The saga of Future Retail Ltd (FRL) has all the ingredients of a potboiler: a foreign suitor circles the heavily indebted company, intending to buy it, but later makes allegations of financial irregularities and drags the business to court; a subsequent Indian suitor also twists the knife as the proposed takeover again gets mired in controversy; this Indian suitor subsequently tries to physically takeover hundreds of Future stores spread across multiple Indian cities in a secret midnight operation before cancelling the entire takeover process.
Meanwhile, FRL goes for insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), after it defaults on payments to creditors. A few months thereafter, the resolution plan crafted under IBC also starts to fall apart. At stake is over ₹21,000 crore of claims made by 34 financial creditors, mostly Indian public sector banks, and more (dues to government entities, employees, etc).
Twist in the tale
Now, the latest twist in the tale is an unprecedented allegation by the Resolution Professional (RP), tasked with steering FRL’s revival under IBC, of irregularities by promoters and a demand of nearly ₹15,000 crore for the same.
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Vijaykumar V Iyer, the RP of FRL, filed an application last week before the National Company Law Tribunal (NCLT) against the former and present directors of the company under Sections 66 (2) and 67, read with Section 60(5), saying the loss caused to creditors of FRL is ₹14,809.44 crore. He has further sought a direction from the tribunal against the respondents to contribute such an amount to FRL.
The Federal reached out to Iyer, but he declined to comment.
Insolvency proceedings against FRL began in July last year after one of its creditors, Bank of India, dragged it to NCLT. Till February this year, a staggering amount in excess of ₹21,000 crore had been claimed by 34 financial creditors of FRL.
FRL was part of a clutch of Future Group companies which were to be transferred to Reliance Retail as part of a mega deal announced in 2020. But FRL’s lenders rejected this takeover as the legal challenge by former suitor Amazon Inc was pending. Now, the resolution plan of FRL appears to be in trouble since not a single bidder has shown interest in acquiring the company.
InGovern, an investment advisory firm, has been writing to the market regulator SEBI and others (such as ministries of finance and corporate affairs) about the alleged fraudulent transactions undertaken by promoters and directors of FRL. In the first such letter, it alleged that since annual reports of half-a-dozen Future Group companies have “both Qualified Opinions and Emphasis of Matter by the Statutory Auditors”, this means there has been mismanagement of funds.
In another letter, InGovern alleged that Kishore Biyani resigned from the position of Executive Chairman and Director of FRL from January 23 and that this resignation means “Mr Biyani is abdicating all responsibility of helping the company recover assets or ensure that there is any continued value for sale to investors. If media reports are to be believed, due to non-cooperation of the Biyanis, the Resolution Professional also plans to approach the NCLT. The above facts make it more imperative that the SEBI and the RBI should intervene to ensure that shareholder wealth is protected and can be salvaged.”
InGovern has been seeking a thorough forensic audit into the books of FRL.
Now, as the RP for FRL has filed claims worth nearly ₹15,000 crore against the promoters and directors, Shriram Subramanian, founder of InGovern, said: “The RP has been able to quantify the loss caused by promoters and has also sought directions that the promoters return the monies to the company. It is important that regulators take note of this and take action post-haste to recover the monies”.
Steps in resolution plan
Another RP associated with a high-profile insolvency case, who declined to be identified, said that in every resolution plan under the IBC, the RP must do a transaction audit, go through the accounts of the company for at least the previous two years (even further if he suspects fraudulent transactions) and assess whether any of the creditors has been treated preferentially or there have been instances of fraud.
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He also said that while making directors/promoters of the company accountable and liable for payment is nothing new, perhaps the large amount sought in the FRL case has caught attention.
The Future Group saga, meanwhile, continues with its twists and turns. Even under the IBC resolution being crafted by the RP, two of India’s biggest business houses are believed to have evinced an interest in reviving the Future Group’s businesses.
So, will the erstwhile promoters cough up the amount the RP has sought and will the big daddies of India Inc fight it out to own a piece of the Future pie? A denouement is still some months away.