NRI investors sue ICICI for $103 mn: What the case over property investment is all about

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 are claiming losses from their investments in ICICI Venture’s Dynamic India Fund III, which invested the money in realty projects which bombed.

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 petitioners alleged that DIF lll, promoted by ICICI ventures and ICICI Bank, invested in real estate projects that flopped miserably, instead of world class ones as the marketing teams promised.

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“A plaint with summons was lodged before the Supreme Court of Mauritius by a group of NRI 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,” the legal firm handling the case, Banymandhup Boolell Chambers, said.

Explaining the losses suffered by them, the investors said ICICI invested in 13 projects in India of which three properties in Hyderabad and two in Mumbai together consumed approximately 60% of the corpus despite the original promise that ICICI Venture were to spread its investments to projects in various cities across India. Even after completion of nine years of the investments was made, except for one, none of these were completed as stated in their Report of March, 2014.

“Work on a township project in Chennai, in which the Fund invested, has not even commenced after 9 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 from projected growth, the investors said.

“Thus, it is a classic case of total neglect of due diligence, research of suitability taking into account of exit term, outrageous underestimation of cost and completion, alleged negligence and overt manipulation of the finances for escalating costs and serious blunders in judgment of selection of projects " the petitioners aver.

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).

In its response, an ICICI Venture spokesperson said: “The allegations levelled by a set of investors, constituting only 12% of the investors in the concerned funds, are totally baseless, not supported by facts and are malicious”.

Stating it manages assets of over $ 2.5 billion and has delivered returns to its investors across various funds, ICICI Venture said it is common knowledge that globally PEs do not guarantee returns given the risks involved. Also, realty projects have long gestation period and hence the returns accrue over a period of time, it claimed.

The statement further said that it has extended the life of the said fund by three years to optimise realisation from the portfolio.

“As far as the legal proceedings instituted are concerned, ICICI Ventures will take necessary steps regarding the same based on legal advice,” the spokesperson added.

The close-ended fund had a corpus of $ 220 million and its primary objective was to develop, lease, own and sell quality office buildings, residential premises and retail spaces attractive to quality tenants/users and appeal to long-term institutional investors.