Premji sends legal notice to board and former directors of Subhiksha

The Azim Premji-owned Zash Investments has upped the ante in its dispute with the board of troubled retail firm Subhiksha by

sending a legal notice to all its current and former directors over their alleged failure to perform their duties.

Zash, which owns 10% of Subhiksha, has said that the directors, including those belonging to ICICI Venture, another leading shareholder, did not fully probe the retail firm's financials and did not provide proper numbers when Zash bought a stake in the company last year.

The move threatens to further derail Subhiksha's attempts to extricate itself from an overdose of debt and unwise investments. At the heart of the dispute is Zash's purchase of 10% in Subhiksha from ICICI Venture in 2008 for Rs 230 crore. A few months after the deal, Subhiksha ran out of cash and asked its banks to moderate its debt obligations. It also shuttered all its 1600 shops across the country and could not pay its salaries. Zash is now demanding answers, saying that it was misled on the true financial position of Subhiksha.

Zash's move could also complicate matters for Subhiksha in another respect. A dispute between its shareholders (Zash and ICICI Venture) is the last thing the beleaguered retail company wants. Attempts to restructure its loans through a corporate debt restructuring programme is proceeding slowly after bankers rejected a set of proposals put forward by the company.

It is not known if Zash will follow through and actually take the directors to court. A courtroom battle is in the offing if Zash, ICICI Venture and Subhiksha don't resolve the issue soon. The notices have been sent to Rajeev Bakshi, joint managing director of ICICI Venture, Renuka Ramnath, former managing director of ICICI Venture who quit the firm a few months ago, independent consultant Rama Bijapurkar, former LIC chairman SB Mathur and Kannan Srinivasan, professor at Carnegie Mellon University. Bijapurkar, Srinivasan and Mathur have quit the Subhiksha board.

An official of Zash, the personal investment vehicle of Wipro chairman Azim Premji, confirmed that legal notices have been sent; a director of ICICI Venture, the country's largest domestic private equity firm, confirmed the receipt of a notice but declined to elaborate further.


Mr Subramanian, the promoter of Subhiksha, has not received the notice while Mr Mathur refused to discuss the subject. "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," an official of Zash said. "Premji Invest will go after everyone, who mislead it in buying a stake in the company," he added.

Zash, which bought a 10% stake in Subhiksha Trading Services for a consideration of Rs 230 crore from ICICI Venture last year, alleges that ICICI Venture kept them in the dark over the retail firm's financial problems.

Even in its petition opposing Subhiksha's merger with Blue Green Constructions and Investments (filed in February), Zash alleges that being a minority stakeholder it did not have any board representation and depended entirely on the representation made by the Subhiksha Board when it consented to the scheme of amalgamation of the two entities in July 2008.

It goes on to add that it was as late as December 2008 when it first came to know of the financial position of Subhiksha resulting in non-payment of salaries and PF dues to employees. It was in December only that it was made aware of the loans ICICI Venture had "provided the transferor company (Subhiksha) loans in September to tide over the financial crisis of the transferor company".

In a media update on Thursday though, Mr Subramaniam claimed the CDR process was on track. "Twelve of the 13 bank lenders together with the 3 major shareholders are presently thrashing out the contours of the debt restructuring as well as the funds infusion into the company to revive operations... It has been agreed between the various stakeholders that considering the existing debt levels the entire revival will be equity financed so as to put the company on a sound footing." He went on to add that out of the 13 bank lenders, only Kotak Mahindra Bank had chosen to go legal. The six banks participating in the CDR as well as the remaining six have all been working together on the revival package.

Subhiksha owes Rs 750 crore to 13 banks and has said that it needs another Rs 300 crore to get it operations back on track. Subhiksha is also facing a spate of litigations at the Madras High Court — a winding up petition filed by Kotak Mahindra Bank and HCL Infosystems, petitions against the merger of Subhiksha and Blue Green filed by a clutch of investors including ICICI Venture, ICICI Bank and Kotak Mahindra Bank.