ICICI Venture, one of the key investors in Subhiksha, has a golden share agreement with the cash-strapped discount retailer.
According to the shareholders agreement between ICICI Venture and Subhiksha, the venture capital lender will continue to have an overall control of the Chennai-based retailer even if its stake falls to as low as 2 per cent.
ICICI Venture through its rights under the articles would remain in control of the company as long as it held at least 2 per cent share, R Subramanian, managing director of Subhiksha, said.
In summary, the position was that the managing director is responsible for the day-to-day operations, but ICICI Venture, which is a minority shareholder, was in control of the company, he said. Subramanian controls 59 per cent of the company.
An ICICI Venture spokesperson declined to comment on the issue. ICICI Venture has a 23 per cent stake in Subhiksha. It entered the company in 2000 with a 10 per cent stake and acquired some rights in the company.
Subsequently in 2004, it acquired additional shares, which temporarily gave it a majority control and also the dominant rights. The rights will continue till it has a minimum of 2 per cent of the company.
The rights include it can appoint majority on the Subhiksha board; control all aspects of the functioning, including appointment and removal of all senior management personnel; and control financial affairs by ensuring that the auditors were appointed by it and audit committee and all budgets were approved by it, Subramanian said.
Most important, ICICI Venture was even entitled to ensure that the promoter shares were voted only in its favour on all resolutions, he added.
The issue assumes importance because ICICI Venture has written a letter to the Registrar of Companies (RoC) in Chennai, asking for an independent auditor to be appointed to scrutinise the ailing company’s accounts.
ICICI Venture has alleged that the retailer has not presented them or the board with the 15-month audited accounts ending June 31, 2008, so they are apprehensive of the company’s financial stability and health.
Recently, four directors of Subhiksha resigned. They include Renuka Ramnath, managing director, ICICI Venture, Rajiv Bakshi, joint managing director, ICICI Venture, and independent directors Rama Bijapurkar, an independent management consultant, and Kannan Srinivasan, professor from Carnegie Mellon.
