Restaurant chain Sagar Ratna’s original promoter Jayaram Banan is set to buy back the 90-store chain at a 35-40% discount to the price at which he had sold it to India Equity Partners (IEP) Fund Advisors. The private equity firm had acquired 75% stake in the popular chain for about Rs 180 crore in 2011.

“Talks are in advanced stages and the deal is likely to be closed shortly,” two officials directly aware of the development said. Banan was unreachable for comment. An email query sent to Sid Khanna, IEP’s managing director, remained unanswered till the time of going to press.

IEP Fund Advisors put its stake in the South Indian restaurant chain on the block towards the middle of 2016, following conflicts over quality and governance with Banan, who holds 22.7% stake in the chain. But it was unable to find a buyer.

“The PE fund has not found too many takers at its asking price. Hence, it is being sold off at a discounted price to Banan. Negotiations are in the final stages of closure,” one of the officials quoted said. With mounting losses and multiple governance and quality issues, the brand’s valuation has dropped significantly, that too at a time when the eat-out sector, in general, is under pressure due to various reasons.

Sagar Ratna restaurants are run directly by the company as well as through franchisees. After its acquisition, IEP had set up a special purpose vehicle under the name Sanders Equities to run the restaurants on its behalf.

Banan, who had set up Sagar Ratna in 1986 in Delhi, now runs another South Indian chain Swagath.

Quality issues have been plaguing the restaurant chain for some time and a couple stores in South Delhi were shuttered by local authorities on account of the poor quality of food. Highly personalized businesses like restaurants, which can’t be run like a packaged product or garment factory, can be best run by its promoters and owners, said retail consultancy Wazir Advisors’ managing director Harminder Sahni.

“A PE fund brings in processes and training, but the personal touch goes missing. If you take Willam Bissel out of Fab India, it wouldn’t work. You can’t acquire a Sagar Ratna and hope to turn it into a McDonald’s,” Sahni added.

At Sagar Ratna, the equations between the investor and promoter turned bad a couple of years back, with Banan filing a FIR against IEP alleging “forgery, cheating, and fabrication of documents”. Banan said Sagar Ratna’s brand value and profitability were dented and its valuation fell after the acquisition.

The PE fund, on the other hand, alleged that Banan violated the agreement between them by setting up another restaurant chain also serving South Indian cuisine, called Shri Ratnam. IEP filed civil cases against Banan alleging breach of the non-compete clause, ‘interference’ in operations of Sagar Ratna and use of force. The cases are in litigation stage.

The National Restaurant Association of India (NRAI) estimates the size of the food services market in India at Rs 3,09,110 crore. In the report published last quarter NRAI forecasts the restaurant industry to grow 10% over the next five years to touch Rs 4,98,130 crore, but lists taxation, real estate costs, over-licensing and fragmented supply chains as challenges to growth.