NRI investors sue ICICI Venture for $103 mn damages

A group of 69 non-resident Indian investors have dragged ICICI Venture, India’s largest private equity firm, and ICICI Bank to the supreme court of Mauritius on charges that the fund they had invested in failed to deliver the returns outlined initially. The investors have also complained they have been misguided by the two entities, which did not disclose “pertinent information” about the fund’s performance and the risks associated with it, a charge dismissed by ICICI Venture as “baseless and malicious”.

The group of investors has sought $103 million in compensation for a $4.7-million investment made in 2005 in Dynamic India Fund-III (DIF III), which was floated by ICICI Venture and ICICI Bank ($69 million has been claimed as compensation for the damages).

The close-ended fund had a total corpus of $220 million, with 500 investors.

“A plaint with summons was lodged before the supreme court of Mauritius by a group of non-resident Indian and foreign investors against (DIF III), International Financial Services Ltd (IFS), ICICI Venture Funds Management Company Ltd (ICICI Venture), ICICI Bank and the Western India Trustee And Executor Co Ltd,” Banymandhup Boolell Chambers, the legal firm handling the case, said in a statement.

The complaint was lodged in the Mauritius court on July 11. The parties concerned have been served a legal notice and the next appearance in the supreme court of Mauritius is scheduled for November 11, when the plaintiffs have to inform the court whether the defendants have been served a legal notice. Subsequently, the court will decide a course of action.

Gulab Patil, an investor in the fund, said, “The sum of $103 million has been arrived at after calculating the 25 per cent compounded annual growth rate we were promised on our principal when we had invested in 2005.” Patil had made an investment of $250,000.

An ICICI Venture spokesperson denied the charges, saying, “The allegations levelled by a set of investors, constituting only 12 per cent of the investors in the funds concerned, are totally baseless, not supported by facts and malicious. ICICI Venture manages assets of about $2.5 billion and has delivered returns to its investors across various PE (private equity) funds. Further, it is common knowledge that globally, PE, as an asset class, does not guarantee returns, given the equity risks involved. Also, projects in real estate have long gestation periods and, therefore, the returns accrue over a period of time…We extended the fund’s life by three years to optimise the realisations from the portfolio and have also simultaneously offered investors a cash exit option in line with global practices.”

As far as the legal proceedings instituted were concerned, ICICI Venture would take the necessary steps, based on legal advice, the statement added.

In their complaint, the investors said in an executive summary of the fund circulated among investors in April 2005, it was stated the fund would seek to deliver compounded returns of more than 25 per cent a year. They also claimed insufficient documents were provided to them during the investment and, as a result, the disclaimers and the risks associated with the fund weren’t communicated.

The investors' grouse is ICICI had invested in 13 projects in India, of which three properties — one in Hyderabad and two in Mumbai — together accounted for about 60 per cent of the corpus. This was despite the fact that the fund was supposed to spread its investments across projects in various cities. Even after nine years of the investment, except for one, none of these were completed, as stated in a report in March, 2014. “Work on a township project in Chennai, in which the fund invested, hasn't even commenced after nine years due to serious infrastructure problems. Two or three projects are in dire financial liquidity problems. Only one project, in Pune, has been exited after eight years and that, too, considerably under-performed projections,” the investors said.

Though the fund’s tenure had ended in April this year, the PE firm had extended it by three years to 2017. Apart from the supreme court of Mauritius, investors have also filed a complaint with Securities and Exchange Board of India and the Reserve Bank of India.