Sebi orders forensic audit of FRL's financial statements of last 3 years

The Securities and Exchange Board of India (Sebi) has ordered a forensic audit of the financial statements of beleaguered Future Retail.

“Sebi has reasonable grounds to believe that the disclosure of financial information and the business transactions in the matter of Future Retail, have been dealt with in a manner which may be detrimental to the interest of investors or the securities markets and/or an intermediary or a person associated with the securities market may have violated the provisions of Sebi Act…” the regulator said in a letter to the company.

Group firm Future Consumer and Future Enterprises on Thursday disclosed to the exchanges about the directive from the market regulator to Future Retail. They further said Chartered Accountants Chokshi & Chokshi have been appointed as forensic auditor, which will audit the consolidated financial statements of Future Retail and the books of accounts of the company and some other entities for FY20, FY21 and FY22.

Future Retail shareholders’ representative, Vijay Kulkarni, said, “I welcome Sebi’s decision… on behalf of several investors, I had repeatedly addressed Sebi in April and May this year and it appears that the regulator has found substance and is, therefore, conducting the forensic audit.”

Last month, Insolvency and Bankruptcy Code (IBC) proceedings were invoked against Future Retail. Sebi’s letter was sent to interim resolution professionals (IRPs) who have been appointed under the IBC. Bank of India had moved the insolvency petition against Future Retail on April 14 for non-payment of dues under the agreement between the Future Group and the bank. It was seeking admission of its petition and the appointment of an IRP.

Future Group owes its 26 lenders over Rs 15,000 crore.

In 2020, the Group 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, e-commerce giant Amazon, which had in 2019 acquired 49 per cent in Future Coupons — that owns 10 per cent in Future Retail — accused Future Group of breach of contract. There are cases pending in various courts between Amazon and Future Group. Recently, the Singapore International Arbitration Centre (SIAC) dismissed Future Group’s plea to terminate the arbitration proceedings between the Kishore Biyani-led firm and Amazon.

The order said there was no ground for the termination of the proceedings under Section 32 of the Arbitration Act.

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. In February, the Mukesh Ambani-led retail major had taken over 947 stores belonging to Future Retail, which it had sub-leased to it.

Legal experts say Sebi typically orders forensic audits of listed companies if they suspect manipulation of books of accounts and its subsidiaries, misrepresentation of financials and business operations, and wrongful diversion or siphoning of company funds by promoters, directors and key managerial persons.