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The Rediff Business Special/ A Ganesh Nadar

After years of acrimony, the Nadars and Sivasankaran of Sterling Computers inked an agreement on June 26: the latter would sell TMB shares back to the former.

For once, it seemed the bank is finally past controversy and into serious business. After all, the Nadars have made it a prestige issue that TMB should remain under their control. But a few days later, a couple of directors of TMB raised a note of dissent over the deal, plunging the bank in fresh controversy.

What ails TMB? There was a time when the toddy-tapping Nadar community of Tamil Nadu was a backward class. The Chettiars were the traditional business community.

The two communities were identified with their traditional means of livelihood. So when a Nadar -- G Athumuthu Nadar -- started Bombay's first Tamil Baniya shop at Matunga in 1948, the upper caste ladies called him Chettiar!

During the British rule, the Nadars drifted away from toddy-tapping to farming. A few of them became small-time traders.

In the southern districts of Virudhunagar, Sivakasi and Tirunelveli, the Nadars constituted the majority. But the upper castes, especially those in the business of banking, looking down upon the toddy-tappers.

The 'toddy-tappers' were enterprising by nature, so they decided to start a bank of their own. They did it in 1921, and called it, what else, the Nadar Bank.

The bank grew by leaps and bounds, though it began with a modest paid-up capital of Rs 2.8 million contributed mainly by small investors. The first ten directors were prominent Nadars of the time, though they were not the largest shareholders.

Later, the Nadars realised that in order to grow, they needed to attract deposits from people from all walks of life, all communities. They decided to do away with the Nadar nomenclature. Thus was born Tamilnad Mercantile Bank Limited. (Today, the bank has nearly Rs 2 billion in reserves.)

Five Nadar families slowly bought the shares from the small shareholders. One family, owners of the Tuticorin Spinning Mills or TSM, started dominating the TMB board. The other four Nadar families resented this. But months, years, decades rolled by.

TMB now boasts of 150 branches. The bigger shareholders are Tuticorin Spinning Mills (23 per cent), C S Rajendran of Ayannar Coffee (8 per cent), VVD Oil Mills (3 per cent), Sivakasi Ayya Nadar (4 per cent), Virudhunagar MSP group (13 per cent) and ARAS, Tuticorin (3 per cent). The rest of the shares are held by public at large.

Through the decades, the Sivakasi and Virudhunagar Nadars resented the firm grip of TSM on the TMB board. In early nineties, they thought enough is enough, and decided to sell their shares to the Ruias of the Essar Group.

The TSM group brought in the Balaji Distilleries and Southern Petrochemicals and Industries or SPIC into the picture.

The Essar Group desired to buy TMB's shares at Rs 3,500. So Balaji Distilleries announced they would buy TMB shares at Rs 5,000. They held a meeting along with the TSM group in Tuticorin.

The Balaji Group bought a few shares of TMB. A C Muthiah of SPIC, a Chettiar, stayed in the background. The Balaji Group could not come up with the requisite funds to buy 51 per cent of TMB's equity. They quietly withdrew from the race. They resold the shares bought earlier in return for post-dated cheques.

The TSM group agreed to sell their shares to Essar. By October 1994, Essar scooped up 67 per cent of TMB shares. In other words, what started as a community venture now became someone else's project. In Tuticorin, the irate Nadars took to the streets. They organised anti-Essar processions.

When the representatives of Essar attended TMB's annual general meeting, all hell broke loose. Essar's representatives had to retreat.

Essar agreed to let the TSM group nominate four directors on the TMB board. Only, the four directors had to be Nadars, the kin of the TSM group's topshots. The deal was that the transfer of shares to Essar should be okayed by the board.

After the harrowing experience in Tuticorin, the next TMB meeting was held in Tirupur, the banian city. Only one director C S Rajendran of Tuticorin objected to the Essar proposal.

The resolution to transfer shares to Essar was passed. The Company Law Board was ready to approve any decision as long as the TMB board okayed it.

Later, the Reserve Bank of India came out with its directive that industrial houses shall not own banks. Shashi Ruia of Essar was flummoxed.

Meantime, the Nadars outside the TSM ring approached the courts against the Essar takeover. The Nadars won the court battle, thanks to a clause in the charter of the bank: "This bank will promote the Nadar community."

Shashi Ruia continued to hold the shares while the Nadars came together under the leadership of press baron Sivanthi Aditan. A retrieval committee was formed. Trustees were appointed. A sum of Rs 50 million was collected.

But the retrieval committee was a house divided into pro- and anti-Aditan camps. Aditan's men, it was reported, were insistent that only he should sign the cheques. Anyone who suggested otherwise would be roughed up. The committee was to prove a non-starter.

Essar had brought the shares for Rs 280 million. The retrieval committee had promised to pay the Ruias Rs 560 million to buyback the shares. S Aditan's elder brother Ramachandra Aditan, another media baron, used to attend all the meetings of the retrieval committee.

