Future Retail moves SC against lenders; here’s the gist of the petition
Facing insolvency and bankruptcy proceedings as it is unbale to repay Rs 3,500 crores for bank liabilities due up to March 2022, Future Retail Limited (FRL) has moved the Supreme Court against its lenders, asking not to be declared defaulters and seeking an extension to execute Rs 3,500 crore payments to its lenders.
Here’s the synopsis of the petition:
Synopsis
The Petitioner No. 1, Future Retail Limited (“FRL”), is a public listed company engaged in the business of multi-brand retail operating over 1209 stores in more than 391 cities in every state of the country. From time to time, for the purpose of its operations, expansion and working capital needs, the Petitioner No. 1 has availed the loan facilities (described below) from Respondent Nos. 2 to 27.
These loan facilities were secured by way of a charge on FRL’s tangible movable fixed assets as well as its current assets. Further, with respect to some of the Facilities, the Facility was secured by way of personal guarantees of Mr. Kishore Biyani, Mr. Rakesh Biyani and Mr. Vivek Biyani [who form part of the Promoter Group of FRL].
On 12.08.2019, the Petitioner No.1, executed a Shareholders Agreement (“FRL SHA”) with its Promoters as well as a Future Coupons Pvt Ltd (“FCPL”). On 22.08.2019, FCPL, the Promoters and Amazon executed a Share Subscription Agreement (“FCPL SSA”) under which Amazon agreed to acquire 49 percent of the equity shares of FCPL for a consideration of INR 1,431 crore.
The FCPL SSA was subject to a condition precedent that Amazon would obtain approval from the Competition Commission of India (“CCI”) with respect to its investment. Based on the representations made by Amazon, the CCI vide order passed under Section 31(1) of the Competition Act, 2002 dated 28.11.2019 granted approval to Amazon under the Competition Act, 2002 [“2019 CCI approval”].
Accordingly, the FCPL SSA and FCPL SHA came into effect and Amazon acquired 49 percent economic ownership in FCPL on 26.12.2019. With the onset of the COVID – 19 pandemic in India in March 2020, the Petitioner No. 1’s business, which largely depends on the ability of customers to visit its stores was adversely impacted. Consequently, this adversely impact the Petitioner No.1’s ability to meet its bank obligations, leading to an accumulation of liabilities and a cash deficit of approximately Rs. 5,000 crore. Against this, the Petitioner No.1 had dues of approximately Rs. 4,275 crore falling due between March and September 2020.
Meanwhile, given its deteriorating financial position, with no other alternative in hand, on 29.08.2020 the Board of Directors of the Petitioner No. 1 approved i.e. a scheme of amalgamation where the Petitioner No.1 along with certain other companies, would merge into Future Enterprises Limited, pursuant to which the Logistics & Warehousing Undertaking of Future Enterprises Limited would be transferred as a going concern via a slump sale to Reliance Retail Ventures Limited (“RRVL”) and the Retail & Wholesale Undertaking of Future Enterprises Limited would be transferred as a going concern via a slump sale to Reliance Retail and Fashion Lifestyle Limited (“RRFLL”) [“the Scheme”]. This was done in the best interests of its employees (over 23,000 in number), lenders, vendors and its shareholders (approximately 4 lakh in number) and also to salvage the intrinsic value of the Petitioner No.1. The consent of FCPL was obtained by the Petitioner No.1 before its Board of Directors approved the Scheme.
As an additional measure, on 27.09.2020, the Petitioner No.1 filed respective applications with the Respondent Nos. 2-27 under the August 6 Circular, seeking re-structuring of its Facilities in view of the impact of the COVID-19 pandemic on its financial position and cash flows. The Petitioner No. 1 also submitted a summary Information Memorandum prepared by it explaining its background, the market dynamics, the current status of the company and the resolution plan contemplated by it. In its applications, the Petitioner No.1 also highlighted that the Scheme that it had entered into with Reliance poses a long-term solution to the financial difficulty it found itself in.
In pursuance of the one-time resolution of the Facilities that stood invoked on 29.10.2020, the Petitioner and Respondent Nos. 2-27 executed the Framework Agreement on 26.04.2021 under aegis of the August 6 Circular. The Existing Outstanding were restructured as set forth in Clause 2.2.1 of the Framework Agreement. Further, under Clause 3 of the Framework Agreement, all the Facilities repayable to the Respondent Nos. 2-27 continued to be secured by the Security created under the “Financing Documents” [defined to inter-alia mean the previous Facility Documents, Promoter Undertakings, Guarantee Agreements etc].
