The deal has been inked with lending banks like with SBI, HDFC and HSBC to whom the retailer owes major part of debt of around Rs 730 crore.

“The agreement with our lenders has been signed and the corporate debt restructuring (CDR) process will begin within the first half of November,” said Ambeek Khemka Group President Vishal retail to PTI. The company is confident of completing the process of CDR in 100 days, according to Khemka. Scoffing the rumour of banks insisting on the condition of Company’s founder and Chairman Ram Chander Agarwal resigning from the Board, Khemka said, “There is no such condition. The CDR is an open-ended business and any decision will be made only after the process is completed.”

It may be interesting recall that another retail wonder “Subhiksha” which also grew at breakneck speed during heydays of retail was unable to complete the process of CDR initiated by the banks. Of course, while the two companies grew at a much faster pace than most others, there situations are not quite comparable.

The retailer, which operates around 170 mega (mini- hyper market format) stores across the country has been battling hard for cash as most of the funds raised by the company through hugely successful IPO and debt from banks has been invested in capital intensive expansion of retail chain which has failed to generate adequate cash flows to service the same.

Although, the retailer in the past few months had initiated several measures to restructure the operations, it was unable to stem the rot that had arisen due to the double whammy of falling footfalls and shrinking customer basket faced by the company in 2008-09. Interestingly, Vishal has held last year’s global economic slowdown for most of its woes.

Subhiksha’s used its time tested brand mantra of “low cost” to lure customers to its shops. Many customers, who lined up the shops to buy crackers, were attracted by promotional lines like “Largest Cracker Shop” and “Lowest Price, All Varieties.” Triad Trading Services– a group shell company– was roped in as a franchisee for the purpose.

This year only four outlets could be roped in to sell crackers, though last year their number was as high as 30. As against last year’s sales of Rs 10 crore in 10 days, this year the retailer is believed to have sold crackers of Rs 3 crore in value.

Although, this would have rekindled hopes of reviving beleaguered company’s operations in the near future, probability of this happening is very slim as Subhiksha is facing several petitions seeking winding-up of the company’s operations. Madras High Court (MHC) has already posted dates for hearing of these petitions.

Delhi-based, R. C. Agarwal-led, value retailer, has for quite sometimes been finding it hard to meet the challenges of falling footfalls, which on the one hand has resulted in sharply declining sales and on the other in increasing losses. The company, as such, has been finding it hard to timely service its growing financial obligations and even delay payment to its vendors.

The retailer, believed to be currently carrying a debt burden of around Rs 7.3 billion (730 crore), has reported a sharp decline in sales from Rs 3765 million in Q1 (2009) to Rs 2653.7 million in Q1 (2010). The retail chain as a consequence has incurred a net loss of Rs 906 million during Q1 2010 (ending June 2009) against the net loss of Rs 140 million incurred during Q1 2009 (ending June 2008).

Chennai-based discount retailer “Subhiksha Trading,” which had also commenced CDR process under somewhat similar circumstances was, however, unable to take the process to its logical conclusion.

Vishal Retail, which earlier had defaulted on payment of a loan installment, has been trying hard for almost a year with its lenders to reschedule loan repayments and reduce interest rates.

On operational side, to overcome financial stress, the company has initiated several steps that among others include closure of unprofitable stores, closing down regional distribution centres, reducing staff strength, and even selling most of garment manufacturing units.

Vishal may, perhaps, be able to stem the rot if it can succeed in convincing its dozen or so lenders to restructure its debt and reduce interest rates. It should, however, be noted that RBI’s CDR programme is basically meant to help loss making manufacturing companies and not the trading companies like Subhiksha or Vishal.

“Cash & Carry Trading (P) Ltd” –another company founded by R Subramanian– has filed an appeal before the wider bench of Madras High Court to allow it to arrive at an agreement with the creditors of Subhiksha Trading as the first petition seeking the same was earlier set aside by a single judge bench of the High Court, when his lordship allowed admission of the creditors’ petitions seeking dissolution of Subhiksha Trading.   The appeal is expected to come up for hearing before the Court in the next month (October, 2009).

Subhiksha owes around Rs 900 crore to a cross section of creditors comprising financiers, vendors, service providers, property owners, and employees, among others. A major part of this outstanding amount (around Rs 750 crore), has been lent by a consortium of 13 banks led by ICICI Bank Limited. Incidentally, ICICI Bank, through its venture capital arm I-Venture, also owns around 23 per cent of equity stake in Subhiksha Trading.

