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NRIs sue ICICI Venture

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Dubai-based Indian businessman Gulab Patil among scores of investors sue ICIC Venture over alleged losses on their investments in a property fund run by the private equity firm.

Property market - HousesGulab Patil, who has been authorised by around 500 investors with a power of attorney, told PTI that he has filed the complaint with Sebi on October 16. Mr Patil said that he had invested $2.5 lakh in 2005 when these two funds were launched.

A petition was filed at the Supreme Court in Mauritius seeking to obtain $103 million (Rs 623 crore) in damages. ICICI Venture, a unit of India’s biggest private sector lender ICICI Bank Ltd with more than $2.5 billion (Rs 15,200 crore),  in assets under management, dismissed the allegations as “totally baseless” and added it would “take necessary steps” to respond to the legal proceedings.

Meantime, a group of around 80 NRI investors have sought a probe from the Securities and Exchange Board of India (Sebi) in the matter.

In a 26-page complaint sent to the Sebi on October 16, the investors alleged that two realty-focused funds from ICICI Venture-the Dynamic India Fund III & IV- have taken money from them promising returns to the tune of 25 per cent.

However, none of the 13 projects in which their money was invested are completed well after the committed nine-year gestation period, the complaint said.

The investors want the Sebi to probe the allegations of misrepresentations, concealment and omission of material facts, misleading statements, negligence, and breaches of duty towards the investors by not exercising care and due diligence while managing their investments, as they claim that these misconducts have diminished the value of their investment considerably.

Gulab Patil, who has been authorised by around 500 investors with a power of attorney, told PTI that he has filed the complaint with Sebi on October 16. Mr Patil said that he had invested $2.5 lakh in 2005 when these two funds were launched.

The complaint by 78 investors, mainly NRIs and persons of Indian origin, urged Sebi to probe against ICICI Venture under the provisions of the Prohibition of Fraudulent and Unfair Trade Practices relating to securities markets) Regulations 2003 of Sebi.

ICICI Venture countered the claim of damages, saying the aggrieved investors accounted for a small percentage of those invested in the fund and they had refused to take a ‘cash exit option’ although returns were never guaranteed.

“The allegations levelled by a set of investors, constituting only 12 per cent of the investors in the said fund, are totally baseless, not supported by facts and are malicious,” an ICICI Venture spokesperson had said.

DIF III &IV schemes, registered in Mauritius, are structured as feeder-funds by ICICI Venture and are registered with the Sebi as foreign venture capital investors.

The fund was promoted to be a close-ended fund with a corpus of $220 million. The fund was aimed at developing, leasing, owning and selling quality office and residential properties and retail spaces.

The investors said in a statement they had suffered “huge losses” on their investments in the Dynamic India Fund III run by ICICI Venture, saying only one of its 13 projects in India had been completed as of March, nine years after the fund was incorporated in Mauritius.

The investors added the fund had “invested in real estate projects that flopped miserably, instead of world class ones as the marketing teams promised.”

 

The group, which filed its lawsuit in July, further accused the fund of engaging in “total neglect of due diligence,” of under-estimating cost and completion time of projects, and of also engaging in “overt manipulation of the finances” to escalate costs.

 

Besides ICICI Venture, the group also sued ICICI Bank, the Dynamic India III fund trustee Western India Trustee and Executor Co Ltd, as well as the administrator of the fund, International Financial Services Ltd.

 

ICICI Venture denied the allegations, noting it had extended the lifespan of the Dynamic India Fund III by three years, and had offered investors a cash exit option that was “in line with global best practices.”

 

“The allegations levelled by a set of investors, constituting only 12 per cent of the investors in the concerned funds, are totally baseless, not supported by facts and are malicious,” ICICI Venture said in a statement.