Future Retail's Insolvency: NCLT Reserves Order

A man walks past a Future Retail?s closed Big Bazaar retail store in Ahmedabad, India, March 2, 2022. (Source: Reuters)

The Mumbai bench of the National Company Law Tribunal on Monday reserved its order on the insolvency application against Future Retail Ltd.

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 has opposed the insolvency application. Future Retail, too, has made arguments against admission to bankruptcy.

Counsel for the creditors, however, has maintained that the two basic requirements of an insolvency application under 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.

Here are the key arguments that the parties made before the NCLT:

Creditors Colluded With Future Retail, Says Amazon

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, Senior Advocate Rajiv Nayar argued.

The Framework Agreement by Future Retail was ‘contrary to a court's order, a subsisting injunction and so, the execution of that Framework is completely void'. - Amazon's Counsel

In November last year, Nayar said, Future Retail itself communicated to banks that the sale of small-format stores may not be possible due to the injunction order. The consortium of banks met on Dec. 15 to discuss with Future Retail how the sale of small-format stores can be effectuated.

Banks were colluding with the corporate debtor to effectuate a transaction which they know is illegal. Hence, Section 65 is immediately attracted.

Amazon's Counsel

This provision deals with fraudulent or malicious initiation of insolvency proceedings.

Nayar submitted that the lenders deliberately overlooked the binding injunctions to collude with Future Retail.

Further, Amazon stated in its submissions that Future Retail entered into a “fraudulent stratagem” to handover its retail assets to Mukesh Ambani's Reliance Group in the teeth of binding injunctions. And that lenders became “willing collaborators” to alienate the substantial majority of Future Retail's assets in favour of Reliance.

Amazon Simply Wants To Save Its Arbitration Proceedings, Says Bank of India

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. "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, etc.—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 said.

There are 26 banks. More than Rs 10,000 crore is owed to us. Amazon has lent Rs 1,400 crore and that too, to Future Coupons Ltd. We have the largest stake in protecting this company's assets—much larger stake than they [Amazon] have. Therefore, we are bona fide.

Counsel for Bank Of India

On Amazon's arguments regarding takeover of Future Retail's stores by Reliance Projects and Property Management Services Ltd., Kadam submitted that no assets have been sold.

"Even today, those retail assets are there. They have not been sold, not given to anybody. And the assets will be part of the insolvency resolution process in accordance with law. The court will be there to ensure that it is done." - Counsel for Bank Of India

The NCLT is likely to pronounce its order later this week.