Madras HC orders shutdown of Subhiksha

Verdict follows retail chain's failure to repay Rs 40 crore to Kotak Mahindra Bank

This story has been modified. Please see the correction at the end of the article.

The Madras High Court on Wednesday ordered the winding up of Subhiksha Trading Services. The order came in response to a winding-up petition filed by Kotak Mahindra Bank, to which Subhiksha owes around Rs 40 crore.

The court also ordered the official liquidator to take over the assets of the 1997-founded Subhiksha and gave the retain chain three weeks time to respond. Wednesday’s order was in response a petition filed by Kotak, which has been fighting since 2008, saying that the company has failed to repay the amounts due to the bank.

 

R Subramaniam, founder managing director of city-based Subhiksha, said that the company would finalise its course of action on receiving the written order. The chain ran out of cash in 2008-09 after relying on a high level of debt. Problems, though, had begun for Subhiksha in October 2008, when it had started receiving legal notices for outstanding payment. In January 2009, the retail chain was forced to shut down over 1,600 or more retail shops after it went into a cash crunch and defaulted to the tune of around Rs 750 crore to 13 banks.

IN GOOD OLD DAYS

* Subhiksha, founded by R Subramaniam in 1997,opened its first store at Thiruvanmiyoor in Chennai with an investment of around Rs 4-5 lakh

* By March 1999, Subhiksha started expanding rapidly. From 14 stores, it expanded to 50 stores by June 2000. In the next two years, it had 120-130 stores across Tamil Nadu

* The number grew to over 1,600 supermarket stores by 2008 across more than 100 Indian cities

* It began growing rapidly outside TN, soon after infusion of private equity capital by I-venture. Later Azim Premji's PE arm, Zash Investment, invests in Subhiksha

* Its turnover grows from Rs 330 crore in 2005-06 to Rs 833 crore in 2006-07, and then to Rs 2,305 crore in 2007-08. In 2009-10 it was looking at grossing a turnover of Rs 4,300 crore from 2,300 stores

Earlier Kotak said four more creditors, including HCL, were supporting the winding-up. In 2009, Subhiksha’s subsidiary and shareholder, Cash and Carry Wholesale Traders, came out with a compromise petition to reach a settlement with the creditors and vendors. That, was dismissed by the Madras High Court in August 2009, stating that the proposal for revival cannot be termed as feasible.

Fourteen months later, on October 26, 2010, Justice V Ramasubramanian of the Madras High Court dismissed Subhiksha’s merger proposal with Cash and Carry. Then bench raised serious objections and doubts on the Rs 230 crore, which was claimed to be transferred between Subhiksha Services Limited and Blue Green Constructions & Investments Limited. The court, also observing inventories worth Rs 551 crore had vanished, dismissed the proposal, stating that it was mainly to protect Public interest, said that the revival plan submitted by Subhiksha, was based on certain presumptions including infusion of Rs 150 crore, as equity at par, infusion of Rs 100 crore, as fresh debt/debt convertible into equity, incorporating the effect of debt restructuring, utilisation of Rs 51 crore, of the infused cash to create the balancing investments in the fixed assets.

The case went from one court to other, including the apex court, company court, high court. After hearing long arguments, in the past few months, the high court today passed the order to wind up the company.

Subramaniam said that the merger of the company with Subiksha Retail Ltd is under consideration in appeal before the division bench of the high court. Also, as per an apex court order dated November 24, 2009, the restructuring proposal is to be taken up in preference to the winding up proceedings if the merger is allowed by the division bench.

“The company will continue to pursue its efforts at restructuring and revival, as it believes that the company’s operations can be revived,” he said. “Such a revival will be in the best interests of all stakeholders.”

CORRECTION
This article had wrongly stated that HCL was led by Azim Premji, which has been corrected. The error is regretted.