Mumbai/Chennai: At half-past seven on the morning of 1 December 2015, two cars pulled up outside 199, St Mary’s Road, in Alwarpet, a South Chennai neighbourhood that still has a few bungalows in what is increasingly becoming a city of apartments.

A man alighted from one of the cars and told the guard at 199, itself a bungalow, that he and his colleagues were from the income-tax (I-T) department. The guard, obviously flustered—a visit from the taxman isn’t a daily affair, and definitely not in St Mary’s Road—alerted the inmates of the house over the intercom and let the tax officials in.

The house belonged to A.M. Arun, founder of Vasan Healthcare Pvt. Ltd, one of India’s best known eyecare hospital chains.

Arun’s son, Yudish, 18, opened the door, as his father walked down the stairs from the first floor.

“Dr. Arun, we are from the income-tax office," said a man flashing his ID card.

“Fine sir," said Arun, 47, who has the habit of calling almost everyone sir.

“We have come for a search operation."

“Fine sir. We will cooperate."

In all, 10 officials entered the bungalow, men and women. And they began looking—for cash, jewellery, land records, property holdings, bank documents or any incriminating document that would suggest suppressed or undisclosed income. For the next 10 hours, the officers searched and took copious notes, picking up documents every once in a while and asking questions. They looked everywhere—inside the cupboards, inside suitcases, under the bed, feeling the inside of mattresses, in the kitchen cabinets… everywhere—turning the house upside down.

At 10am, another joint team of seven I-T and directorate of enforcement officials landed up at Vasan Healthcare’s office in Mylapore, Chennai. They stayed longer—one-and-a-half days.

The news spread fast. Almost everyone started connecting the dots like they always do, eager to unearth conspiracies that may or may not exist—friendship with a politician, black money, tax evasion, unlawful gains.

After all, Vasan Healthcare had imploded—losses, a mountain of debt, court cases to wind up the company and pending dues to suppliers.

The issue had been simmering for a while. Allegations had been aired of Arun’s closeness to Karti Chidambaram, son of former Union minister of finance P. Chidambaram. Of Karti having used Vasan Healthcare to launder black money.

A few months before the raid, in September, in a series of articles in The New Indian Express, S Gurumurthy, a Rashtriya Swayamsevak Sangh ideologue and Chennai-based chartered accountant, alleged that Chidambaram received black money through Vasan, which he and his son owned through front companies, specifically Advantage Strategic Consulting Pvt. Ltd (more on this later). In August, a notice from the I-T department had arrived at Arun’s father-in-law V. Dwarakanathan’s house and another at Vasan’s headquarters.

View Full Image A.M. Arun, founder of Vasan Healthcare. Photo: Sharp Image/Mint

Chidambaram issued a statement of denial in response to the allegations.

He said: “Let me say clearly that the entire report is false, malicious and part of a political campaign against members of the UPA (United Progressive Alliance) government or individuals belonging to the Congress party.

“Neither I, my son nor any member of my family have any equity or investment or economic interest in the company concerned."

He added: “I would like to say through this statement that the media must be responsible and truthful. Carrying false and malicious reports without independent verification will certainly attract the provisions of law and I shall not hesitate to place the matter in the hands of my lawyers to take appropriate action under law."

And then came the December operation by the tax department which Chidambaram described as a “malicious onslaught" by the Bharatiya Janata Party-led government at the centre.

In Chennai, talk about the raids ranged from the generous, “Arun may have done it" to the harsh, ‘Of course, he is guilty".

What actually happened at Vasan is an extraordinary story. This is that story. Of how Vasan Healthcare, once a unicorn and darling of the healthcare industry, a jewel in the crown of marquee venture capital (VC) funds Sequoia Capital India Advisors Pvt. Ltd and GIC Pte. Ltd (formerly Government of Singapore Investment Corporation) fell from grace.