The lending banks (barring Kotak Mahindra Bank) had earlier worked out a financial package to revive operations of the beleaguered retailer. The financial assistance of Rs 300 crore was sought by the retailer under Corporate Debt Restructuring (CDR) scheme of the RBI. However, despite working out broad contours of the agreement, the revival package could not be inked as the retailer, among others, failed to provide timely information on the company’s financial position.

Kotak Mahindra did not join the revival effort alongwith other lenders in the consortium as it had filed a petition for dissolution of the company. The pending petitions of Kotak and other creditors for dissolution of the company are listed for hearing in the High Court on the 5th October, 2009.

Apart from lenders and creditors, Zash Investments– an Azim Premji owned PE firm– owning 10 per cent of the equity in Subhiksha Trading is also opposed to the compromise mooted by Cash & Carry.

Both Cash & Carry and Subhiksha Trading have been founded, promoted, and managed by R Subramanian, his family, and associates.

In another blow of sorts to the retailer, the court has also allowed Kotak Mahindra Bank to seek objections, if any, from Subhiksha’s stakeholders for winding up of its operations. The bank, which was a part of consortium of 13 lending banks led by ICICI Bank, has been allowed to invite objections of the stakeholders by publishing advertisements in national dailies in English and Tamil for this purpose.

The latest orders of Justice P Jyothimani of the Madras High Court are seen as beginning of the end of a retailer, which in the heydays of retail boom just a few months ago, was presented as a role model of growth in the retail sector.

Subhiksha was, however, forced to suspend operations of its retail chain in January, 2009, as it could not arrange cash for operations of 1,600-odd stores most of which sold food & grocery across the country at discounted rates.

Subhiksha, according to financial position submitted to the court for 31st March, 2008, was owing Rs 928 crore against liabilities and provisions, while carrying a cash balance of Rs 18 crore.

As per Scheme of Arrangement submitted by Cash & Carry, the retailer wanted to settle the secured outstandings as in October 2008 at 50 per cent of the principal amount and payment of balance over a period of 10 years.

Apart from Kotak Mahindra, the retailer is also facing several court cases for recovery of dues from erstwhile creditors including vendors, service providers, employees, and property owners, among others.

Undetered by adverse decisions of the court, R Subramanian, promoter, founder, and managing director of Subhiksha Trading is confident of reviving the operations of Subhiksha. In a statement, he says, “The company is confident that the order admitting the winding up petitions for hearing by the (Honorable) Court has no bearing whatsoever on its revival plans.”

Subramanian is likely to appeal against the court’s orders, once copies of the judgment are received by the company.

The statement of ICICI Bank assumes significance as it has come subsequent to filing of a ’scheme of arrangements’ under Section 391 of the Companies Act. Subhiksha wants the consortium of all its 13 lending banks led by the ICICI Bank to take a 50% hit on the amounts the retailer owes to its lenders. Subhiksha, according to the scheme of arrangements, is said to be agreeable to put in Rs 250 crore in operations of the company.

If the Court accedes to the Bank’s lates submission, it may become extremely difficult to revamp the working of the retail chain. The lending banks have already provided for most of their dues against the company in their books.

The retailer, it may be recalled, for last over six months, has been pinning its hopes on receiving Rs 300 crore in financial assistance from the consortium of lending banks to partly revive its operations. ICICI Bank is apart from being a lead bank in the consortium of lenders is also part holder of equity (23 per cent) stake in the company through its private equity arm I-Venture.

The financially troubled retailer, it may be recalled, was forced to shut down operations of all its 1600-plus stores across the country from January, 2009. Much of the Rs 870 crore received in debt from a consortium of 13 banks is believed to have gone in funding expansion of the company during 2008.

Subhiksha Trading Services Limited, the company which owns the now defunct retail chain, was founded and promoted by R Subrahamanyam, a local banker turned retailer. Apart from banks, the retail chain is also owing large sums of money to vendors, service providers, property owners, and workers, among others.

The position in this regard became clear when employees of the company despite followup could not receive Form 16 from their employer. This has forced the employees to abstain from filing their tax returns with the tax administration.

At one point of time, 15,000 persons were under direct or indirect employment of Subhiksha. Most of these, however, working at front end on low salaries may not have been liable for payment of taxes. The company is estimated to be owing about Rs 35 crore in unpaid salaries and other dues to its employees.

The company in a mailed response, however, has denied any liabity on this account. “We have no dues in respect of TDS in any manner, in respect of any employee,” said R Subramaniam, Subhiksha’s managing director to the newspaper.

