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Explained: Why Future Group has challenged insolvency proceedings in SC

Future Retail has moved the Supreme Court seeking protection from being declared a defaulter for failing to pay loan dues of Rs 3,494.56 crore to its 26 lenders. Why has it failed to pay lenders, and what did it tell the court?

Future Group CEO Kishore Biyani (Express Photo/File)

Cash-strapped Future Retail Tuesday moved the Supreme Court to challenge potential insolvency proceedings over missing loan repayments, even as independent directors of the company rejected a Rs 7,000-crore offer by US-based private equity firm Samara Capital backed by Amazon. Litigation by Amazon has become the key roadblock in the completion of the sale of Future Group’s retail, wholesale and warehousing assets to Reliance Industries Ltd. (RIL) with the US e-commerce giant claiming that the proposed sale violates an agreement it signed with Future Retail in 2019. The fresh developments in the case add to the web of legal challenges and twists in the three-way fight for control over the retail major.

Why is Future retail challenging potential insolvency proceedings?

Future Retail missed a payment of Rs 3,494.6 crore due to lenders on December 31 as part of a One Time Resolution (OTR) plan to resolve liabilities to lenders. The company had sought a 30-day review period to complete the payment but has now sought a relaxation in the review period and sought to restrain lenders from declaring the company and Non-Performing Asset which may open it up to insolvency proceedings.

Experts noted that Future Retail was possibly relying on past cases in which courts had held that lenders should look at the overall health and standing of a corporation and that large corporations in particular should not be forced into insolvency proceedings just because they have defaulted.

“There are instances where courts have held that just because they have defaulted doesn’t mean you can bring a large corporation which is a going concern to insolvency proceedings. You have to see balance sheets, financial performance, standing in the market,” said Prashanth Shivadass, partner at law firm Shivadass & Shivadass.

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Why has Future Retail failed in making payments to lenders in line with the OTR?

The company said in a regulatory filing that “due to ongoing litigations with Amazon.com NV Investment Holdings LLC, the company was not able to complete the planned monetisation of the specified business as contemplated in OTR Plan.”

The case has undergone multiple twists. Amazon, in 2019, signed a pact whereby it acquired 49 per cent stake in Future Coupons Private Ltd. (FCPL). Then, Amazon-backed Samara Capital, in June 2020, signed a non-binding term sheet to acquire Future retail’s businesses for Rs 7,000 crore. Just two months down the line, in August 2020, the Future group announced a Rs 24,713 crore deal for sale of the retail and wholesale business and the logistics and warehousing arms to Reliance Venture Ltd, a subsidiary of Reliance Industries.

Amazon then moved the Singapore International Arbitration Centre (SIAC) opposing the proposed sale of the retail businesses to RIL and won a stay, which was later upheld by the Supreme Court.

Amazon had cited covenants in the agreement it signed when it acquired 49 per cent stake in Future Coupons in 2019, which gave it a call option on acquiring the promoter of FCPL, Future Retail within 3-10 years. FCPL holds about 10 per cent stake in Future Retail.

The Competition Commission of India, however, in December 2021, withdrew approval for the original 2019 deal, claiming that Amazon “misled” the regulator to believe that its purpose was its interest in the business of FCPL and “suppressed” that purpose of establishing a strategic interest in Future Retail and to get a “foot-in-the-door” in India’s retail sector. The order by the CCI may void the agreement which Amazon has cited to oppose Future Group’s plans to sell retail assets to RIL.

Amazon has challenged the CCI order before the National Company Law Appellate Tribunal. Amazon has also proposed to assist Future Retail in raising funds to pay lenders through a Rs 7,000 crore deal from Samara Capital and asked the company to abandon its proposed deal with Reliance.

Amazon had sent a proposal to the independent directors of Future Retail, who have since rejected the offer as an attempt to buy the company’s assets on the cheap noting that the offer would not be sufficient to cover Future Retail’s outstanding liabilities.

Directors at Future Retail also raised concerns about the time it would likely take to finalise any deal with Samara Capital highlighting that the company needs funds to pay lenders urgently.

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