This is the story of a company’s lust for growth and valuation, which took precedence over any sort of financial discipline—all of it exacerbated by a board that allowed the problems to fester for years. This is the story of an entrepreneur who micromanaged everything. It is also the story of collateral damage when entrepreneurs cosy up to politicians and, when the tide runs out, are caught in the cross fire of political vendetta.

View Full Image Alagappan, who was on Vasan’s board till August 2015, had first cautioned Arun to stop at 125 centres. Photo: Sharp Image/Mint

Above all, this is a cautionary tale.

This story is based on several accounts from people who have known Arun, or have been associated with Vasan. A few agreed to speak on record, including Arun himself and M.A. Alagappan, former executive chairman of the Murugappa Group, who was on the board of Vasan till August 2015. But many requested not to be identified, considering the I-T and directorate of enforcement investigation into the company’s affairs.

Mint reached out to Karti Chidambaram. In a text message he said: “I have no comments to make on speculations. I am neither a shareholder nor a director of the company."

Even as Arun’s troubles with the I-T department started, he kept his investors, both Sequoia and GIC, in the dark.

In an emailed response to a detailed set of questions, Sequoia said: “Sequoia Capital India has been closely following recent developments regarding Vasan Healthcare. These developments include allegations of wrongdoing by Vasan Healthcare and a related governmental investigation. Investment funds associated with Sequoia Capital India hold a minority interest in Vasan Healthcare and have always advocated that Vasan Healthcare operate entirely within the law. Previously, VT Bharadwaj, a Managing Director of Sequoia Capital India Advisors Private Limited, served as Sequoia Capital India’s designee on the Vasan Healthcare Board of Directors. During his tenure on the Board, he demanded that management of Vasan Healthcare conduct a thorough investigation into the allegations. Sequoia Capital India fully supports the related governmental investigation, has adopted a policy of full compliance with that investigation, and has dutifully responded to governmental inquiries received to date."

Bharadwaj resigned from the board of Vasan in November last year. In a strongly worded letter, he chided Arun for not keeping the investors in the loop when the company received summons, for significant delays in filing the company’s audited financials and for failure to clear its dues with vendors, among several issues. “The conduct of the company and the concerned officials in handling this issue clearly lacked in meeting the requisite corporate governance norms," he said. Mint has seen a copy of the letter sent on 18 November.

GIC did not respond to a detailed questionnaire sent on 6 January. Arjun Gupta, head of portfolio and head of consumer and healthcare at GIC, did not respond to an e-mail sent to him. Gupta resigned from the Vasan’s board in November. Highlighting similar issues as Bharadwaj did, Gupta wrote in his resignation letter: “My well-earned reputation in the market developed with a lot of hard work and commitment on my part, has been put at risk by the Company and I have been exposed to unwanted letters/ communications from third parties and press in the capacity of a director of the Company." Mint has seen a copy of the letter sent on 23 November.

To understand the Vasan story, one has to travel back in time to 2008, when Sequoia discovered a tiny bootstrapped start-up in Trichy, led by a gregarious, grassroots entrepreneur.

The McDonald’s of healthcare

The business case for an eyecare hospital is excellent. All human beings need to take good, proper care of their eyes. With age, more so. Be it surgery for cataracts or eye diseases, eyesight correction or plain vanilla spectacles, vision is of paramount importance. A World Health Organization report published in 2012 stated that India has an estimated 12 million blind people and an additional 456 million people who require vision correction. In 2008, single specialty healthcare in India was estimated to be an $80 billion market. Almost all of it virgin territory, thanks to the lack of public or private hospitals.

Except, Vasan Healthcare was in the thick of it.

How it got there can only be called an example of serendipity. In its earlier avatar, Vasan ran pharmacies and multi-specialty centres where it conducted lab tests, such as ultrasound and endoscopy. Businesses which Arun dabbled in after inheriting a chain of pharmacy stores from his father A. Murugiah, who died when Arun was just 19 years old, in 1988.