The act of deducting tax and not remitting it to the government is an offense for which the company’s management is liable be prosecuted. Those responsible for not depositing the money, without valid reasons, may have to face imprisonment of between 3 and 7 years. The company may also be penalised for failing to issue the TDS certificates to its employees.

Subhiksha, it may be recalled, was forced to close down its discount retail chain comprising 1,600-odd convenience format stores operating across various states of the country. The stores were closed over 6 months ago in January, 2009, due to severe cash crunch.

Subhiksha Trading owes around Rs 1,000 crore to various creditors including Rs 870 crore to a consortium of 13 banks led by ICICI Bank Limited. The company failed to obtain bailout assistance of Rs 300 crore from its lenders under RBI’s CDR (corporate debt restructuring) programme as dedline for sanction of the revival package lapsed aon 31st July, 2009.

The ICICI Bank, which together with other litigants including ICICI Venture, HCL Infosystems, Azim Premji-owned Zash Investment and Kotak Mahindra Bank, is opposed to the company’s proposed merger with Chennai-based Blue Green Construction and Investments Limited, is also opposed to the proposal of compromise mooted for restarting operations of the suspended retail chain. The proposal was mooted by Subhiksha’ subsidiary ‘Cash and Carry.’

ICICI Bank has told the court that the retail chain for its revival should not depend on the outcome of its application for corporate debt restructuring (CDR). The last date for proposed bailout assistance of Rs 300 crore sought by the retailer, as reported earlier, has already lapsed on the 31st July, 2009. There are unconfirmed reports, though, that lenders may seek extension of the missed date in future.

The counsel for various litigants have also sought an investigation into the affairs of the company, which was founded and promoted by its managing director R Subrahmanyam.

During the hearing of the case, ICICI Bank also informed the court that while Subhiksha owes Rs 870 crore to the banks, an amount of about Rs 107 crore is due to unsecured creditors. These unsecured creditors, among others, include vendors, service providers, property owners, and employees of the company.

Referring to an amount of Rs 250 crore under the head of ‘reserves’ in the company’s books, the lead bank told the court that “none of us know where it went.” The company has also lent amounts worth Rs 119 crore as loans and advances, however, the identity of their receipients, according to the ICICI bank counsel, is “unclear.”

Cash and Carry Wholesale, a shareholder of Subhiksha, has  filed a court petition under Section 391 of the Companies Act, that seeks to arrive at a compromise between Chennai-based cash starved retailer company and its creditors.

“We have been informed and notified that Cash and Carry Wholesale Traders Pvt Ltd, the promoter of Blue Green Construction and Investment Ltd, into which we are merging has filed a Section 391 petition before the High Court,” said R Subramanian, Subhiksha Trading Services Ltd’s promoter, founder, and managing director in statement.

A company and its creditors can meet and arrive at a consensus on any matter under the provisions of section 391 of the Indian Companies Act, provided such a meeting has been held under the orders of a competent court.

Subhiksha it may be recalled was forced to suspend operations of over 1,600 convenience stores discount chain in January, 2009, as it ran out of cash to meet obligations of its lenders that among others included banks, vendors, service providers, property owners and employees. Subhiksha is believed to be owing about Rs 800 crore to a consortium of 13 banks, including Kotak Bank (Rs 40 crore) which has petitioned the Madras High Court to wind up the operations of the cash strapped company.

To revamp its suspended operations, albeit on a small scale, Subhiksha sought assistance of Rs 300 crore from its lenders under RBI’s CDR scheme. However, despite agreeing in principle to arrange induction of Rs 250 crore, the retailer failed to obtain approval of its lenders to its proposal within the stipulated time period of six months (up to 31st July, 2009).

Subhiksha, according to the statement, however, is still hopeful of resuming its activities in the next 3 to 4 months as its management is working with lenders on restructuring the troubled firm.

The cash strapped retailer had asked for sanction of Rs 300 crore together with moratorium (postponement of repayment) on existing loans and several other financial concessions like waiver and reduction of interest to restart its operations, albeit on a truncated scale.

12 of the original 13 lenders, except Kotak Bank, who have to recover around Rs 850 crore from Subhiksha are participating in the CDR process. Kotak has excused itself from this process as it has filed a winding up petion against the retailer in the Madras High Court as its to recover Rs 40 crore from the company.

