The fall from grace of former ISB chairman and McKinsey director Rajat Gupta has all but dashed the hopes of Sri Chaitanya Educational Group, an AP-based private educational institution operating in the school and junior college sector, from spreading its wings. According to sources, the $1.4-billion New Silk Route Private Equity, an Asia focused PE fund co-founded by Gupta, had finalised an investment of Rs 325 crore (roughly $70 million) in the Sri Chaitanya Educational Group last November. This was seen as one of the biggest foreign investments in India's education sector and the transaction aimed at the fund picking up between 33 to 49 % stake in Sri Chaitanya institutions.

 "Now, the chances of the Sri Chaitanya group getting the investment from New Silk Route are remote as Gupta has left the firm," said sources privy to the talks between the company and Sri Chaitanya. Gupta was on Wednesday jailed for insider trading and is out on bail now pending trial. Sri Chaitanya runs around 160 institutions, mostly in Andhra Pradesh, including 116 schools and junior colleges. The 25-year-old group had mandated Ernst & Young to raise funds. The sources said Gupta closed in on investing in the AP-based educational institution after he became chairman of the Hyderabad-based Indian School Business. The New Silk Route firm’s decision to invest in the education sector came after private equity funds Sequoia Capital and SONG, in which billionaire George Soros is an investor, invested in Gowtham education group, another Hyderabadbased school chain.

Rajat Gupta started New Silk Route in 2006 with partners including Raj Rajaratnam, the billionaire hedge-fund manager who went on trial in New York for insider trading. "Gupta took leave of absence from New Silk Route in March this year, after allegations on his support to Rajaratnam were made public. With regard to the investment in Sri Chaitanya, it is now almost ruled out," said the sources.