Chennai:

The RBI will decide as to who actually controls the shares - the Sterling Group who are the unpaid vendors or the seven individual buyers and accordingly allow / disallow the share sale.

All these years, RBI had refused to give the green signal for the share transfer in favour of the four Sterling Group companies as it was not satisfied with the latter''s source of funds.

Last month, it may be recalled, A Subramanian of Sterling Group inked an agreement to sell the balance holding in TMB to seven individuals from the Nadar community for Rs.130 crore. The deal was structured in such a way that each individual would hold less than five per cent and thereby avoid going to RBI for its approval for the share transfer. According to regulations, any transfer of bank shares over five per cent should be sanctioned by RBI. The other details of the agreement were kept secret. (See A sterling exit for Siva)

The seven buyers have time till December 2004, to pay, while the four Sterling Group companies headed by C Sivasankaran, as an unpaid vendor, stipulated some conditions. It is these conditions that have now raised the question as to who actually exercises control over the shares - the Sterling Group or the new buyers.

The issue came out when one of the warring Nadar factions filed a case in the Madras High Court seeking a restraint on the transfer of shares by the bank''s board in favour of the seven individuals.

The court had ordered the setting up of a committee to go into the sale agreement signed between the Sterling Group and press baron, B Ramachandra Aditan, who leads the TMB retrieval movement, to see whether the seven individuals constitute a group. The concept `persons acting in concert'' is crucial in takeovers, and requires RBI''s approval for the share transfer.

Not a group but RBI to decide
It is learnt, after serious deliberations, that the committee has reported that the seven individuals from the Nadar community do not constitute a group. The committee had relied on RBI''s 1994 circular while arriving at a conclusion as also the recent sale agreement.

But the committee decided to lob the ball back to RBI''s court when it found the sale conditions very restrictive and the beneficial ownership of the shares still rests with the Sterling Group companies and not with the seven individuals from the Nadar community.

According to informed sources, the Sterling Group has laid down severe restrictions on these seven buyers - exercising their voting rights as per Sterling Group''s directions; not to dilute their existing stake in any manner (that is, restriction on sale of TMB shares already owned by the buyers that does not form part of block under question); not to sell / pledge the shares bought under the agreement without Sterling Group''s agreement; pledging back the shares with the Sterling Group after getting the shares transferred in their names.

Legal eagles view these conditions as more than what an unpaid vendor normally stipulates. The rights of unpaid vendors falls under the Sale of Goods Act.

It is also learnt that the Sterling Group and the seven buyers modified their contract as the original was not viewed positively by the committee. The committee nevertheless decided to refer the matter to RBI.

Attempts to contact Subramanian of Sterling Group who signed the sale agreement with seven buyers or Sivasankaran resulted in vain.

Curiously the RBI remained silent when the committee went into the question whether the seven Nadar buyers constitute a group. With the ball now in its court, the RBI will take couple of months to serve it back.

"I am confident that the transaction will go through," replies Aditan.