NCLT admits insolvency petition filed by Bank of India against Future Retail

Tribunal initiates insolvency proceedings, rejects Amazon’s objections

On June 27, NCLT’s Mumbai bench, which has been hearing the case, had reserved its order for a later date.
On June 27, NCLT’s Mumbai bench, which has been hearing the case, had reserved its order for a later date.

The National Company Law Tribunal (NCLT) on Wednesday admitted an insolvency petition filed by Bank of India (BoI) against Future Retail (FRL) and appointed a resolution professional, paving the way for bankruptcy proceedings against the debt-laden retailer.

The development comes almost two years after Future Retail entered into a deal to sell its retail and logistics business to Reliance Retail, which went sour due to strong opposition from Amazon, which dragged the firm to the Singapore arbitration tribunal and courts in India.

The NCLT’s Mumbai bench, which has been hearing the case, also dismissed an interlocutory application (IA) filed by Amazon seeking to dismiss the petition to initiate bankruptcy proceedings against FRL.

While Amazon declined to comment on its future course of action, legal observers said if it chooses to move the National Company Law Appellate Tribunal, the insolvency matter may drag for quite some time.

“This bench is of the view that the existence of debt and default has been proved, therefore, we hereby admit this company petition and also looking at the consent given by the insolvency professional, we hereby appoint Vijay Kumar V Iyer as an RP,” NCLT said in its order.

The bench, comprising Shyam Babu Gautam (member technical) and PN Deshmukh (member judicial), also directed the financial creditor (BoI) to pay remuneration and RP’s expenses until the constitution of the committee of creditors (CoC).

The bench also prohibited institution of suits or continuation of pending suits or proceedings against FRL and also prevented it from alienating or disposing of any assets.

FRL’s lenders had earlier selected Deloitte India-backed Vijay Kumar Iyer as the RP for the bankruptcy proceedings, which was opposed by FRL, citing “conflict of interest”. According to FRL, the proposed RP is also an auditor for other Future Group companies.

However, the BoI counsel had termed FRL’s objections against the RP as “misplaced and based on incorrect information”. The firm Deloitte India Insolvency Professionals (DIIP) is separate and different from the auditor firm Deloitte Haskins and Sells (DHS). The RP, who is a partner of DIIP, has not been a partner of DHS for the last 10 years and there are no common partners between these two entities. DHS had not audited FRL in the past 10 years, BoI counsel had informed the tribunal earlier.

On April 28, 2022, BoI had filed a petition seeking to initiate Corporate Insolvency Resolution Process (CIRP) against FRL for defaulting Rs 856.10 crore as of December 31, 2021.

BoI has an exposure of Rs 1,441.62 crore to FRL, while the total exposure of banks was estimated to be at about `17,000 crore.

On its part, Amazon moved the tribunal asking it not to admit the petition, alleging lenders of colluding with FRL with “mala fide” intentions and also informed the court that it will not join the insolvency petition. Amazon had also moved the Reserve Bank of India earlier, reiterating its demand for a “forensic investigation” into FRL’s alleged misconduct.

Dismissing the IA, NCLT said the onus to prove the existence of fraud is on Amazon and, in this case, it had “miserably failed” to establish the same. Moreover, Amazon is not even a stakeholder in FRL and a complete third party to the proceedings before this tribunal. Hence, it has no “locus standi” to question initiation of insolvency proceedings.

Amazon had opposed FRL’s Rs 24,713-crore deal with Reliance Retail,which was signed in August 2020, citing a 2019 non-compete agreement between itself and the Future Group. The deal finally fell through as FRL failed to secure shareholders’ and lenders’ approval.

By that time, around 900 stores of FRL had been taken over by Reliance Retail as the former had defaulted on payment of rent. The stores were leased to Reliance which had subleased them to FRL.

In November 2019, Amazon had invested about Rs 1,431 crore in Future Coupons, a holding company promoted by Future Group founders, for a 49% stake.

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