Vasan started out as Vasan Medical Hall, a pharmacy store, in 1947 in Trichy. In 2002, the company entered into a technical collaboration with Dr. Agarwal’s Eye Hospital, a renowned eye clinic in Chennai that was set up in 1994. The collaboration resulted in an eyecare hospital in Trichy. Soon enough though, Arun figured that it was the eyecare business that excited him the most and the one with the brighter future. So he started expanding it, opening more centres.

In the next six years, Vasan set up seven new centres. In March 2007, the company entered Chennai, the home turf of Dr. Agarwal, by acquiring Prem’s Eye Clinic (a premier eye clinic) for ₹ 3.5 crore. Arun convinced K. Premraj, the founder of Prem’s Eye Clinic, to come on board as chief mentor. He did. By March 2008, Vasan had clocked revenue of ₹ 45 crore, with a network of 14 centres, almost all of them in Tamil Nadu and Kerala. That’s when Sequoia Capital came calling.

The VC firm was impressed.

Existing eyecare use case: check.

Daycare model, with low capital investment, no need for beds and lavish infrastructure: check.

Non-real estate model: check.

High margin in eye surgeries: check.

High margin in selling spectacles and lens: check.

Good doctors such as Premraj: check.

Bootstrapped start-up: check.

Grassroots entrepreneur with a real back story: check.

What was not to like?

Eyecare hospitals are of three types—tertiary (large centre, takes about ₹ 8-10 crore to set up), secondary (medium sized centre, takes about ₹ 4-5 crore to set up) and primary (small centre, takes about ₹ 1-3 crore to set up). All centres can do cataract operations. All of them sell spectacles and lenses, the so-called optical business. Complicated surgeries go to secondary and tertiary centres. Margins on the smallest to the most difficult surgeries and the optical business is anywhere between 30% and 50%.

View Full Image Sequoia’s Bharadwaj, in a letter sent on 18 November 2015, chided Arun for not keeping investors in the loop.

A simple cataract operation on one eye costs about ₹ 18,000. Purely at an Ebitda (earnings before interest, tax, depreciation and amortization) level, a hospital can make about ₹ 5,000 per eye for a surgery. For 10 cataract surgeries, every day of the year, for one eye: ₹ 1.8 crore. For 50 surgeries every day of the year, for one eye: ₹ 9.1 crore. Bottom-line: 50 patients walking into an eyecare hospital every day is a good number.

In September 2008, Sequoia initiated due diligence. It brought in Grant Thornton to audit the books, Amarchand Mangaldas for legal and Ernst & Young for commercial diligence. At the same time, it commissioned a consumer survey to understand the demand for eyecare and Vasan’s perception in the market.

As part of the exercise, Sequoia also carried out a KYC (know your customer) check on large shareholders in Vasan. The name Advantage Strategic Consulting Pvt. Ltd cropped up—promoted by an individual named Chinnabala Nageswara Reddy and two other directors (Ravi Visvanathan and Padma Visvanathan), the firm held a 5% stake in the company. Their association with Vasan went back a few years to when Arun was running the pharmacy business.

No red flags were raised. Everything checked out fine; Sequoia was excited by the business model and the entrepreneur. After due diligence, which lasted about four months, in February 2009, the firm invested ₹ 50 crore in Vasan Healthcare. Sequoia’s Bharadwaj was named to the board.

Inside Vasan, the mood was jubilant. While ambitious, Arun, even in his wildest dreams, hadn’t fathomed that a marquee VC firm like Sequoia would invest in his company. With ₹ 50 crore on the table, he now started dreaming big. The top team at Vasan went on an off-site to Yercaud, a hill station in Tamil Nadu, to strategize and plan. There, they decided to expand to 100 centres by 2015. We can do this, was the conclusion. Let’s build the McDonald’s of healthcare in India.

