Future Retail Opposes Insolvency Proceedings, Amazon Seeks To Intervene

There's existence of of debt and default. It's a clear cut case of insolvency, says Bank of India

<div class="paragraphs"><p><strong>Source: </strong>REUTERS</p></div>

Future Retail Ltd. on Thursday sought more time to respond to the Bank of India’s insolvency application, saying it got only a limited window to respond to its creditor.

The retailer's counsel also opposed Bank of India’s move on grounds that the demand notices, on which the insolvency application is based, are being contested before the Supreme Court.

The reference is to the petition before the apex court which details the agreements between Future Retail and its creditors, including Bank of India.

Future Retail has stated in this petition that the default notices dated Jan. 5, 11, and 15 have been erroneously issued despite the two sides signing a Framework Agreement in the beginning of the month. Under this, the creditors were supposed to set up an Asset Sale Committee to monetise Future Retail’s small format stores.

This agreement accounted for Future Retail’s inability to sell these stores due to court directions. And so, having agreed to this, the creditors waived their right to treat Future Retail’s inability to monetise the small format stores as an event of default, the company’s counsel told the National Company Law Tribunal on Thursday.

“The defaults were outside the control of the corporate debtor. All of this requires consideration.” - Future Retail's Counsel
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Senior Advocate Arun Kathpalia sought to intervene on behalf of NV Investment Holdings LLC. The U.S. e-commerce major has filed an application under a provision which empowers courts to impose penalties for fraudulent or malicious initiation of insolvency proceedings. "I will show how this is all collusive," Kathpalia said.

The stance of both Future Retail and Amazon was opposed by Bank of India’s counsel Ravi Kadam.

The basis of the insolvency application, Kadam elaborated, is default in payments to the banks as per the Framework Agreement. The two basic requirements of an insolvency application are existence of a debt and a default, he argued.

There’s a record of all the defaults in the information utilities as contemplated under Section 7 of the Insolvency and Bankruptcy Code. All the debts are admitted by the company in its books. It’s a clear-cut case of insolvency.
Ravi Kadam, Bank of India's Counsel

Kadam said that Amazon has no locus to oppose the insolvency applications. And that it wasn’t oblivious to the developments at Future Retail and what the banks were contemplating. On Feb. 4, in a joint lenders meet, banks took a decision to give the company an opportunity to negotiate with Amazon basis their submissions in court. "Amazon wasn’t unaware what was happening."

Basis this, Kadam urged the tribunal to admit Bank of India’s insolvency application. Especially since the company officials, including managing director Rakesh Biyani, independent director Gagan Singh and the company secretary Virendra Samani have all resigned. The email addresses of the company are not working any more. The stores of the company have been taken over by Reliance, Kadam said.

There are 26 banks. Their security is getting imperiled. The insolvency law gives 14 days to decide on an application. There’s an overwhelming requirement, since public money is involved, to appoint an interim resolution professional. Whatever Amazon wants to say, it can say later.
Ravi Kadam, Bank of India's Counsel

Amazon, by writing to the Reserve Bank of India on May 10, has chosen its path, Kadam said. The reference is to Amazon’s letter to the RBI alleging collusion between banks, and its request to the regulator to not allow insolvency proceedings to continue.

The NCLT decided to give Future Retail a week’s time to file its response. The matter will be heard next on June 6.