The Petitioner No. 1 was required to monetize its Small Format Retail businesses [Easyday club and Heritage Fresh] by 31.12.2021. The proceeds from monetization of the Small Format Retail Business [i.e. INR 3,000 crore – as provided under Part B to Schedule III] was to be utilised towards repayment of the re-structured facilities in accordance with Clause 5.1.3 of the Framework Agreement.
Thereafter, Amazon invoked arbitration proceedings before the Singapore International Arbitration Centre (“SIAC”) on 05.10.2020 wherein, it claimed certain urgent interim reliefs from and Emergency Arbitrator. On 25.10.2020, the Emergency Arbitrator, SIAC allowed Amazon’s CAER and passed an interim award (“EA Order”). The Emergency Arbitrator passed an order inter-alia restricting the Petitioner No. 1 from selling its Retail Assets without the consent of Amazon.
Subsequently, in proceedings for enforcement of the EA Order filed by Amazon, the Delhi High Court vide order dated 02.02.2021, (“February 2 order”) read with an order dated 18.03.2021 (“Execution Order”) enforced the EA Order. The Execution Order attached the assets of the Petitioner No.1. The Petitioner No.1 has filed SLP (C) No. 13556-13557 of 2021 challenging the February 2 order and the Execution Order.
In the meanwhile, in the arbitration proceedings, the Petitioner No. 1 filed its jurisdictional objections and an application to vacate the EA Order on 11.03.2021 before the arbitral tribunal [constituted on 05.01.2021].
On 20.10.2021, the Arbitral Tribunal dismissed the Petitioner No.1’s jurisdictional objections and on 21.10.2021, it dismissed the Petitioner No. 1’s application to vacate the EA Order. The Arbitral Tribunal’s order dated 21.10.2021 confirmed the EA Order i.e., restricted the Petitioner No. 1 from selling its Retail Assets without the consent of Amazon.
Aggrieved by the Arbitral Tribunal’s order dated 21.10.2021, on 28.10.2021, the Petitioner No. 1 preferred an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 along with an application for interim and ad-interim reliefs before the Delhi High Court.
Vide order dated 29.10.2021, the Learned Single Judge of the Delhi High Court rejected the Petitioner No.1’s application for ad-interim reliefs.
Aggrieved by the Delhi High Court’s order dated 29.10.2021, the Petitioner No. 1 filed SLP (C) No. 18080 of 2021 before this Hon’ble Court on November 8, 2021.
The Petitioners submit that vide its order dated 11.01.2022, this Hon’ble Court has reserved judgment in SLP (C) No. 13556-13557 of 2021 and SLP (C) No. 18080 of 2021.
Meanwhile, the Respondents No.2-27 invoked the one-time resolution on 29.10.2020. On 24.11.2020, the Respondent Nos. 2-27 executed the ICA as mandated under the August 6 Circular.
Meanwhile, the CCI also vide its order dated 17.12.2021, has suspended the approval granted vide the 2019
Approval Order.
The Petitioners are constrained to approach this Hon’ble Court under Article 32 of the Constitution of India, in view of the exceptional circumstances prevalent, which, for reasons outside the control of Future Retail [i.e. orders of injunctions passed in arbitration and related proceedings initiated by Amazon.com NV Investments Holdings LLC, to which Petitioner No.1 was erroneously joined as non-signatory party] have impeded the Petitioner No.1’s ability to adhere to the timelines of monetisation of Small Format Stores under the Framework Agreement. The Petitioner No.1 submits that due to this inability, the Respondent Nos. 2 to 27 will declare the Petitioner as a Non-Performing Asset, despite having knowledge that the injunction orders being passed against Petitioner No.1. This action is violative of the fundamental rights under
Article 14, 19 (1)(g) and 21 of the Constitution of India.
