In relief to Future Group, SC refuses to interfere with HC order on pledged shares sale

In a relief to the Future Group, the Supreme Court on Friday refused to interfere with the Bombay High Court order that restrained IDBI Trusteeship and UBS Bank from selling the pledged shares in Future Retail until further orders.

The bench, led by Justice SK Kaul, while refusing to stay the HC’s March 30 order, disposed of UBS AG’s appeal with a direction to approach the HC on May 4, the scheduled date for hearing.

Kishore Biyani-promoted Future Group companies — Future Corporate Resource Private Ltd (FCRPL) and Rural Fairprice Wholesale Ltd (RFWL) — had moved the HC against March 17-18 notices issued by IDBI Trusteeship Services to invoke 8% pledged shares of Future Retail (FRetail) on behalf of UBS AG in the wake of the widespread market crash due to the COVID-19 pandemic. The crash had allegedly resulted in a fall in the value of collateral.

RFWL had taken a loan of Rs 670 crore from the UBS AG London Branch under the debenture trust deeds for which FCPRL had pledged shares it held in FRetail in 2018 and 2019.

Challenging the HC order, UBS told the SC that the HC had put the defaulting party in a better position than the party who had always fulfilled its contractual obligations. “The HC failed in testing the balance of convenience before passing the impugned order. By restricting UBS from exercising unfettered right in enforcing security by selling the pledged shares, there is a real risk that the share price of FRetail will fall further to an extent that the value of the security could be completely eroded,” counsel Divyam Agarwal stated in his appeal filed on behalf of UBS.

Senior counsel KV Vishwanathan, appearing for UBS, argued that the Future Group firm owes it Rs 610 crore and the default on the latter’s part cannot be attributable to any force majeure event.

The pledged shares of FRetail continue to fall in price since the March 30 order was passed and if not interfered with, UBS may not be left with a security to enforce, he argued. FRetail’s share price has fallen from Rs 350 on the date of the debenture trust deed to Rs 67 per share as on April 9, due to the market collapse in the wake of the COVID-19 crisis, it stated.

The HC solely attributing the diminishing value of the share price of FRETAIL to the COVID-19 pandemic was highly misplaced, UBS said, adding that the pandemic is being used as a “smoke-screen” to “shirk its contractual obligations.” “The debt rating of FRetail has also seen a downgrade in recent times, attributable to its liquidity position. Restraint on the UBS’ discretion to invoke the pledge defeats the very purpose for which it was created,” Agarwal added.