Whatever could go wrong? Part 1

With every centre that Vasan added, Sequoia’s appetite for the company grew. In 2009 alone, the company grew at a frenetic pace to add 28 new centres. It expanded to Andhra Pradesh and Karnataka and started going deeper in Tamil Nadu and Kerala. In February 2010, WestBridge Capital India Advisors Pvt. Ltd (formerly part of Sequoia) invested ₹ 50 crore in Vasan. K.P. Balaraj of WestBridge was named to the board.

By March 2010, Vasan’s revenue grew to ₹ 158 crore (compared with ₹ 95 crore in March 2009). The company recorded a handsome Ebitda of ₹ 54 crore. Profit after tax (PAT) was ₹ 25.6 crore.

A few months later, in October 2010, Sequoia reached out to Advantage Strategic Consulting Pvt. Ltd to buy out its equity stake in the company. Advantage wasn’t interested. After a few rounds of negotiations, Advantage sold a partial stake (30,000 of the 150,000 shares it held in the company) to Sequoia at ₹ 7,500 per share—a significant premium, considering that Advantage had acquired the shares at ₹ 100 each.

Vasan was doing well. Unlike other eyecare hospitals, it helped that Vasan invested in marketing, most importantly a sustained television campaign. Patients started flocking to its centres. For instance, on the first day that Vasan opened a centre in Ramanathapuram (Tamil Nadu) and Thalassery (Kerala), more than 100 patients showed up. People had heard of Vasan from their relatives in the big cities, or seen the TV ads. Centres in Dindigul and Ramanathapuram in Tamil Nadu and Thalassery in Kerala reached Ebitda break-even in just two months of opening. It was a similar story for the other centres, most of them registering an Ebitda break-even in less than a year.

For Arun, this was a significant validation of his business model. It is another matter altogether that instead of being content, he started fretting.

That’s because 2010 was the year that VC firms discovered the theme and potential of single specialty hospitals. So they started putting money in eyecare. New Delhi-based Centre for Sight raised funding from Matrix Partners. Eye-Q Vision received funding from Helion Venture Partners and Nexus Venture Partners. Watching from the sidelines, Arun was concerned that if he left the North India territory open for competitors, it would be a setback for Vasan. He wanted to grow and go after his competitors.

At the time, it seemed like the right thing to do, because Vasan’s aggressive growth had played out well. In March 2011, Vasan’s revenue doubled to ₹ 310 crore. Ebitda, too, grew 2X to ₹ 96 crore. PAT was ₹ 37 crore. Arun also strengthened the composition of the board of the company by bringing in Alagappan. Alagappan picked up a small stake by investing ₹ 2 crore and was happy to be Arun’s sounding board.

In Arun’s mind, the logic for expanding to the rest of the country was simple. Once a Vasan centre was opened, patients would come. The network would grow. The brand would grow. The revenue would grow. And valuation would increase and everyone would make money.

What could go wrong? he reasoned.

The investment from WestBridge and the company’s Ebitda only increased Arun’s confidence. The target of 100 centres was within reach. He wanted to get there as quickly as possible. In October 2011, Vasan entered east India, opening two flagship centres at Salt Lake City and Howrah in Kolkata.

On the day of inauguration of the branch at Salt Lake City, all of three patients walked in.

Vasan started advertising in newspapers: “Doctors from Chennai are coming to your city". The number went up for a few days and then dwindled. The company invested in marketing once again. Another round of TV campaigns were aired. Real patients, real stories. “I am happy with Vasan."

Even as all this was happening, Arun and the existing investors started wondering if the theme of single specialty hospitals would play out in other fields, such as dentistry. Arun and Premraj took it upon themselves to prove that it would. Almost immediately, a plan was drawn up to open Vasan dental hospitals. Not one but 11 of them. And so, even as Vasan was entering new territories, it entered a completely different line of business.

But there was only so much cash available. To bridge the shortage in capital, Vasan started borrowing—mostly short-term loans from banks and non-banking financial institutions. For every loan, Arun pledged his properties as collateral. In his mind, he was confident of coming good on the repayment, thanks to the quick Ebitda break-even of his new centres.

