Key investors of Subhiksha say that the ailing retail chain's managing director R Subramanian has been appointed to the post under the Articles of Association of the company and can be removed only by amending the articles, which would require the approval of three-fourths of the shareholders.

The investors, which include ICICI [Get Quote] Venture, Azim Premji and ICICI Prudential, say that they do not hold more than 38 per cent in the retail company and do not have the requisite shareholding to amend the articles.

ICICI Venture, which alone holds 23 per cent stake in Subhiksha, had earlier rubbished claims made by Subramanian that the private equity company 'controls' Subhiksha  by virtue of its right to appoint a majority of the directors in the company.

The investors explain that Subramanian, unlike in other companies, is specifically mentioned by name in the articles and can remain the managing director for as long as he chooses until the articles are amended and therefore has full control over the company. Subramanian, the founder of the cash-strapped retail company, is also the majority equity holder in the company with a 59 per cent stake.   

An ICICI Venture spokesperson, when contacted, confirmed the special status of Subramanian as managing director in the company.

However, Subramanian says the  position in law is clear: a managing director is not in control of the company; he is in charge of the day-to-day operations of the company. Even if he was appointed under the articles, the powers of an MD are only what is granted by the company board in its discretion to the said MD.

"Every company has an MD -- the law is clear that the control vests with the ones who can appoint the majority of the Board -- the board decides what the company and the MD would do and hence those who have the power to constitute the majority of the board have complete control of the company," says Subramanian.  

He adds: "In such a situation even if I am the MD under articles, which I am, I cannot exercise any power as the board is dominated by and legally in the control of ICICI Venture."

Subramanian had pointed out that as clarified under the Sebi takeover code and the latest policy on foreign direct investment, the right to appoint majority of directors in the company constitute 'control' and ICICI Venture was in control of the company since 2004.

The private equity company also had the right to appoint or remove people in the senior levels as well had the right to control the audit committee and appoint statutory auditors.  

ICICI Venture has recently shot off a letter to the Registrar of Companies in Chennai asking for appointment of an independent auditor to scrutinise the accounts of the ailing company.