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TMB files DRHP despite court proceedings involving large equity shares

The equity share capital of 37.61 percent, or 53.59,000,000 equity shares, is subject to ongoing legal and regulatory proceedings. This includes a 1:500 bonus Tamilnad Mercantile Bank has filed its Draft Red Herring Prospectus.

The bank filed DRHP to request a premium initial public offering (IPO) up to 15,840,000 equity share of face value Rs 10 each – a fresh issue of 15,827 495 equity shares as well as an offer of sale of 12,505 equity share by six equity shareholders.

The 10% offer will represent 10 percent of the post-offer equity share capital.

TMB currently has an equity base of Rs 142.51 crore.

According to DRHP the transfer of 15,132,000 equity share as bonus issue in the ratio 1:500 to 41 members has been aborted due to reasons such as death of members, outstanding legal proceedings and discrepancies with transfer deeds.

TMB was penalized Rs 6 crore by the RBI Order for issuing a 1:500 bonus issue to six entities that were not residents and held the Unacknowledged shares.

According to the TMB, 37.61 percent of its equity share capital, or 53.59 Million equity shares, are subject to legal proceedings. These proceedings are currently pending at different forums.

The Enforcement Directorate (ED), which imposed a fine on TMB last year for transferring shares to Katra Holdings, and other entities without RBI permission, is still investigating.

The Special Director, ED (southern), had imposed a Rs 11.33 crore penalty on TMB last year for recording in its books the transfer 46,862 shares from the bank in the names seven foreign entities — RST Limited (wholly held by Ravi S. Trehan), Katra Holdings Limited(wholly owned By Ramesh Vangal), GHI I Limited [wholly owned Rajat Gupta], Kamehameha, Mauritius] Limited, FI Investments Limited, Cuna Group, Mauritius), and Swiss Re Investors (Mauritius), Limited, Cuna Group (Mauritius), Cuna Group (Mauritius), Cuna Group (Mauritius), Limited, Mauritius), and Swiss Re Investors (Mauritius), and Swiss Re Investors (Mauritius),

The RBI did not approve the above seven entities for the acquisition of shares in TMB.

TMB was also penalized for failing to record the transfer of 27,289 shares from the 46,862 shares above in its books. This was done without permission by the RBI.

Directors of the TMB Board, who approved recording the transfer of shares to the bank, were also subject to penalty.

The TMB has not yet paid the penalty, and the matter remains pending.

The bank stated in DRHP that they cannot guarantee the resolution of these matters in a timely fashion or at all. Any adverse developments in such proceedings could result either in the imposition of penalty of injunctions, or require us to incur significant costs to challenge any of which could have a material effect on our reputation, financial condition, and results of operation.

For disputes over the transfer of shares between different parties, the Tuticorin bank has been in the news for long.

TMB stated that the net proceeds of the IPO will be used to increase its Tier-I capital base in order to meet its future capital requirements.

According to TMB, 509 branches were in operation as of June 30, 2021. 106 branches are located in rural areas, 247 in semiurban, 80 in urban, and 76 in metropolitan centers.

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