Future Retail Insolvency: Amazon Miserably Failed To Establish Fraud, Says NCLT

The Mumbai bench of the National Company Law Tribunal allowed initiation of insolvency proceedings against Future Retail Ltd. Vijaykumar Iyer has been appointed as the interim resolution professional.

The Kishore Biyani Group company has defaulted on payments to its lenders, prompting initiation of insolvency proceedings by Bank of India.

Amazon.com NV Investment Holdings LLC had opposed the insolvency application. It said that on April 26, 2021, Future Retail had signed a framework agreement with its financial creditors. Under this, the creditors were supposed to set up an asset sale committee to monetise Future Retail's small-format stores.

The banks signed this agreement even as they were aware of the emergency arbitrator's October 2020 order, which had injuncted alienation of Future Retail's assets, the counsel for the e-commerce major had argued. "Banks were colluding with the corporate debtor to effectuate a transaction which they know is illegal."

If Future Retail goes into insolvency, any future claims Amazon might have as a result of arbitration proceedings will not survive, Senior Advocate Ravi Kadam told the court on behalf of the creditors. "A moratorium will apply and Amazon's arbitration will get derailed."

That's the whole point, Kadam said, adding that all these issues—what happens to Amazon's monetary claim, who will it be against—will be delved into as part of insolvency proceedings. But to suggest that public sector banks, well-regulated by the Reserve Bank of India, have “colluded” and have acted “fraudulently” is "laughable", he had argued.

No Bar On Lenders Exercising Statutory Rights

The NCLT did not agree with Amazon's argument on collusion. The bench of Justice PN Deshmukh and Shyam Babu Gautam held that the framework agreement was signed within the regulations of the Reserve Bank of India and did not violate any orders passed during the arbitration proceedings between Future Retail and Amazon.

The question of framework agreement being in violation of any injunctions does not arise as no sale of any assets has happened, the tribunal said.

The bench also added that the lenders were exercising their statutory rights. They were not party to the arbitration proceedings nor does the order of the arbitration tribunal bar them from exercising their rights.

Future Retail, too, had made arguments against admission to bankruptcy. The demand notices, on which the insolvency application is based, are being contested before the Supreme Court, the company had said.

Counsel for the creditors, however, maintained that the two basic requirements of an insolvency application under the IBC are the existence of debt and default—both parameters are undisputed in Future Retail's case. And hence, there aren't any grounds for objection.

The counsel for the creditors had relied on the Supreme Court ruling in Innoventive Industries case to argue that establishing debt and default is enough for admission to insolvency.

The argument found favour with the tribunal.