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August 13, 1999


Tamilnad Bank's 'original' promoter vows to wrest complete control

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A Ganesh Nadar in Tuticorin

The Nadar community's joy of wresting back the Tamilnad Mercantile Bank, from 'outsiders' was shortlived. As soon they struck a deal with C Sivasankaran of Sterling Computers, a few directors from amongst themselves raised the banner of dissent.

Siva had signed a memorandum of understanding with the Nadars that he would withdraw all the court cases against them. However, the other day, C S Rajendran, a former TMB director, and two other Nadars had to appear in the Madras high court for contempt of court. Who initiated the case? Siva. The Nadars want to know: "Why has he (Siva) not withdrawn the case in spite of the MoU?"

Rajendran says, "We had agreed to withdraw all cases. He (Sivasankaran) has not done so. We will have to speak to his representatives in Madras."

However, the key player in the drama involving the TMB's Nadar directors is G Kathiresan, owner of the 50-year-old Tuticorin Spinning Mills. His family has been involved with the Tamilnad Mercantile Bank for the past three generations. Kathiresan's grandfather was a former TMB director who went on to become its chairman. Kathiresan's father was a director who, along with his brothers, controlled TMB for decades.

It was Kathiresan who, five years ago, sold over 30 per cent of TMB shares to the Ruias-promoted Essar Group, and sowed the seeds of the controversy. And yet, he remains in control of TMB even today. Kathiresan is a reluctant speaker, but once he agrees to speak, he holds back no punches.

His story starts in 1910 when the Nadars in Purayar -- under the aegis of the Nadar Mahajana Sangam of the Tanjore district -- decided to start a bank. "In those days, everybody was starting a bank -- the Parsis had started the Central Bank, the Marwaris had started their bank. The Nadars did not want to be left behind.

"They passed a resolution to start a bank. In 1921, my grandfather -- Chinnamani Nadar, then only 27 -- took an active part in the formation of the bank. At that time, M V Shunmugavel Nadar was a prominent man in Tuticorin. He pushed the bank with his name -- my grandfather went about actually selling the shares."

The Nadars' resolution of 1910 fructified 11 years later in Tuticorin in 1921, when the Nadar Bank was registered.

M V Shunmugavel Nadar became the bank's first chairman. Kathiresan remembered: "In 1961, when my grandfather died, he was the chairman of the bank. He didn't allow the bank's name to be changed."

In 1962, the Nadar Bank became the Tamilnad Mercantile Bank. "My father Ganesh Nadar was also a director." In Kathiresan's grandfather's time, there were only ten branches. There was a branch in Colombo too because many Nadars from south India were doing business there. "My family had a 30 per cent holding from the very beginning."

"In 1984, there was a misunderstanding between my brother Vetrivel and me. At that time, we sold 12 per cent of our shares to the Pioneer group of Sivakasi -- my elder sister's daughter is married into that group. Before that, the Pioneer group had one per cent of TMB's equity. In 1990, the TMB board came out with a rights issue. We took over the management after this."

By 1994, the Pioneer group had garnered 15 per cent of the shares. In October 1994, they sold the 15 per cent holding to the Essar Group. They were frustrated because they did not have management control. M S P Raja of Virudhunagar, who had ten per cent of the TMB shares, too, sold it to the Essar Group, making it powerful enough to aim at TMB's management control.

Before the sale, the share price was Rs 800. Essar bought the shares at Rs 3,000. Only after the Sivakasi and Virudhunagar Nadars had sold out their respective stakes did the Nadars in Tuticorin react.

G Kathiresan was friendly with both Sreenivasa Reddy of Balajee Distillers and A C Muthiah of SPIC. He sought their help. The two barons agreed to buy up 20 per cent of the TMB shares from the market. That would effectively checkmate the Essar Group.

They announced they would buy the TMB shares at Rs 5,000. "We made a list of potential sellers. We gave them post-dated cheques. We had to make sure that we got at least 20 per cent of the shares."

However, garnering 20 per cent of the TMB equity proved difficult. For within a fortnight, the shares had jumped from Rs 800 to Rs 3,000 to Rs 5,000. The Nadars waited for the Essar Group to make a counter offer.

Balajee Distillers returned the bought shares and collected back the post-dated cheques which they issued. At that time Muthiah was in Hong Kong. After the Balajee fiasco, Kathiresan decided not to involve Muthiah in TMB affairs.

