Future Retail’s Lenders Oppose Company’s Petition Against Possible NPA Classification

The Supreme Court of India has asked 27 lenders of Future Retail Ltd. to file a short affidavit detailing their opposition to the company's petition against possible classification as a non-performing asset.

Future Retail is staring at being classified as an NPA after it failed to clear dues worth Rs 3,494 crore by Dec. 31. The further 30-day grace period expired on Jan. 29 and the company was served with event of default notices by the banks.

The next logical step after the event-of-default notices is classification as an NPA and application for initiating insolvency, Future Retail told the Supreme Court.

Appearing for Future Retail, Senior Advocate Harish Salve told the apex court that the banks are free to take over the sale process of the small-format stores to recover their dues as it's not injuncted by any order. But a stay must be granted against NPA classification, he told the court.

But the 27 lenders, who have been made party to the petition, opposed the request.

Senior Advocate Rakesh Dwivedi appeared for the banks and opposed the maintainability of the petition.

Dwivedi informed the court that Future Retail's lenders include 10 private banks and three foreign banks and no writ petition could lie against them. The banks have nothing to do with the arbitration dispute between Future Group and Amazon.com NV Investment Holdings nor were they involved in any way with the transaction between Future Group and Reliance, Dwivedi told the court.

"We have to take an independent call," Dwivedi explained the banks' position. If the court stays the NPA classification, it may encourage others to come seeking similar reliefs, he argued.

The bench presided by Chief Justice of India told Future Retail's lenders to file a short affidavit explaining their position within two days. The hearing will begin after the replies are filed.

The NPA Crisis Of Future Retail

The petition by the company was filed and mentioned for an urgent hearing by Senior Advocate Mukul Rohatgi last week.

The specific challenge by Future Retail is to three event-of-default notices issued by its lenders this year. The company has made the Reserve Bank of India and 25 banks party to the petition.

Future Retail has requested the top court to direct the lenders to:

• Set aside the three event-of-default notices;

• Restrain the lenders from classifying Future Retail as an NPA;

• Extend the timeline for monetisation of the small format stores under the restructuring agreement;

• Extend the grace period for clearing its dues.

According to the portions of filing viewed by BloombergQuint, Future Retail has told the court that events outside its control as the injunctions issued as part of the arbitration proceedings initiated by Amazon have impeded its ability to comply with the timelines for sale of small-format stores as part of the one-time resolution-framework agreement.

The injunctions refer to the ongoing legal dispute with Amazon seeking to block Future Retail's Rs 27,513-crore deal with Reliance Retail Ventures Ltd. on the grounds it has certain rights in the Future Group company.

Future Retail has told the court that the notices threaten to initiate insolvency proceedings against the company if the payment of Rs 3,494 crore is not made within the 30-day grace period, which expired on Jan. 29.

In a notification to the exchanges on Jan. 1, Future Retail stated it had missed paying Rs 3,494 crore worth dues to various consortium banks and lenders. This was a key requirement under the one-time resolution plan, which lenders had approved in early 2021. Future Group was provided with a 30-day grace period, according to the exchange notification.

The company has told the top court that as part of the restructuring agreement, it was required to make the payment from the proceeds of the monetisation of its small-format retail business, which includes the brands Easyday Club and Heritage Fresh. But it hasn't been able to due to the injunction by the Singapore-based arbitration tribunal.

Further, Future Retail argued that on Jan. 1, lenders had agreed to waive their right to declare the failure to monetise small-format stores as an event-of-default. Despite this, the company said, the notices threatening initiation of insolvency were sent.