Despite having acknowledged the fact that the Petitioner No.1’s inability to monetize the Small Format Stores was on account of events outside the reasonable control of the Petitioner No. 1 and despite having accordingly waived their right to declare the Petitioner No. 1’s inability to do so as an “Event of Default”, the Respondent Nos 2-27 have issued Event of Default Notices [dated 05.01.2022, 11.01.2022 and 15.01.2022] to the Petitioner No.1 inter-alia threatening initiation of proceedings under the Insolvency and Bankruptcy Code, 2016 and reserving rights to pursue other remedies [which includes declaration of the Petitioner No.1’s account as a Non-Performing Asset].
These Event of Default Notices have been erroneously issued despite the fact that Petitioner No. 1 and the Respondent Nos 2-27 have 15.12.2021 wherein the Petitioner No.1. has expressed and undeniably established its bona fide intent to adhere to the timelines prescribed in the Framework Agreement but informed and explained the Respondent Nos 2-27 of the orders of injunctions passed in arbitration and related proceedings initiated by Amazon.com NV Investments Holdings LLC[to which Petitioner No.1 was erroneously joined as non-signatory party], which restrained the Petitioner No. 1 from being able to do so.
These discussions and negotiations fructified in an agreement arrived at between the parties on 01.01.2022, wherein the Respondent Nos 2-27 agreed to set up an Asset Sale Committee to monetize the Small Format Stores of the Petitioner No. 1 and recover dues under the Framework Agreement. Thus, besides having waived their right to declare the Petitioner No.1’s inability to monetize the Small Format Stores as an Event of Default, the Respondent Nos. 2-27 vide the fresh agreement arrived at on 01.01.2022 as recorded in the Minutes of the Meeting dated 01.01.2022 extended the timeline for monetization of the Small Format Stores.
However, contrary to the agreement of 01.01.2022, Event of Default Notices threaten the initiation of legal proceedings. Further, the Respondent Nos. 2-27 have also reserved their rights and remedies under the Framework Agreement and other Financing Documents, which includes remedies under the wider security available under the Financing Documents or even proceeding to declare the Petitioner No.1’s account as Non-Performing Asset.
The Petitioner No. 1 has in fact taken steps in pursuance of the agreement dated 01.01.2022 [all subject to the pending injunctions] and thus extended fullest cooperation to the Respondents.
Despite the above and despite the Petitioner No.1’s demand for justice vide letter dated 22.01.2022, calling upon the Respondent Nos. 2-27 to withdraw the Event of Default notices and requesting them to adhere to the agreement of 01.01.2022, the Respondent Nos.2-27 have erroneously, arbitrarily and without any reasoning failed to take any action.
It is submitted that not only are the acts of the Respondents unreasonable, arbitrary and without any justification or reasoning but they would also compromise the Petitioner No.1’s very existence let alone severely hamper the it’s right to carry on trade and business, given the following consequences that could ensure pursuant to the Event of Default Notices:
Account of Future Retail will be declared as a Non-Performing Asset;
Pursuant to declaration as a Non-Performing Asset by any of the Respondents, the Petitioner’s account would stand classified as a Non-Performing Asset by other lenders not even covered under the Framework Agreement;
The Respondent Nos. 2-27 would be free to initiate proceedings against the Petitioner No. 1 [including insolvency proceedings under the Insolvency and Bankruptcy Code]
The Respondent Nos. 2-27 would be free to enforce the Security under the Framework Agreement thereby denuding the Petitioner No. 1 of its asset base;
The Respondent Nos 2-27 could disclose / publish the Petitioner No.1 and its Board of Directors as wilful defaults thereby reducing its credit rating and consequently compromising its ability to raise any further finance;
The Petitioner No.1’s declaration as an NPA would also adversely affect the other Group Companies of Petitioner No. 1 which have availed the OTR facility.
The Petitioners are constrained to approach this Hon’ble Court under Article 32 of the Constitution of India in view of the exceptional circumstances summarized above and the grave consequences that would ensue if the Respondent Nos. 2-27’s declaration of Event of Default is not varied and if the Respondents are not restrained from acting in pursuance of such declaration [including from declaring the Petitioner No.1’s account as a Non-Performing Asset]. The Petitioners are further constrained to approach this Hon’ble Court in view of the fact that the Petitioner’s challenge to the orders of injunction operating against it [which have restrained it from monetizing the Small Format Stores by 31.12.2021] are pending before this Hon’ble Court. These proceedings have been heard and reserved for judgment on 11.01.2022.
Thus, the present Petition.
