Home Business framework Supreme Court declines to issue interim order against banks in Future Retail’s plea to defer loan default actions

Supreme Court declines to issue interim order against banks in Future Retail’s plea to defer loan default actions


India’s Supreme Court on Thursday refused to pass an interim order to restrain the consortium of banks’ enforcement action against Future Retail Ltd (FRL) in the event of default.

A bench comprising Chief Justice of India NV Ramana, Justice AS Bopanna and Justice Hima Kohli adjourned the motion for an order filed by the FRL without passing an interim order against the banks.

The Section 32 Petition in Brief was filed by FRL seeking the cancellation or withdrawal of the notices of event of default provided by the lenders. On February 1, the Court had requested the response of the banks, after the FRL had requested the postponement of the coercive measures by pointing out the difficulties created by the orders rendered in the Arbitration case with Amazon.

Today, Senior Attorney Rakesh Dwivedi, appearing for the Consortium of Banks, raised preliminary objections regarding the maintainability of the Brief Motion.

“These are purely contractual matters. Normally the Court will not intervene under Article 32 in contractual matters. In addition, in the consortium there are 10 private banks and 3 foreign banks and the fundamental rights are not opposable to them”, Dwivedi submitted. He further argued that the loans were granted between 2015 and early 2021, long before the emergency award was handed down by the Singapore court in the Amazon case. The defaults had been committed in 2020 and the loans were restructured at the request of the FRL. The loans are unrelated to litigation between Future, Amazon and Reliance, the lead attorney added.

Dwivedi further submitted:

“Our contract involves depositors interest. So it involves public interest. We have a loan of Rs 17,000 crores. it will rise to Rs 25,000 crores. And ultimately they are not certain, whether Amazon or Reliance will get it. So we are looking at litigation uncertain. If Amazon ultimately wins, Rs 7,000 crores will come in. But our loan to FRL does not is only Rs 17,000 crores. If we take into account the loans to the whole Future group, it will be more than Rs 35,000 crores. If Reliance wins, Future will get Rs 25,000 crores, but for the whole group. So in all cases, banks will have to invoke IBC”.

Dwivedi suggested that all of FRL’s assets could be subject to open bids by Amazon and Reliance, with a reserve price of Rs 17,000 crore. Sealed offers can be filed in the Supreme Court. “Whoever bids the most, let them take it. It’s a sure shot, we’ll get our money, and whoever bids the most will get Future”, he suggested.

Senior Attorney Harish Salve, appearing for FRL, said he agreed with Dwivdedi’s suggestion. But he added that Amazon cannot deposit a single rupee here being a foreign multi-brand company.

Senior Advocate Gopal Subramaniumappearing for Amazon, said his customers are not hesitant to discuss the matter with lenders for a resolution.,

The bench also heard with the motion in brief the civil appeals filed by Future Retail and Future Coupons against the enforcement orders passed by the Delhi High Court in relation to the emergency decision of the Singapore Court. Although the bench quashed the High Court orders on February 1, it had today published the appeals with the motion for an order to review the interim measures. The bench heard elaborate arguments from lead attorneys Salve and Mukul Rohatgi for Future Group, Subramanium, Aspi Chinoy and Ranjit Kumar (for Amazon) in civil appeals and reserved orders.

Regarding the motion in brief, the bench said it was not making any orders. When Dwivedi asked for clarification on whether the banks could take enforcement action, CJI said, “We are not issuing any interim orders. We are adjourning the brief motion.”

Petition details:

The plea sought directions restraining the 27 defendant lenders from declaring FRL as a non-performing asset and directing them to extend the framework agreement deadline for the monetization of small format stores in accordance with the minutes of the meeting of the 01.01.2022 .

Further instructions have been requested from lenders to extend the “processing period”https://www.livelaw.in/ “review period” by 30 days under the framework agreement.

The plea called on the Reserve Bank of India to relax the “review period” (of 30 days) envisaged in the August 6 circular in the case of FRL

According to the FRL, the injunctive orders issued in the arbitration and related proceedings initiated by Amazon to which it was mistakenly joined as a non-signatory party interfered with the FRL’s ability to meet the monetization deadlines of the small-format stores under the framework agreement.

The Claimant argued that despite acknowledging that the FRL’s inability to monetize small format stores was due to events beyond the FRL’s reasonable control and despite having therefore waived its right to declare the FRL’s inability to do so as an “Event of Default”, the lenders issued event of default notices to the FRL threatening to bring proceedings under the Insolvency and Bankruptcy Code , 2016

According to FRL, these notices of event of default were issued in error when FRL expressed and undeniably established its intention in good faith to meet the deadlines prescribed in the framework agreement. In addition, FRL had informed and explained the lenders of the arbitration injunction orders and related proceedings initiated by Amazon.