All the lending banks who are not much hopeful of recovering the money due to them have already made heavy provisioning against the due amont as prospects of recovering the outstanding amount, unless the revival package is approved, are becoming difficult every day. Subhiksha may be asked to infuse Rs 250 crore in the operations as a part of revival package.

R Subrahamanyam, Subhiksha’s founder, promoter, and managing director, according to media reports is expected to make an announcement this week in this regard.

As reported earlier, the group of 12 lenders led by ICICI Bank may ask for time extension of one to two months to complete the process. The extension if granted will be first of its kind under the CDR programme. Interestingly, this is also the first non-industial case of revival that is beng considered under the process.

Subhiksha had to suspend operations of all its 1,600-plus stores for want of liquidity. Apart from Banks, Subhiksha owes money to employees, vendors, service providers, and property owners, among others.

The last date for disposal of the proposal under the rules framed for CDR will come to end in the next three days on the 31st July, 2009.

It now appears from media reports that it may afterall be not possible for the banks to complete the sanction process before the due date.

Accordingly, the banks have asked the concerned authorities to extend the time limit by additional two months (up to the end of September, 2009).

According to some bank officials quoted in the report, “it now depends on the CDR (office).” It may be intersting to note here that if the extension is agreed upon by the authorities concerned, it will be first such extension under the CDR programme.

The case of Subhiksha for consideration under CDR package is also unique as the process is basicall meant for reviving industrial companies, while Subhiksha, which operated a retail chain of over 1,600 discount stores mainly under value segment is a trading company.

While, bankers like ICICI Bank (lead bank) together with HDFC, Yes, Stanchart, and HSBC Banks, among others, are processing the revival package that seeks to obtain Rs 300 crore for revamping operations of the chain whose all the stores were closed around January, this year, Kotak Mahindra Bank, another erstwhile consortium member, has refused to be part of the process.

Kotak Bank incidentally has filed a petition in the Madras High Court seeking winding up of the beleaguered company. Kotak has to recover around Rs 40 crore from the cash strapped retailer. Apart from Kotak, Subhiksha is also fighting many legal battles against cases for recovery of dues filed by vendors, service providers, property owners, and employees, among others.

R Subrahamanyam, company’s founder and managing director, has refused to comment on the delay. He together with his friends relatives and associates owns 59 per cent stake in the company’s equity, while I-Ventur and Zash Investment (PE arms respectively of ICICI and Azim Premji) own 23 and 10 per cent equty stakes of the company.

Subhiksha, which operated a discount chain of 1,600-odd mainly food and grocery stores across the country, until January this year, it may be recalled, had approached its financial lenders to whom the chain owes more than Rs 500 crore to work out a package under RBI’s CDR (Corporate Debt Restructuring) programme.

One of the reasons for delay in finalising the package is said to be the non-availibility of financial accounts of the company for the 15-months perid ended 30th June, 2009. The lending banks had appointed the global accountancy firm E&Y to help prepare the accounts.

The consortium of lending banks led by ICICI Bank, according to sources, are willing to offer maritorium on payments and restructuring of capital subject to appointment of an advisory board, a chief financial officer (CFO), corporate governance committee. While, the advisory board is expected to keep tab on operations, the CFO is expected to manage the finances. The governance committee is likely to exercise superintendence and control over company’s policies and operations.

R Subrahmanyam, founder and managing director of the company, is said to be the favourite of the lenders to manage the company’s operations in his present position, on day to day basis. Continuation of Subrahmanyam, who founded and run the company since its inception, is favoured because he is the best person who knows problems and potential of the company.

R Subramanian is believed to have committed to arrange for the additional funds required for revamping the operationds of the company. To begin with the company may restart the operations with 500-odd stores.

Meanwhile, Minister of Company Affairs informed the Loksabha yesterday that the company had not paid salary for three months and closed all units without any communication. The statement of the minister was based on the complaint received from Anil Kumar- an ex employee of the company. Subhiksha is also batteling several legal petition in the Madras High Court challenging its proposed merger with a local company and seeking winding up of the company as it has failed to make outstanding payments against supplies, services, and salaries.

I_ Venture (private investment arm of ICICI) and Azim Premji’s Zash Investment are minority equity holder holding 23 and 10 per cent of the equity in the company. Promoters led by R Subrahmanyam own around 59 per cent of the stake in the company.

“Finance minister’s silence on (easing) FDI norms in retail is a dampener.  I feel the finance minister should have also done away with service tax on rentals, which is currently at 12.5%,” Thomas Varghese, CEO, Aditya Birla Retail.

