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Supreme Court grants Future Retail creditor banks two days to reply to FRL plea

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The Supreme Court today granted two days’ time to lenders to file their reply on a plea filed by Future Retail Limited (FRL) seeking direction to restrain them from declaring the company a non-performing asset (NPA) in connection with a default of nearly Rs 3,500 crore.

A three-judge bench led by Chief Justice of India N.V. Ramana, and Justices A.S. Bopanna and Hima Kohli has asked Senior Advocate Rakesh Dwivedi, appearing for the consortium of 27 banks, to file a short affidavit. Dwivedi raised his objections on the maintainability of plea filed by Future Retail Limited, stating Article 32 petition is not maintainable.

“If such a writ petition is accepted then every other writ petitioner would approach the court under Article 32. We don’t have to do anything with their deal with Reliance, Amazon etc. creditors are on separate footing,” he argued. 

A consortium of 27 banks, including some private and foreign banks, had lent money to Future Retail and issued “event of default” notices to the company after it missed its repayment deadline. The grace period after the deadline lapsed on January 29.

Senior Advocate Harish Salve, appearing for the Kishore Biyani-led Company, submitted that its retail business went completely belly up in the first lockdown. Their agreement with banks required certain payments to be made. The Emergency Arbitrator has passed an order and Tribunal confirmed it. 

“On 15th December meeting was called up by consortium of banks. What the bank had suggested, one of the assets we have small format stores. Banks said sell the small format stores. Due to injunction, we could not sell. The banks expressed their displeasure. We wrote a letter to banks stating our position. We told the banks, Why don’t you take over the process of sales and sale the assets. On 1/01/22, bank obtained legal opinion, appoint an assets sale committee. On 15/01/22, we got a notice of default…, the operative part of this is…first transaction which is to be paid is Rs 3,500 crore. The reason why we come here is against the notice of default. On one hand, we are caught in judgment today, we have got a judgment to go back to Delhi High Court,” he said. 

“Either we are going onto the bankruptcy route, in which this company will be killed,” he added. He requested if the banks could give some more time till September. 

The present plea was filed by Future Retail Limited, which 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. It had availed the loan facility for the purpose of its operations, expansion and working capital from 27 banks. 

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 Kishore Biyani, Rakesh Biyani and Vivek Biyani. 

According to the plea, “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 the Petitioner No. 1 [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.”

It 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 its right to carry on trade and business, given the following consequences that could ensure pursuant to the Event of Default Notices:

i. The Petitioner No.1’s account will be declared as a Non- Performing Asset;

ii. 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;

iii. 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]

iv. 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;

v. 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;

vi. 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 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 plea stated. 

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