Ernst & Young has put tea and coffee chain Whittard of Chelsea into administration this afternoon while the accountancy firm is racing to complete a deal to sell the bulk of the stores to a private equity firm.

The Times can reveal E&Y is in negotiations to sell the bulk of Whittards’ stores to EPIC private equity, a turnaround specialist that already owns Past Times, a 90-store novelty retailer.

EPIC is expected to merge the two businesses. E&Y and Whittards’ owner Baugur declined to comment.

Earlier today, Sapat, the family-owned Indian tea company, said it was eyeing Whittards but said there was no certainty of a deal.

Nikhil Joshi, the owner of Sapat, said today that he was following the situation at Whittard closely.

"We're waiting for some clarity to assess our next move," he told The Times.

"We are in a position to make an acquisition. We have looked at this brand in the past. For us, an entry into the UK would make sense."

Last night, Whittard, which is backed by Landsbanki, the collapsed Icelandic bank, called in Ernst & Young as standby administrator after Landsbanki cut its funding lines, it is understood.

It is thought that Sapat, which is expected to make a turnover of more than £100 million this year, has at least £20 million in cash on its books to spend on acquisitions.

It was founded 110 years ago by Mr Joshi's grandfather and is one of India's largest growers and blenders of tea, but it has no brand recognition outside of its home market.

Earlier this year, it made an unsuccessful £24 million bid to buy Clipper, the Dorset-based company that specialises in organic and Fairtrade brews.

Mr Joshi also mentioned Taylors of Harrogate as a possible target.

Sapat's advisors in Mumbai include KPMG.

Mr Joshi said that Whittard, founded in 1886, had been neglected for decades, a situation that he said continued after Baugur bought the chain in 2005 for £20.5 million.

"The company has been plagued with problems," he said. "The core problem: it's a place you might go to buy your mum a present, but don't want to visit for yourself."

He added: "Our business is not in a downturn. We're very much in a position to make acquisitions."

Whittard, which has 500 employees, is likely to trade through the holiday period but Ernst & Young is in parallel talks with a number of bidders who are considering buying some of its 130 stores.

It is believed that Landsbanki, which the Icelandic Government nationalised in October, decided to stop lending to Whittard after a team from KPMG appointed to sell the business last month failed to find a buyer.

Whittard faces a rent bill on Christmas Day and it is believed that lenders are concerned that landlords will send bailiffs to seize stock.

The chain’s predicament raises the threat of a wave of bankruptcies at retailers backed by Landsbanki if the bank’s creditor committee, which is advised by Deloitte, has decided to get tough with the chains that it backs.

It is believed that Landsbanki could be going through the process of deciding which retailers to support and which to allow to go under as Britain’s retail woes continue.

In recent years, Indian companies have been especially active in the UK, one of the world's most lucrative markets for black tea. Tata bought Tetley in 2000 for £271 million, India's largest overseas acquisition.

Earlier this year Tata made another tilt at the UK market when it bid £30 million for Clipper. It was outbid by Fleming Family and Partners.

Three years ago, Apeejay Surrendra group acquired Typhoo for £80 million.

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