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Supreme Court refuses interim stay on default notices issued by banks to Future Retail Limited

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The Supreme Court on Thursday refused to grant interim stay on the default notices issued by Banks to Future Retail Limited (FRL) for initiation of insolvency proceedings as it is unable to pay its debt.

The Court said it will pass some order on a plea filed by FRL, seeking direction to restrain banks from declaring the company a non-performing asset (NPA) in connection with a default. 

During the hearing, Senior Advocate Harish Salve, appearing for the Future Retail Limited, submitted that his clients have arranged some money to pay to the banks so that they won’t be declared as Non-Performing Asset (NPA). 

Senior Advocate Rakesh Dwivedi, appearing for the Consortium of Banks raised his preliminary objections on the maintainability of writ petition under Article 32 of the Constitution of India. “we have objection regarding the maintainability of this petition under Article 32, as it is in the realm of pure contractual. The loan which we granted in between 2015, which is much before the order of Tribunal, which is their inter sea battle. It has no linking with us. Another aspect is this that default has been committed in 2020, its restructured on the request of future. We have annexed schedule 8 where they have to comply by December 31, 2021,” he submitted. 

The subject regarding maintainability is one issue and it’s a writ petition filed by Mr Salve seeking some more time and we have not passed any orders so far, replied the CJI. 

Dwivedi answered, “There two private contracts between Amazon-Future and Reliance-Future. And our is a public contract with Future. If it won’t be paid the interest will add up to 20000 crore. Our loan is only as per FRL 17000/- which will not satisfy us. If Reliance wins then Future is going to get 27000 crore. That is different story and it has nothing to do with us. What I suggest that the entire assets of FRL which we are entitled to sell, let the Amazon and FRL sell them in open bid. Lordship May direct, that FRL, sell them in a open bid and reserve 17000 crore for us.”

Salve replied, I agree with Mr Dwivedi, Public borrowing is above over anything. But I am objecting to the submission. 

So you want to pay?, asked the CJI. 

Salve answered, if the deal with reliance go we will pay each penny. 35K jobs will be saved, no shop will be sold. There is no haircut for the banks. I have to suggest, lordship has directed the High Court, to hear the appeal. Because prayer in my appeal is that, why there is a arbitration agreement at all? If I succeed then ultimately our deal will go through with Reliance. Have it after two weeks. And request the high court time hear the appeals. Give me two weeks time and I will ask my client to speak to bank to come up at some solution. 

Senior Advocate Gopal Subramonium appearing for the Amazon- We have no hesitation in discussing the matter with the lenders. 

CJI- There is a possibility of discussion for some time. Mr Salve, argument is about the maintainability of the Arbitration Award. What is your opinion on this? 

Subramonium- I can’t see Something is preposterous is this, it could only be challenged after the final order of the Arbitration Tribunal, 

Subramonium- It is called a partial abode. The award of the arbitration tribunal can only be challenged after the final award has been passed. 

CJI- Yes Mr Salve. 

Salve- There is something preposterous, which is the Language used in this Court. 

CJI- You argue whatever you want to say. We have asked the Chief Justice of Delhi HC to hear the matter. Today’s position, there are two issues, one is the WP filed in Article 32. We are not passing any order. So far as other issue, your proceedings before the NCLT. 

Gopal- An interim arrangement will displaced the interim order of the Arbitral tribunal. Against the order of 25/10/2020, by the EA, there should be no appeal. There is an injunction order by the tribunal to carry out any proceedings before any authority.

CJI- If we allow the proceedings before the NCLT then what will happen? 

Gopal- there is something in law called the fruits of the poison tree. Throughout the period from 25/10/2020, there is a series of litigation. 

Salve- Amazon only wants to read order which is in their favour. These proceedings take time, and that transfer of assets is only point no 15 in my affidavit. 

Supreme Court CJI- We will pass orders. We are adjourning simply for some times. We are not passing any interim orders. 

On the last hearing the three-judge bench headed by the Chief Justice of India N.V. Ramana, and Justices A.S. Bopanna and Hima Kohli had asked Senior Advocate Rakesh Dwivedi, appearing for the consortium of 27 banks, to file a short affidavit.

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.

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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