ICICI Venture, which owns a 23 per cent stake in the beleaguered Subhiksha Trading Services, said its hands "are tied'' as the majority owner and founder of the retail chain, R Subramanian, kept all investors in the dark on the troubles of the company and failed to submit audited financial details.

ICICI Venture sold 10 per cent of the stake to PremjiInvest for Rs 300 crore in March 2008 even as Subramanain failed to submit financial details of the company. The ICICI Bank [Get Quote] arm has a total exposure of Rs 106 crore to the retailer, whose operations are at a standstill. Subramanain owns 59 per cent of the retailer.

ICICI Venture refuted Subramanian's claim that it had a golden share agreement or veto power.  "We have only consent rights like any other investor,'' Renuka Ramnath, Managing Director & CEO, ICICI Venture, told media persons today.

"As a responsible investor, despite being minority shareholders and not having management control, we are talking to all players concerned and trying to seek a possible solution which will be in the best interest of all, including the employees," she said. However, the solution was contingent on "ICICI Ventures' understanding of the nature and extent of the problem, which a forensic audit would throw up," she said.

ICICI Venture has written to the Registrar of Companies seeking an inquiry into the operational, managerial and financial affairs of Subhiksha for the period commencing from April 1, 2007 till date. It is also seeking an independent audit and appointment of a credible firm to investigate the accounts of the retailer.

The board, comprising independent directors and representatives of ICICI Venture, before their resignation was presented with audited accounts till 2007. The retailer is yet to submit audited balance sheet for the period thereafter. Subramanian, however, in a statement claimed that the company's financials up to March 2008 have been audited based on which it paid tax.

The retailer for the year ended March 31, 2007 had shown a turnover of Rs 839.56 crore and a profit before tax of Rs 18.36 crore. The inventories for the period were Rs 279.32 crore and secured loans of Rs 245 crore. ICICI Venture alleged that Subhiksha through its presentations said that it was doing well and was aggressively pursuing a growth strategy which involved almost doubling the number of stores in two years from April 2007. It had said there were 1,300 stores at the end of March 2008 with a target to reach 2,200 stores by March 2009 and it had already crossed 1,620 stores by August 2008.

The retailer also acquired a Chennai-based non-banking finance company and planned to reverse merge Subhiksha with it in a bid to list and widen the investor base after the near collapse of the global and local stock markets.

But ICICI Venture was taken by surprise when Subramanian approached the company for Rs 50 crore liquidity support to stock up the stores, against pledge of shares. In October, ICICI Venture received legal notices with respect to outstanding payments and some of those were also marked to independent and nominee directors of Subhiksha.

This prompted ICICI Venture to conduct a field inquiry which revealed a different picture including low inventories and a much more severe problem than made out by Subramanian.

"We didn't know what to trust and what was the real intention of the merger,'' Ramnath said. At the board meeting held on November 22, 2008 the management was questioned on the financial aspects, including the inventory positions of Subhiksha. In this meeting the management admitted for the first time the seriousness of the problems.

The board then asked Subhiksha managing director to appoint KMPG to carry out an independent review of accounts, appointment of a CFO by Subhiksha, and complete the audit of accounts before December 31, 2008.

The management failed to implement any of the decisions, Ramnath said.