As 2011 was drawing to a close, the mood inside Vasan was celebratory. At its corporate headquarters, a cake was cut for the opening of every new centre. On 26 December 2011, the then Prime Minister of India, Manmohan Singh, inaugurated Vasan’s 100th eyecare centre at Karaikudi in Tamil Nadu.

Doctors from Chennai travelled to every new centre to conduct the first surgery. Arun himself would be on calls with his operations team in the field almost all the time, working late into the night. It was around this time that Vasan found interest from another marquee investor.

Enter GIC.

Whatever could go wrong? Part II

By March 2012, Vasan had grown into a giant in the eyecare business. That year, it recorded revenue of ₹ 451 crore, Ebitda of ₹ 79 crore, and PAT of ₹ 9.5 crore. That was 4X growth in revenue in just three years. It had a network of 103 eye hospitals and 27 dental centres.

GIC was excited to come on board. And it wanted to invest $100 million (around ₹ 500 crore then). Not a penny less.

Vasan went to town with the news. The press lapped up the story. At the time, $100 million was the largest private equity investment in healthcare. Arun and Vasan Healthcare became the toast of the town. After one interaction with Arun, Michael Moritz, the legendary investor and chairman of Sequoia Capital, called him “a tornado of energy".

Less than 20% of GIC’s investment finally came into Vasan itself. Both Sequoia and Arun saw GIC’s investment as an opportunity to make some money. For themselves. Both did a secondary sale, selling their shares to GIC. No fresh shares were issued. Sequoia and Arun pocketed ₹ 170 crore each. A few top officials and doctors, who had equity stock options, also cashed out. Of GIC’s ₹ 500 crore investment, only ₹ 90 crore made its way into Vasan. And Arjun Gupta of GIC was named to the board.

One explanation for this is that the board didn’t want to say no to GIC but also realized that Vasan didn’t need $100 million.

Arun’s appetite for growth now knew no bounds. He had a fascination for numerology—he wanted to open 11 new centers on 11 November 2011 (11/11/11). When that didn’t happen, he opened 11 new centres on 11 November 2012.

Life at the top at Vasan had become increasingly stressful. Premraj, who turned 60 and was in the habit of flying to every new centre to conduct the first surgery, started feeling that he was getting too old for that life. “My stomach was full," he said. “I had worked for 35 years, my children were settled abroad, so when I turned 60, I could feel my age. My body couldn’t take the travel anymore, going to distant centres, staying there for four or five days, it was getting very tiring. So I decided to retire."

Initially Arun resisted, asking Premraj to hang on for some time but in January 2013, Premraj moved to Coimbatore.

Meanwhile, Vasan kept growing. In the period between March 2012 and March 2013, the company added 40 new eyecare centres, expanding to Delhi, Punjab, Haryana, Gujarat and Maharashtra. The company also went international, opening centres in West Asia (Dubai and Abu Dhabi) and Sri Lanka. By March 2013, Vasan had grown to a total of 170 centres. With very little equity capital at hand (and this is where the GIC investment would have helped, had it come to the company), Vasan was relying almost entirely on debt to fund the expansion. As of March 2013, Vasan’s debt ballooned to almost ₹ 800 crore.

It was then that Alagappan cautioned Arun for the second time. He had first cautioned Arun to stop at 125 centres, but Arun had persisted. At 170, the board put its foot down. No more.

“I only wish Arun had taken my advice," said Alagappan. “I first told him to stop at 125 but he didn’t adhere to my advice. I told him not to go abroad till the domestic market was settled because then everybody’s concentration in the company would be on the overseas markets. I’d seen that in my experience with companies. To a large extent he took my observations in this matter but as a first-generation entrepreneur, Arun saw the valuation and he wanted to grow further. I told him, at least stop at 148 but before I could say Jack, it went to 175."

