NCLT orders insolvency action against Future group arm FRL

Mumbai: The National Company Law Tribunal (NCLT) on Wednesday ordered initiating insolvency resolution proceedings against the debt-ridden Future Retail Ltd while dismissing objections raised by e-commerce major Amazon.

The petition seeking insolvency resolution proceedings against the company was filed by Bank of India (BoI) following loan defaults.

A two-member NCLT bench rejected Amazon's intervention plea terming the allegations of collusion of the lenders with Future Retail Ltd (FRL) and MDA (Mukesh Dhirubhai Ambani) Group as "baseless".

It also said that Amazon has no "locus standi" to question initiation of proceedings against FRL.

According to the tribunal, the onus to prove the existence of fraud is on the party alleging the same and in the present case, Amazon has "miserably failed to establish the same".

Further, it said that as per the order passed by the Emergency Arbitrator of Singapore International Arbitration Centre (SIAC), there is "no injunction against the lenders from exercising their contractual rights or statutory rights."

NCLT said the banks are exercising their statutory rights in accordance with law as they are not a party to the arbitration proceedings between the promoters of the FRL and Amazon at SIAC.

"Moreover, the applicant is not even a stakeholder in respect of the corporate debtor and, a complete third-party to the proceedings before this tribunal and has no locus standi to question initiation of proceedings under Section 7 of the Insolvency and Bankruptcy Code against the corporate debtor," the order said.

Amazon has a 49 per cent stake in Future Coupons Pvt Ltd (FCPL), which owns 7.3 per cent equity in FRL. It had opposed the Rs 24,713 crore-deal between Future Group and Reliance that was announced in August 2020. The deal, which has been scrapped, included sale of the retail assets of Future Group, including FRL, to Reliance Retail.

On Wednesday, while admitting BoI's plea, NCLT bench, comprising Justice P N Deshmukh and Shyam Babu Gautam, said the corporate debtor (FRL) has already admitted default of its repayment as on December 31, 2021 under the One Time Restructuring (OTR) scheme.

Further, on February 4, 2022, FRL admitted in its meeting with the lenders that the events of default continue to subsist.

"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," NCLT said.

It has appointed Vijay Kumar V Iyer as suggested by the bank as an Interim Resolution Professional (IRP) for FRL.

"This bench hereby prohibits the institution of suits or continuation of pending suits or proceedings against the corporate debtor, including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority, transferring, encumbering, alienating or disposing of by FRL any of its assets or any legal right... in respect of its property...," the tribunal said.

Further, NCLT said the supply of essential goods or services to FRL, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.

"The order of moratorium shall have effect from the date of pronouncement of this order till the completion of the corporate insolvency resolution process or until this bench approves the resolution plan or passes an order for liquidation of the corporate debtor, as the case may be," it said.

NCLT order came on a petition filed by BoI under Section 7 of the IBC that allows financial creditors to initiate insolvency resolution proceedings against defaulting companies.

In April, BoI filed the petition before the tribunal after FRL defaulted paying Rs 3,495 crore under the one-time restructuring scheme.

Overall, FRL has defaulted on payment of Rs 5,322.32 crore to its lenders on account of the ongoing litigations with Amazon and other related issues.

BoI's counsel Ravi Kadam, while filing the application for initiating the insolvency resolution proceedings, had informed that the consortium of lenders are supporting the petition and that it was necessary that the tribunal admits the plea in order to protect the assets of the company.