FRL argued that an agreement was reached between the parties on 01.01.2022, in which the respondent lenders agreed to set up an asset sale committee to monetize FRL’s small format stores and recover royalties under the framework agreement. Thus, in addition to having renounced to declare in Case of Default the impossibility for the FRL to monetize the Small Format Stores, the lenders by the new agreement concluded on 01.01.2022 as it appears from the minutes of the Meeting of 01.01.2022 extended the monetization schedule for Small Format Stores. However, contrary to the agreement, the default event notices threaten legal action.

The petitioner pointed out that the respondent lenders have also reserved their rights and remedies under the master agreement and other financing documents, which include remedies under the broader security available under the financing documents or even declare the FRL account as a non-performing asset. .

FRL argued that it called on the lenders to withdraw the notices of event of default and asked them to adhere to the agreement of 01.01.2022, but that they wrongly, arbitrarily and without no motivation, nothing done.

According to FRL, not only are the actions of the Respondents unreasonable, arbitrary and without justification or reasoning, but they would also compromise the very existence of FRL and even less seriously interfere with its right to trade and do business.

FRL argued that the following consequences could take place under default event notices:

  • FRL’s account will be reported as a non-performing asset.
  • Consistent with the non-performing asset declaration by one of the responding lenders, FRL’s account would be classified as a non-performing asset by other lenders who are not even covered by the master agreement.
  • The Defendant Lenders would be free to bring proceedings against the FRL, including insolvency proceedings under the Insolvency and Bankruptcy Code and to enforce the Guarantee under the Framework Agreement, thereby depriving the FRL of its asset base.
  • Respondent’s lenders could disclose/publish FRL and its board of directors as willful defaults, thereby reducing its credit rating and consequently impairing its ability to raise further financing.

The petitioner argued that the petitioner’s challenge to the injunction orders against him that prevented him from monetizing small format stores by 31.12.2021 are pending before the Supreme Court.

FRL argued that with the onset of the COVID-19 pandemic, its business, which largely depends on customers’ ability to visit its stores, has been negatively affected. Consequently, this impacted the ability of FRL to meet its bank obligations, leading to an accumulation of liabilities and a cash shortfall of around Rs. 5,000 crore. Against this, the FRL had dues of around Rs. 4,275 crore falling due between March and September 2020.

According to FRL, in view of the deterioration of its financial situation, with no other alternative in hand, the board of directors of FRL approved on 29.08.2020 a plan to merge FRL and Reliance in the best interest of its employees (more than 23,000 in number), lenders, sellers and its shareholders (about 4 lakh in number) and also to save the intrinsic value of the FRL

FRL argued that as a further measure, on 27.09.2020, it filed respective demands with the lenders under the circular of August 6, requesting the restructuring of its facilities in view of the impact of the pandemic. of COVID-19 on its financial condition and cash flow.

FRL and the lenders signed the framework agreement on 26.04.2021 and the existing outstanding has been restructured in accordance with the terms of the framework agreement. In addition, all the Facilities repayable to the lenders continued to be guaranteed by the Security provided under the “Financing Documents”

According to FRL, it was required to monetize its small format retail business by 31.12.2021 and proceeds from monetization of small format retail business of approximately INR 3,000 crore was to be used for reimbursement of facilities restructured in accordance with the Framework Agreement.

However, Amazon invoked arbitration proceedings before the Singapore International Arbitration Center and the emergency arbitrator issued an order inter alia prohibiting FRL from selling its retail assets without Amazon’s consent.

This was followed by a series of disputes between Amazon and Future in the Supreme Court, High Court and Delhi Tribunal.

Future Retail and Dependency Agreement:

During the hearing of the special leave applications filed in the Amazon-Future case, the Future group had argued before the Supreme Court that being in a precarious financial situation, Future Retail Ltd “will sink with 30,000 employees. losing their jobs” if the Rs 26,000 crores with the Reliance does not pass.

FRL and Future Coupons Pvt Ltd argued that FRL should be allowed to continue the scheme’s interlocutory proceedings with Reliance to ensure that they would be able to finalize the deal once the dispute with Amazon is over.

It has been argued that Amazon wants to cripple everything as they are not interested in FRL and are targeting Reliance Group which is their real competitor.

Case Details: Future Retail Ltd v Reserve Bank of India & Anr |WP(C) No. 48/2022