IndiaRetailBiz

Subhiksha saga gets murkier every day, even as R Subrahmanyam promoted, Chennai-based discount retailer, struggles hard to obtain financial bailout package from its lenders – a consortium of 12 bankers- to get back on its feet.

Until recently, while the top two equity stake holders of the company (promoters: 59 per cent, and I-Venture: 23 per cent) were having a public spat on who effectively controlled the company as well as on the manner in which the company was operated by its managing director, it is now the turn of Zash Investments- an Azim Premji promoted private equity company– which has jumped into the fray with serving of legal notices on all past and present directors of the company, charging them with dereliction in performance of their duties.

Zash, it may be recalled, had bought 10 per cent stake in the company’s equity in the later half of 2008 for Rs 230 crore from I-Venture. Zash is now demanding an explanation from all concerned, who were then entrusted with the management and control of the company, as it believes that ”it was misled on the true financial position of the retailer.”

The legal notices, according to an ET report, have been served on all the present (R. Subrahmanyam) and past directors (nominated directors: Renuka Ramnath and Rajeev Bakshi, ex MD and present joint MDs of I-Venture respectively; and independent directors: Rama Bijapurkar, Marketing Consultant; SB Mathur, ex Chairman of LIC; and Kannan Srinivasan, Professor at Carnegie Mellon University) of the company. It may be recalled that all the nominated and independent directors had resigned from the board of the company conveying their displeasure at the way in which the company was being run as well as for not submitting the audited accounts of the company, since April, 2007.

“Premji Invest feels that the liabilities of every board member be fixed for the collapse of the retail chain. No member, either ICICI venture nominee or independent directors, can actually plead innocence, as they were in the control of the company before it collapsed,” said an official of the Premji’s PE firm. According to him, the investment company ”will go after everyone, who mislead it in buying a stake in the company.”

A courtroom battle, as such, can not be ruled out in the matter unless I-Venture and Zash do not come to an understanding in the matter. This is particularly important as the 180 days’ time limit for consideration of financial package by 12 lenders (Kotak Mahindra Bank has already lefy the consortium led by ICICI Bank) comes to an end within a month on the 31st July, 2009. As reported earlier, the lending banks are processing the cash starved company’s request under the Corporate Debt Restructuring (CDR) programme of the RBI.

Interestingly, the biggest loser in the game has been the investment firm of Azim Premji, since Subhiksha ran into cash crunch immediately after it bought the minority stake from I-Venture. The retailer was forced to close down all 1,600-odd convenience stores of the retail chain that it was operating across the country. I-Venture is reported to have recovered eight times the original investment it made in the company through stake sale to Premji.

Subhiksha is also fighting several legal battles with most of it stakeholders, including employees, vendors, service providers, lenders, and property owners, among others, in the Madras High Court.

Subhiksha was founded 12 years ago at Chennai (1997) by R Subrahmanyam, a first generation entrepreneur, has been educated at the premier educational institutions of the country (IITM and IIMA).