A year later, the Nadars formed an Investors Forum with R Aditan as chairman. The purpose was to espouse the Nadars' cause: to wrest back TMB. Meetings were held in Bombay and all over Tamil Nadu. The initiative culminated in a massive procession in Madras.

A meeting was arranged between Shashi Ruia and R Aditan by Tamil Nadu Chief Minister M Karunanidhi. The warring parties agreed upon Rs 1 billion as the price to be paid for TMB shares held by Essar. The Nadars resorted to a rapid fund mobilisation drive that yielded Rs 650 million.

The Nadars decided to pay an advance of Rs 500 million and sign an agreement.

When the Nadars went to clinch the deal with Shashi Ruia in the presence of M Karunanidhi, they found not the Essar topshot but C Sivasankaran of Sterling Computers waiting to talk business with them! Sivasankaran claimed he had bought the TMB shares from Essar.

Sivasankaran, a Non Resident Indian, refused to accept Rs 1 billion that the Ruias agreed to accept as compensation. Murasoli Maran, the then Union industries minister, was present at the meeting.

Apparently, Maran told the Nadars that with Rs 1 billion, they can start another bank. This was not to the Nadars' liking. In the Lok Sabha poll that ensued, Maran's Dravida Munnethra Kazhagam lost in all the Lok Sabha constituencies in the districts of Tuticorin, Tirunelveli and Virudhunagar, the Nadar strongholds.

The meeting also saw fireworks between film star Sharat Kumar who belongs to the Nadar community and Sivasankaran.

One repercussion of the unpleasant meeting was: the fund mobilisation drive that the Nadars launched to raise Rs 1 billion, ground to a halt. A few Nadars who contributed generously to the fund started withdrawing their money with a promise to invest when the deal would be clinched.

Former chief minister J Jayalalitha, Karunanidhi's arch rival in Tamil Nadu politics, sensed the Nadars' disgust with the DMK. So she led a delegation of Nadars to Prime Minister Vajpayee. Negotiations began again, this time between the advocates and chartered accountants representing the Nadars and Sivasankaran.

A deal was struck. Of the 67 per cent stake that Siva bought from the Ruias, the Nadars would get 51 per cent of the shares for Rs 1.10 billion. The rest (16 per cent) would be sold to a financial institution for Rs 450 million. Sivasankaran would thus stand to get Rs 1.55 billion. (The amount at which Sivasankaran bought the shares from the Ruias is not known.)

A memorandum of understanding or MoU was finally signed on June 26, 1998. The Nadars handed over Rs 200 million in advance. The Nadars now have nine months to pay up the remaining Rs 900 million. If they fail to do so, they will have to return the shares back to Sivasankaran. The shares are currently lying with R Aditan who is acting as a referee.

The Investors Forum, which earlier mobilised money at Rs 5,500 a share, is now planning to revise the figure upwards to Rs 7,500 or even Rs 8,000. People who had invested earlier will have to pay 7,500 per share while new investors will have to buy TMB shares at Rs 8,000.

Fund mobilisation has resumed in Tirunelveli, Madurai, Coimbatore, Madras and Bombay. The TSM group, which has six directors on the board in spite of selling off its TMB shares, has effectively blocked R Aditan from becoming a TMB board member.

The TSM group claims it had sold the shares to Essar under the operative clause that "if the RBI does not register the shares, you (Essar) have to return them to us (the TSM group)". So, this brings Essar's sale to Sivasankaran, and Sivasankaran's sale to the Investor's Forum under scrutiny, say a few sources who have been observing the TMB saga closely for years. Forum members point out that the clause does not mention at what price the shares should be returned.

The TSM group has held two press conferences in Madras. They wish to off-load TMB shares to fellow Nadars at Rs 3,000, after retaining 30 per cent for themselves. They claim that 30 per cent stake was their original holding.

Their arguments do not seem to carry weight as the shares are already effectively in the forum's possession via Sivasankaran. (R Aditan will have the physical possession of shares as a referee between the forum and Sivasankaran, until the deal is completed in all respects.) But the media conferences have been widely reported.

When S Aditan was in charge of the retrieval committee, he openly clashed with the TSM group. Now S Aditan is said to be supporting the TSM group.

This is because no love is lost between the brothers Aditan in their fight for Dina Thanthi, the largest selling daily in Tamil Nadu.

S Aditan has the full backing of the Dakshinamara Nadar Sangam, the body which originally promoted the bank. Will the Nadars suffer because of two brothers at war? That is the question puzzling the community.

The Investors Forum is now trying to get control of the board which will help them to mobilise funds faster. The idea is to win over the investors with the offer of ten bonus shares and another ten by way of a rights issue.

There are two vacancies on the ten-member board. Six members belong to the TSM group.

The investors hope RBI Governor Bimal Jalan will intervene to end the seemingly never-ending controversy.

Observers point out that in the beginning, the Nadars fought amongst themselves. Then they clashed with the Ruias and Sivasankaran. Now they are apparently fighting amongst themselves again.

But the Nadars are confident they will be in control of the TMB board shortly. How? They are not willing to divulge their plans. The dawn of the new millennium might see new twists and turns.

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