NCLT admits Bank of India's insolvency petition against Future Retail

IRP appointed; corporate insolvency resolution process to start against the retailer

The Mumbai Bench of the National Company Law Tribunal (NCLT) on Wednesday admitted Bank of India’s petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) to start proceedings against Future Retail and appointed an interim resolution professional (IRP) in the matter. It also dismissed the intervention application of e-commerce giant Amazon, which was opposed to Future’s deal with Reliance Retail.

In the order, the Bench, presided over by Justice Pradeep Narhari Deshmukh and Shyam Babu Gautam, said, “(The) Bench is of the view that the existence of debt and default has been proved … we hereby appoint Vijay Kumar V Iyer as an IRP, with a direction to the financial creditor to pay remuneration to the IRP and his expenses until the constitution of the CoC (committee of creditors).” Dismissing Amazon’s petition, the Bench said, “…the applicant is not even a stakeholder in respect of the corporate debtor … and has no locus standi to question initiation of proceedings ...” 

Bank of India had moved the insolvency petition against Future Retail on April 14 for its dues not being paid.

Amazon had subsequently moved the tribunal, alleging that the lenders had colluded with Future Retail to deny it its rights in the case. Amazon had even written to the Reserve Bank of India with the same allegation. Future Group owes its 26 lenders over Rs 15,000 crore.

The Group in 2020 had decided to go for a jumble sale of its unlisted and listed companies to Reliance Retail for about Rs 25,000 crore to repay its ballooning debt. However, Amazon, which had in 2019 acquired 49 per cent in Future Coupons, a company that owns 10 per cent in Future Retail, accused Future Group of breach of contract.

Recently, in a regulatory filing, Reliance Industries said the deal with Future Retail would not go through because the company’s secured creditors had voted against it. Reliance Retail may now look at buying the assets of Future Group, depending on what is up for sale, said industry sources.

The way ahead

• Future Retail’s board will be disbanded as interim resolution professional (IRP) will carry out administrative functions
• IRP will invite and verify claims, and form the committee of creditors
• Amazon may move NCLAT against NCLT order, legal experts say
• Future group owes over Rs 15,000 crore to creditors

In February, the Mukesh Ambani-led retail major had taken over 947 stores belonging to Future Retail, which it had sub-leased to it. Retail shareholders’ representative Vijay Kulkarni said: “This decision will give a free hand to the interim resolution professional to assess the nature of transactions and accounts and evaluate the decisions taken by the company’s board."

Ashish Pyasi, associate partner, Dhir & Dhir Associates, said: “Amazon can challenge this before the appellate tribunal.”

Generally, a petition moved under Section 7 of the IBC should be admitted by the adjudicating authority within 14 days. However, the tribunal took more than three months to do it due to the intervention application by Amazon.

Ashish Kumar Singh, managing partner of law firm Capstone Legal, said: “By virtue of this order, there is a prohibition on the institution of suits or proceedings and all pending proceedings have also been stayed.”

Salman Waris, managing partner at technology law firm TechLegis Advocates & Solicitors, said: “It’s a strategic victory for Reliance and Future Group and a win for the lenders.”

K Narasimhan, advocate, Madras High Court, said: “It is clear the lender will get a haircut and retail investors lose everything. What is surprising is that no one bothered to ask the lenders why they backed out of the Future Retail deal when Reliance had mentioned it would take over 100 per cent debt.”

Shivek Sharma, associate, law firm Pioneer Legal, said: “The order will trigger a moratorium under Section 14 of the IBC and Future Retail will be prohibited from transferring or disposing of its assets. Moreover, any institution of suits or continuation of proceedings against Future Retail will be prohibited till the completion of the corporate insolvency resolution plan.”