“The abolition of the fringe benefit tax (FBT) and scrapping of the 10% surcharge on personal income tax would leave more money in the hands of consumers. Increasing expenditure in infrastructure and hiking the income-tax ceiling will increase consumption, which is good for [retailers like] us,” said Kishore Biyani, Founder and CEO, Future Group.

“It is a good budget, but it could have been better. FDI norms have not been touched upon. There were no sops for the retail industry in terms of allowing for greater penetration, despite retail providing employment to a large number of people,” said Ambeek Khemka, Group President, Vishal Retail.

“Lack of clarity on FDI norms is certainly a “negative,” said R Subramanian, Managing Director, Subhiksha Trading Services.

“The abolition of FBT and CTT is the only good thing that has come out of this budget, but there is nothing for the short term,” said V N Dhoot, Chairman, Videocon Industries.

“While, customs duty of 5% on import of set-top boxes (used for the conditional access system) is a negative, slashing of customs duty on LCD TVs to 5% from 10% earlier is a good move. I hope the manufacturers help us pass this benefit on to the consumers, ” said Ajit Joshi, CEO, Infiniti Retail (Croma).

“The budget is a big disappointment. No fundamental or structural issues related with the sector, including FDI and industry status for retail, or reduction in service taxes have been addressed,” said Pinaki Ranjan Mishra, Partner and Industry Leader (Retail and Consumer Product Practice), KPMG. “Steps like extending investment- linked tax incentives in cold storage and hike in income tax ceilings will, however, bring some benefits,” added Mishra.

“The Budget has addressed basic issues, for instance, the Rs 100-per-day wage. In that situation, the rural and urban poor spend with different mindsets. Their spending remains basic and doesn’t necessarily become consumption as we, consumer marketers, would want it to be. At best, the Budget would somewhat cheer rural folk and could spell a favourable rural vote bank for the government,” said D Shivakumar, Managing Director, Nokia India.

“The Budget is silent on FDI too. Apart from some movement in infrastructure and macro-economic issues, it doesn’t promise much. As a retailer, I rue the fact that there’s dissonance in the taxation policy of the Central and the state government. For example, the Maharashtra government has hiked VAT on mobiles from 4% to 12%. The government will have to take a comprehensive look at policies to spur growth to tackle slowdown and unemployment. And that hasn’t happened in this Budget,” added Shivkumar.

Even as Subhiksha, the Chennai-based cash strapped, food and grocery, discount retail chain, battles hard in the Madras High Court, to defend legal cases filed by some of its stake-holders, its founder, promoter, and managing director R Subrahmanian is confident of completing the process of obtaining financial bailout package from its lenders.

The financial package is being processed under the CDR programme of Reserve Bank by 12 of the 13 consortium members led by ICICI Bank. The dedline for finalising the process under the scheme will come to an end by 31st July, 2009. While, one of the consortium members Kotak Mahindra Bank has withdrawn from the process, six of the remaining 12 consortium members are ready to participate in the CDR. The remaining six members, though, are said to be also participating in the revival process.

“Twelve of the 13 bank lenders together with the three major shareholders are thrashing out the contours of the debt restructuring as well as the funds infusion into the company to revive operations. The contours of the revival plan of the company have been agreed (upon),” said R Subramanian in a statement.

“The deadline for closure of CDR is July 31, 2009, and the company is confident that the process will be completed well before that date,” added Sbrahmanian.

While, Kotak Mahindra Bank having filed a winding up petition against the company has withdrawn from the CDR process, “…all the other 12 banks, including the six banks that are part of the CDR and the other six which are not part of CDR, have all been working together on the revival package,” said Subrahmanian.

Subhiksha, according media report, is also believed to have filed a counter petition against Kotak Mahindra Bank in the Madras High Court.

According to Subrahmanian, various stakeholders of Subhiksha are agreeable to finance the revival mainly through equity. Subhiksha, it may be recalled, before suspension of operations of 1,600-odd stores across the country had asked for a debt restructuring of Rs 300 crore. Subhiksha is believed to be owing slightly more than Rs 550 crore to banks, while overall liability to employees, vendors, property owners, and service providers, among others, may be in excess of Rs 750 crore.

According to reports, ICICI Bank has an exposure of over Rs 180 crore, while HDFC Bank has the exposure of around Rs 150 crore. Bank of India, Federal Bank and Yes Bank have exposures of Rs 50 crore each, while Bank of Baroda may be carrying debt of Rs 75 crore in its books.

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).