Even as all this was happening, investors started getting the feeling that Vasan had a much graver challenge than debt. Its centres in the north, east and west were taking a much longer time to break even. Quite a few had been around for a year and they were far from being Ebitda-profitable. The investors dug deeper and realized that most of the new centres had been built at a far higher cost compared with the centres in south India. The cost of rentals, cost of putting up the furniture and decor (standard Vasan look and feel) was far higher, even as fewer patients were coming in.

To make things worse, Vasan’s centres in south India, especially in Tamil Nadu and Kerala, had started cannibalizing each other.

The board took up the matter with Arun. Perhaps the market in south India was saturated, it told him. Too many players, too many centres. Arun’s response: far from it. Give it time. All centres will break even, it’s just a matter of some time, he argued.

As of March 2014, Vasan’s revenue grew to ₹ 728 crore. Ebitda was ₹ 131 crore. But the company made a loss of ₹ 50.3 crore. And it had debt of ₹ 1,200 crore.

It had 200 centres.

The alarm bells were going off.

‘I made a mistake’

It is 11 January 2016. We’ve been waiting for Arun for over two hours now at Vasan Healthcare’s corporate office in Chennai. As the hours have passed, we’ve moved—in sync with his schedule of arrival—from the reception to inside the office to outside the chairman’s cabin and finally at around 7:30pm, inside the chairman’s office.

The room is freezing, white and has a curious decor combining contemporary furniture and gods and goddesses.

There are Stanley white leather sofas at one end, a Bang & Olufsen television hanging from the ceiling above it and a Piguet wall clock next to it. Bang opposite the sofa is the chairman’s large working table. On it are several random knick-knacks, pens, paper notes, a Montblanc watch, a Mac desktop on the left and two stacks of business and leisure magazines on the far right. Just behind the chairman’s chair, the wall is adorned with pictures of all sorts and forms of gods and goddesses—Shiva, Lakshmi, Ganesha, Murugan, Shirdi Sai Baba and many more. On the right is a bookcase filled with books : Capital in the Twenty-First Century by Thomas Piketty, Barack Obama’s Dreams From My Father, Jugaad Innovation, The Secret to Winning Big, Unlimited Power, Winning by Jack Welch, Business @ The Speed of Thought by Bill Gates, The Pocket Oxford English Dictionary, Good to Great by Jim Collins and several others.

At 7:40pm, Arun walks in. He is dressed in a white shirt, beige corduroy trousers and brown loafers.

White is a colour the man likes. He usually wears white shirts and white trousers.

“Sorry, I’m late. There was just too much traffic. I was thinking of going home but then I knew you would be waiting. So I came here just for you."

No. No problem. Not at all. Thanks for taking the time.

“Have you had something to eat? Drink?"

Yeah. We had coffee.

(Rings a bell. His assistant comes in.)

“Coffee? Tea? Juice, you want juice? Garlic bread? Yes. Get them some garlic bread."

(The assistant leaves)

“Now, what story are you writing?"

What happened at Vasan? You know, it was a unicorn, valued at more than $1 billion and it all went wrong…

“See, nothing went wrong. There was a turbulence of cash flow. (It was a) temporary issue. I made a mistake. But anybody can make a mistake. We expanded rapidly. In 2012, we were in four states with 100 centres. In 2014, we were in 19 states with 200 centres. There was expansion and cash loss; how can you sustain the business? How can you support 200 centres? I don’t mean to say this but even God cannot create what we did in such a short time."

Whatever could go wrong? Part III

By mid-2014, it was clear that Vasan needed intervention. At ₹ 1,200 crore, the debt was too high. It had started affecting the company. So much so that Arun was spending almost all his time juggling finances and fire-fighting on repayments. In May 2014, the board decided to do something about it and arrived at a decision to go for a rights issue. Arun put in ₹ 170 crore, Sequoia ₹ 80 crore and GIC ₹ 100 crore. Vasan Healthcare was valued at ₹ 3,000 crore.

