NEW DELHI: Indian-American private equity investor Rajat Gupta is in a soup not only in the US where he is accused of insider trading. He stands to face the heat in India as well, as the Enforcement Directorate is examining a case of an alleged Foreign Exchange Management Act (FEMA) violation by the former managing director of McKinsey & Company. The ED believes Gupta, along with entrepreneur and Katra Group founder Ramesh Vangal, and former MD of Punjab Agro Industries Gokul Patnaik attempted a hostile takeover of Tuticorin-headquartered Tamilnad Mercantile Bank Ltd (TMBL) in 2007. A confidential report of the Reserve bank of India accessed by The Sunday Standard reveal the modus operandi of the troika. Incidentally, Gupta and Vangal are co-founders of the IT company, Scandent Solutions.
Gupta and seven NRI investors led by Vangal picked up 24.93 per cent equity in TMBL with the clear understanding among themselves to acquire substantial TMBL shares and get representation on the bank’s board.
“The share transfers in favour of seven foreign investors were in violation of FEMA provisions. Some of the investors have either not provided any information towards the acknowledgement process or have not responded to the specific information sought by the RBI,” states the March 2011 order of RBI Deputy Governor Anand Sinha.
In Rajat Gupta’s case, the Foreign Exchange Department (FED) of RBI during the investigation revealed suspicious transfers of shares allegedly masterminded by Rajat Gupta.
“FED has stated that RBI had permitted transfer of shares in the name of Rajat Gupta but the shares have been transferred and held in the name of M/S GHI limited, in contravention of the provisions of FEMA. A few complaints have been received from the shareholders of TMBL pointing out that United States Securities and Exchange Commission has initiated administrative proceedings for insider trading on March 1, 2011 against Rajat Gupta and requested RBI to refuse acknowledgement to M/S GHI limited on ‘fit and proper’ ground.
The RBI’s suspicions were raised after it received a letter from M/S Windmill Investors limited, a foreign investor, on November 10, 2010.