Despite repeated attempts by this correspondent, Sasi Ruia and Sivasankaran could not be contacted. Officials in Essar and Sterling Computers were polite, but refused to disclose the whereabouts of their respective bosses.

If the RBI had refused to register the shares of the bank in Essar's name, the chances of Sivasankaran succeeding are even less.

"That fellow admitted to buying the bank with black money if front chief minister!" exclaimed Aditan.

Aditan received a letter from Venkatesan, finance director of the Essar Group, denying that Ruia had ever made a commitment to sell the bank shares to the Nadars. Aditan did not reply to the letter but Tamil Nadu Law Minister Aladi Aruna confirmed that an unwritten agreement had taken place between the Nadars and Ruia in front of the chief minister

The fast on January 12 in front of the Madras high court featured people from across the political spectrum. It was inaugurated by M K Stalin, mayor of Madras and son of Karunanidhi. Also present were Aladi Aruna, Tamil Nadu Congress Committee's former president Kumari Anandan, and Indian National League leader M Abdul Latheef, besides leading Nadar businessmen.

The rally on January 21 too was successful. Further, the Nadars, who number about 10 million in the state, have also threatened to boycott the Lok Sabha polls if their demands are not met.

Yet, concrete progress for the Nadars can only come from the Reserve Bank and the Supreme Court. The Nadars plan to to convince the RBI to reject Sivasankaran's claims. They are also seeking legal advice on whether Ruia can be tried for contempt of court.

It does seem ironic that in the today's of so-called age of liberalisation, the RBI and the Supreme Court might still have the last word.