The investors had a simple plan in mind. Along with Arun, they would take the money and sit across the table with Corporation Bank and retire a huge loan of ₹ 180 crore. In return, Corporation Bank would release a clutch of Arun’s property (worth ₹ 150-odd crore), which it had held as collateral. Arun would then sell the property and invest the money back in Vasan. Simple enough.

What actually happened is this. Corporation Bank said no. Vasan had a working capital loan running with the bank, so just to be sure that everything was in order, the bank would continue to hold the property as collateral.

Even as all this was happening, Vasan started getting suitors from the healthcare sector across the world—specifically Malaysian conglomerate Sime Darby Group and South African hospital chain Netcare. Both were interested in picking up a large stake in Vasan, valuing the company at more than $1 billion. To the tune of almost ₹ 7,000 crore. A unicorn. Newspapers caught a whiff of the deal and started reporting on the impending transaction. The Economic Times reported on 28 July 2014, quoting people with knowledge of the matter, that around 51% would be sold, with the promoter also selling a part of his stake. Talks progressed, especially with Netcare, but then it all came to a standstill on a simple point.

There was no balance sheet.

What are the numbers? And where are they?

This is at the crux of Vasan’s implosion. Vasan grew from 14 to 200 centres in just three years of operations, but there were no financial controls. At the board level, there was no concept of plans, budgets and approvals. Whatever Arun would present would sail through. If not, he would cajole his way through. If there was a variance in the amount that had been spent, no red flags were raised. The board believed that Vasan was a growth company, a start-up, and convinced itself that adding controls would hinder growth. Their logic: after all, it is a promoter-driven company.

In its simplest form, what is financial control? It is delegation of decision making to spend money and be accountable for it if something goes awry. At Vasan, there was only one person who called the shots—Arun. In the three years of unhindered growth, he micro-managed everything, from operations to finance to marketing. That level of micro-management reflected in the organization. In three years, Vasan had failed to implement SAP, or Systems Applications Products, an enterprise software system. There was too much cash floating in the system—sometimes dues to vendors and doctors were settled in cash. To add to it, Vasan had failed to deposit with the government tax deducted at source (TDS) of ₹ 19.22 crore that it had deducted from the salaries of its employees in 2012.

And then there was the far bigger problem of Arun—whenever he was running short of money, he would borrow and put it in the company.

“There were a lot of transactions between Arun and the company," said Alagappan. “He had invested a lot of his own money. He was borrowing outside and putting it in the company. Then money was going back to him, going in dribs and drabs. That is why getting the balance sheet out took time. The auditors became much more cagey. If he had got the balance sheet out on time then the current problem would not have arisen."

In the second half of 2014, board meetings of Vasan became infrequent and moved from the company’s headquarters to the Taj hotel. In the meetings, it was evident that Arun’s entire focus was on making repayments for loans, juggling supplier payments, re-negotiating loans and getting the balance sheet out. The more time it took, the more jittery investors became. By the end of 2014, it became clear that there would be no external investment.

Almost everyone could see the writing on the wall. Vasan was headed for a free fall.

What’s bad must only get worse

As 2015 began, Vasan was taken to court on its TDS default. For about a month, its bank accounts were frozen. Cheques that the company had issued to vendors bounced. Everybody was spooked and started reaching out to the company. First, the emails went unanswered. Then the calls were ignored. Finally, left with no option, suppliers and landlords started dropping by at Vasan’s headquarters to collect their dues. When Arun was not reachable—and he was never available in early 2015—suppliers started calling the investors. From as little as ₹ 25 lakhs to ₹ 200 crore, money was due to a lot of people—landlords, equipment manufacturers, those who had supplied frames and medicines.

At Vasan’s headquarters, a lucky few vendors got their money. Most others received empty assurances and post-dated cheques. A few thought of suing the company but then dropped the idea, considering the legal costs involved. Some did eventually take the company to court.

