Future Retail’s resolution remains stuck in a legal quagmire
Bombay : The fate of Future Retail Ltd is mired in a legal quagmire as the banks are set to battle it out in insolvency court amid ongoing arbitration in Singapore, a Supreme Court case and… another pending before the debt collection court.
Given the circumstances, the sooner the case is admitted to the National Company Law Tribunal, the better for Future and its lenders, legal experts said. As the Insolvency and Bankruptcy Code (IBC) is special legislation, it will prevail over other pending litigation. They believe this would lead to a more targeted approach to resolution than the multi-pronged legal battle over the assets of the retailer led by Kishore Biyani.
“If the application for corporate insolvency resolution is upheld by the National Company Law Tribunal (NCLT) against Future Retail, pursuant to Section 14 of the IBC, a moratorium will be imposed,” said Vedika Shah, partner at Pioneer Legal.
As a result of the moratorium, new cases or the continuation of pending litigation against Future Retail, including proceedings before the Debt Recovery Tribunal (DRT), the Supreme Court and arbitration proceedings before the Arbitration Center Singapore International, will be suspended, Shah said.
On April 23, Reliance Industries said in a regulatory filing that its acquisition of Future Group’s retail, wholesale, logistics and warehousing businesses could not proceed because lenders voted against the proposal.
Mint reported on Friday that lenders representing most loans to Future Group rejected the proposal after the Reliance Industries Ltd subsidiary wrote down the value of the deal.
Experts said the banks must have exercised their “commercial wisdom” in choosing between the estimated recoveries of Reliance’s revised offer and taking the defaulting borrower to NCLT.
Bank of India, the leader of the consortium of lenders, referred Future Retail to the Mumbai bench of the NCLT on April 14, although it has not yet registered for admission.
It remains unclear whether Reliance would submit a resolution plan if and when the borrower is admitted under the insolvency code. The odds are against Amazon in insolvency court, however. Two provisions – India’s restrictions on foreign investment in multi-brand retailing and the ban on related parties under the IBC – prevent it from bidding for the asset.
“Today, Amazon cannot submit a resolution plan for Future Retail on its own, as a foreign entity is not permitted under Indian laws to be the sole proprietor of a multi-brand retail business. While foreign investors can be resolution claimants under the IBC, it is sectoral laws that set investment limits,” said Somdutta Bhattacharyya, partner in the dispute resolution group at law firm Argus. Partners.
Interestingly, Amazon might not be allowed to bid for Future Retail under IBC as well because it is likely to be classified as a related party, due to its stake in Future Coupons.
In August 2019, Amazon acquired a 49% stake in Future Coupons Ltd (which owns 7.3% of the capital of Future Retail through convertible warrants), with the right to buy the flagship Future Retail after three to 10 years.
“In the event that a corporate insolvency resolution process is initiated against Future Group entities, Amazon may not be eligible to submit a resolution plan given the prohibition in Section 29A of the ‘IBC, 2016,” said Sandeep Bajaj, Managing Partner, PSL Advocates and Solicitors. .
That aside, bankers are also upset with the way Reliance took over hundreds of popular Future Retail stores in February, and that could have played a role in their voting against the proposed sale.
On March 15, the lenders issued an announcement stating that anyone dealing with the company’s assets should keep in mind that these are subject to the charge of the lenders at all times. There could be some respite for lenders under the IBC, however, experts said.
“A resolution professional can examine whether an asset was transferred preferentially or fraudulently during the pre-insolvency resolution period. The resolution professional can ask the NCLT to take back those stores if it is determined that they were preferentially or fraudulently transferred,” Bhattacharyya added.