Two global private equity funds, General Atlantic and India Equity Partners, have filed a petition in the Company Law Board (CLB) to appoint an administrator to wrest control of an investee company Fourcee Infrastructure Equipment, alleging that the promoters have been siphoning off money, a joint release from the funds said. The funds also sought the panel to probe the company’s financials.
The company has grown with investments from PE funds. SIDBI Venture Capital and Mayfield Fund invested $10.98 million in 2010, followed by India Equity Partners ($10 million) a year later and General Atlantic ($104 million) in 2012.
The allegations of extensive forgery and wilful deceit by the company’s current management came to light after an audit by BSR & Company’s, an affiliate of KPMG. The board then appointed Ernst & Young LLP for a forensic audit. The two PE funds, whose representatives have resigned, accused two promoters Rajesh Lihala and Vinay Singh for the alleged financial irregularities. Lihala is the executive chairman and Singh is the company’s managing director. “E&Y’s work is ongoing, but has been substantially impeded by the company’s promoters,” the release stated.
“In conjunction with the CLB filing, GA and IEP are evaluating several litigation options against those responsible, including Lihala and Singh, and will pursue them vigorously in India and other jurisdictions, based on advice from our legal counsel,” the two PE funds said. “We are working closely with auditors and advisors and doing everything in our power to protect our investors and the company’s stakeholders.” PE funds have been bickering with promoters as clashes on corporate governance issues have been on the rise between investors and promoters. In 2011, global funds Bain Capital and TPG dragged the promoters of children’s apparel retailer Lilliput to court, alleging misappropriations of accounts. In 2008, PE funds ICICI Venture had filed a case against bankrupt retailer Shubhiksha.
“With relative success of activism by PE investors in the past, a lot of funds have the confidence of taking on unscrupulous promoters now,” says Sanjeev Krishnan, executive director and head of PE advisory services at PwC India.