Tamilnad Mercantile Bank -- a hotbed of corporate battles At that time, the Ruias contacted Kathiresan. The former claimed they had 40 per cent of the TMB shares. But Kathiresan was convinced they did not have more than 27 per cent. "Why don't we manage the show together?" Kathiresan apparently asked them. But the Ruias rejected Kathiresan's offer and wanted to be at the TMB helm. After a few arguments, Kathiresan agreed to sell his stake to the Ruias.

Kathiresan agreed to sell 84,000 shares but with a few conditions. He wanted to continue participating in the bank management: he sought four directorships and control over the recruitment committee. "I wanted to continue employing only Nadars."

Furthermore, Kathiresan laid down that if the Ruias wanted to sell the TMB shares in future, they should first make the offer to him. The price would be pre-determined. (The Nadar Investor Forum endorsed the first option, but rejected the resale price condition). Kathiresan sold his shares at Rs 3,500 to the Ruias.

With that, TMB, the community's pride, slipped out of the hands of Nadars. The Nadars started agitating.

"Three months later, my younger brother Vetrivel launched a retrieval committee. He contacted Sivanthi Aditan who became actively involved. Aditan was appointed the chairman of the committee. The Essar Group agreed to resell only after the involvement of a public figure like Sivanthi Aditan," Kathiresan says.

In June 1997, Tamil Nadu Chief Minister M Karunanidhi, Ramachandra Aditan and Shashi Ruia held a meeting. The Ruias agreed to sell back their stake to the Nadars for Rs 1 billion. "I forgot to tell you that in June 1996, we signed an agreement with Essar. The first agreement covered only 30 per cent of the TMB equity, the second one covered all the 67 per cent they held. In return, we agreed to let them have two of their nominees as directors. Actually, they wanted to nominate four directors, but they finally nominated three. Later, we removed Essar's three nominees from the board.

"In December 1997, when the Nadars approached the Ruias, they said they had already sold the shares to C Sivasankaran. The deal took place in December 1996. They both wrote letters to the Reserve Bank in that month. I've copies of the letters.

"The June 1997 meeting that Essar attended was a fraud on the Nadars. Ramachandra Aditan knows all these details. He knows I have a first option agreement with Sivasankaran.

"Ramachandra Aditan has bought 601 TMB shares in the market at Rs 3,000 in the first week of June. On June 24, he agreed to sell these shares at Rs 9,700! Who will buy?

"Essar originally bought the shares from 300 people. The Ruias entered into 300 agreements. Each and every agreement said, 'This sale agreement is subject to RBI approval.' As the RBI rejected Essar's deal, all the sale deeds stand cancelled. The individual shareholders still retain their rights over their shares.

"I have written three letters to Essar that their sale to Sivasankaran is illegal. They have not replied. There is an arbitration clause between us. I have to appoint one arbitrator. He has to appoint another arbitrator. The two together have to appoint a third arbitrator. The three together have to settle the dispute.

"In March 1998, we appointed an arbitrator. Two months later, the Ruias appointed their arbitrator. The third arbitrator became a matter of conflict. He has not been appointed.

"I have put up a prayer to the Madras high court to appoint a third arbitrator. The appointment has not yet been made.

"I can settle the Essar issue myself -- there is no need for an investors forum.

"In the records the shares are still in the name of the original shareholders.

"On June 4, Sivasankaran announced he would make Ramachandra Aditan and B P Rajan TMB board directors. On June 20, he hosted a dinner at the Oberoi in Bombay for a top RBI official and Nadar Forum members. The RBI official assured them two TMB directorships. On June 24, an MoU was signed in Madras.

"At the board meeting on June 28, the RBI nominee directors suggested those two names. We did not agree. As we are in the majority, their plan did not work," he says.

Kathiresan refused to show the agreement which, he claims, says that he has the first option to buy back Essar-held TMB shares at Rs 3,500.

The board meeting that was to be held in the last week of July was postponed. New dates have not been announced.

"In 1991, the Narasimham Committee suggested that the RBI withdraw its nominees from the boards of private banks. The government agreed and adopted the Narasimham Committee's recommendations in 1994. In the TMB's case, the RBI is increasing its directors instead of reducing. This is against government policy," says Kathiresan.

He says he will have the last laugh. The third generation scion of the bank's original promoters is convinced he holds all the aces.


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