Even as all this was happening, a few mezzanine funds approached Vasan. They were attracted by the company’s Ebitda profits and mooted the idea of retiring the company’s debt in return for a 22-23% return on investment and a little equity. Arcus Capital was one of the funds that initiated due diligence for such a deal. It brought in Deloitte India to carry out a complete commercial audit. But yet again, this proved to be a non-starter.

A balance sheet is the first port of call for any investment and at Vasan, even till February 2015, there was no sign of the balance sheet for the year ended 31 March 2014.

By this time, Vasan had run out of options. Most banks in Chennai had already loaned it money. The company had retired more than ₹ 400 crore of debt, thanks to the rights issue, but its debt was still too high. So were the dues to suppliers. It was only a matter of time before board members started resigning.

In Chennai, Vasan’s implosion became a subject of intense gossip. Whatever happened at Vasan?

In September 2015, Gurumurthy wrote a series of articles on Vasan in the New Indian Express, alleging that Vasan was actually a conduit for routing money to former finance minister Chidambaram and his family and that it was partly owned by Advantage Strategic Consulting Pvt. Ltd—which in turn was owned by Ausbridge Holdings and Investments Pvt. Ltd, a company where Karti Chidambaram was a director.

Mint looked into the antecedents of Advantage and Ausbridge. According to Registrar of Companies filings, on 25 March 2011, Ausbridge Holdings bought 200,000 shares (amounting to a 66% equity stake) in Advantage Strategic. According to a May 2012 report in the Economic Times on the business interests of Karti Chidambaram, he was a director at Ausbridge at the time. He is no more a director at the company and it is not known when he quit.

Advantage Strategic did not respond to an email with a detailed set of questions sent on 6 January. Ravi Visvanathan, the director of the company, declined to comment.

‘I have done no wrong’

We have been chatting with Arun for a while. It is past 8pm at Vasan’s office, which is now deserted except for Arun’s assistant and one supplier still waiting in the board room to negotiate payment of his dues. Arun is doing most of the talking.

He believes he can come out of the hole that, ironically, he himself dug.

The problem was caused by expansion, the funding of the expansion and a miscalculation on when the new centres would break even, he explained.

“In 2012 March, when GIC invested ₹ 500 crore, the company was present only in south India, in four states. We had 103 clinics in four states. The revenue run rate per month when GIC invested was ₹ 57 crore in four states. In 2013-14, in just two years, we added 100 clinics across 15 new states. Money was spent in marketing, capital expenses in putting the hospital, interest of the loans, repayment of term loans—you can’t do that by magic. Where there was a mismatch was we thought clinics would break even like south India. We had to fund the cash loss, fund the loans which we had taken for the older clinics and the newer ones."

Things will get better, he promised.

He must believe that, because he has restarted coming to the office regularly.

“I have tasted all rough weather, have understood the strength of my business. We have learnt what to do, what not to do," he says.

Among the dos, he rattles off financial reporting, governance, professional management system, building a team where the leaders can take decisions, people empowered to execute the passion of the founder.

Among the don’ts: no micro-managing. “If I do everything myself, it gets diluted. It becomes too many things, it doesn’t work."

His plan is to downsize 35 centres, address the cash-flow mismatch, improve the quality of financial reporting, and get back on track. There’s still about ₹ 450 crore of debt, ₹ 140 crore due to suppliers (which don’t include Vasan’s past dues to two of its largest suppliers—Essilor and Alcon India. Right now, Vasan is working on a cash-and-carry arrangement with them, making weekly or monthly payments).

Then, there are the investigations by the tax department and the enforcement directorate. The investigation is on and Arun has been visiting the I-T office almost twice every week. When Mint reached out to an official at the I-T department, he refused comment on the status of the investigation.

Arun thinks he can handle these too. “I have done no wrong," he says.

“Going forward I think I am in the best of my times."

Tarun Shukla in New Delhi contributed to this story.

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