IndiaRetailBiz

The noose appears to be tightening around the neck of Chennai-based Subhiksha Trading Services!

According to media reports, the Ministry of Corporate Affairs (MCA) is expected to sanction an enquiry within a couple of days to go into the “alleged mismanagement” of funds. The enquiry, in terms of Section 209(A) of the Companies Act, will be conducted by the Registrar of Companies (RoC). The government for the the records has said that it is examining the recommendations of the ROC in this regard.

ICICI Venture, a private equity arm of ICICI Bank, which currently holds 23 per cent stake in the company’s equity, has for several months been demanding an inquiry into the accounts of cash-starved retailer as Subhiksha, on one pretext or the other, has failed to submit its audited accounts to the shareholders and ROC, beyond 31st March, 2007.

The company, founded, promoted, and managed by R Subrahmanian– a first generation IIM/IIT trained entrepreneur– until recently had been operating a retail chain of over 1,600 food, grocery, and telecom, discount stores under the brand name of “Subhiksha” across the country. The company had to suspend operations of these stores in January, 2009, as it was unable to arrange cash required for running the business. The company has defaulted on making payment of salaries for several months to most of its employees. Many employees are believed to be even holding salary cheques that can not be encashed for want of funds in the bank accounts.

Apart from employees, almost every class of creditors including bankers, vendors, service providers, and property owners are seeking to recover their dues amounting to around Rs 750 crore from the beleaguered retailer. The retailer is looking for a Rs 300 crore bailout package to restart its operations. The package, under the Corporate Debt Restructuring (CDR) programme, is being processed by a consortia of 13 banks led by ICICI Bank. The process has to be completed by the lenders before 31st July, 2009, to qualify for assistance under the CDR.

In the meanwhile, Subhiksha, in compliance with the order of the Madras High Court (27th April) has submitted a sealed cover to the court on May 20 containing its financial records. The sealed cover, likely to be opened this week by the court, is believed to be containing 3 years’ balance sheets, list of assets and liabilities, list of banks in which the company has accounts together with their statements. It may be recalled that the Madras High Court in response to the retailer’s prayer had passed an interim order on the 27th April, 2009 to stay the appointment of a provisional liquidator (PL) earlier appointed by the court in terms of the application filed by one of the company’s lenders Kotak Mahindra Bank. Subhiksha had asked for staying of the appointment of the PL as it would have jeopordised the process for sanction of the CDR package that is presently under consideration of the consortia of the lenders.