Subhiksha another Satyam in the making

The Madras High Court has admitted the winding-up petition filed against Subhiksha by Kotak Mahindra Bank and has allowed the bank to publish a notice regarding the petition in the national newspapers. Subhiksha’s Counsel, Mr. Prakash Goklaney, said that this is the first step towards winding up and therefore too much should not be read into this. “The Company is in negotiations with the lenders and will arrive at a solution before the next hearing,” he added. Kotak Mahindra Bank, the lender to the retailing chain, is being represented by Chennai-based law firm, Iyer & Thomas..In December 2008, Subhiksha’s managing director and promoter, R. Subramanian, in a private interview had claimed, “I will add another 2 million sq. ft by the end of the fourth quarter of 2009 to have a store count of 2,200”. Today, the company is on the threshold of closure and has no cash to run its operations. ICICI Ventures, the second-largest shareholder with a 23 per cent stake, has asked the Government for an independent audit of accounts..Kotak Mahindra Bank, the lender to the retailing chain, is being represented by Chennai-based law firm, Iyer & Thomas. Karthik Sheshadri, Partner, is the lead counsel for the Bank and has filed a winding-up petition for the recovery of 40 Crores ($8.3 Million) from Subhiksha. Mr. Sheshadri, speaking to Bar & Bench, mentioned that he is viewing this petition differently from any other winding-up petition. “There is suspicion of illegal siphoning of funds and Kotak is demanding an action through the High Court to investigate the matter,” he said.. The Madras High Court has admitted the winding-up petition filed against Subhiksha by Kotak Mahindra Bank and has allowed the bank to publish a notice regarding the petition in the national newspapers. Subhiksha’s Counsel, Mr. Prakash Goklaney, said that this is the first step towards winding up and therefore too much should not be read into this. “The Company is in negotiations with the lenders and will arrive at a solution before the next hearing,” he added..Premji Invest, Azim Premji’s investment arm, and ICICI Venture are the two major shareholders in Subhiksha, with a 10 and 23 per cent stake respectively. The two investors had also previously filed their objections in the Madras High Court against Subhiksha’s proposed merger with a listed company, Blue Green Constructions. Subhiksha had acquired a 40 per cent stake in Blue Green Construction for Rs 2 Crores ($500,000). Both investors and lenders have asked for a halt to the merger until the ongoing corporate debt restructuring (CDR) process in the retail chain is completed. Interestingly, Satyam, before its accounting scandal broke out, had tried to merge its real estate arm into the listed arm, probably to cover up the fudged balance sheets..Subhiksha’s auditor, Deloitte, has also been facing the heat for not having prepared the company’s accounts for the last 2 years. ICICI Ventures has written to the Registrar of Companies (ROC) requesting an independent audit into the affairs of Subhiksha. Ironically, Deloitte has applied to the Company Law Board to become the statutory auditor of scam-hit Satyam Computer Services after PWC resigned in February from its role as a statutory auditor..The Madras High Court will hear Kotak’s winding-up petition on September 22, 2009 at which point Subhiksha’s fate may finally be decided.