Amazon wants scrutiny of alleged fund diversion at Future Retail

Amazon alleged that former and current audit committee members sought forensic audit on related-party transactions
Amazon alleged that former and current audit committee members sought forensic audit on related-party transactions


US giant claims FRL audit panel members flagged funds diversion

The feud between Inc. and Future Group over the sale of the group’s assets to Reliance Industries Ltd escalated with the US retailer claiming that some audit committee members of Future Retail Ltd (FRL) had demanded a forensic audit to probe alleged funds diversion through undisclosed related-party transactions.

The US e-commerce giant made the allegations in a 24 November letter to independent directors of Future Retail and audit committee members, with copies to finance minister Nirmala Sitharaman, Reserve Bank of India governor Shaktikanta Das, Securities and Exchange Board of India chairman Ajay Tyagi, lenders to Future Retail, and the corporate affairs ministry, among others. Future Retail’s audit panel comprises three independent directors and managing director Rakesh Biyani, cousin of founder and promoter Kishore Biyani.

In the letter, Amazon alleged that former and current audit committee members expressed concerns about related-party transactions among entities controlled by the promoters despite substantial equity and debt fund mobilization through December 2019 and January 2020. Accordingly, the panel proposed a probe by an independent third-party expert to find reasons for the sudden spike in Future Retail’s debt, the letter said. The overall amount raised by Future Retail was 9,911 crore in FY2020.

“It appears that FRL (Future Retail) generated a cash buffer by delaying payments to third-party creditors. This may have been done with a view to making payments to related parties in preference to the repayment of monies due to third-party creditors/vendors. Related-party dues seem to have been settled to the extent of 94% of purchases in FY20, while only 59% of dues of other creditors were settled. This requires thorough examination," the letter said.

The letter further said a review of Future Retail’s books demonstrates that the funds raised in FY20 were used chiefly towards extraordinary outflows. This included payments towards security deposits, advances to suppliers and purchase of store infrastructure from related parties.

Of the total amount raised by Future Retail, 1,848 crore relating to “other financial assets and other assets" included “advances paid to suppliers". Future Retail’s financials showed a reduction in the number of stores and total area of occupation (as compared to FY19). “It is logical, therefore, to consider that the security deposits would have reduced or remained the same, in the corresponding period," the letter said.

Amazon claimed Future Retail’s audit panel members have observed that there was a sudden increase in debt from February 2020 to 23 March 2020, and the same was significantly higher than what was tabled at a 4 January 2020 meeting. This is even more curious because, on the one hand, it appears Future Retail delayed payments to creditors, and on the other, it nearly doubled its advances to suppliers; that, too, in a year when most businesses were conserving cash, the letter said.

“The rationale, necessity and background of such extraordinary advances should be examined independently," the letter said.

The letter further said Future Retail more than doubled security deposits (to vendors, landlords and suppliers in FY20 from the previous fiscal and continued around the same level in FY21 despite reducing the number of stores from 1,511 to 1,350 and then to 1,308 over successive fiscals. Amazon also said transactions worth almost 7,000 crore were undertaken between Future Retail and group firm Future Enterprises Ltd in FY20.

Responding to a query seeking comment, a spokesperson for Future Retail said: “All related-party transactions and records of fund utilization are on record and part of public disclosures made by the company as part of standard governance practices. There is nothing new that is being brought to the notice, except false speculations being created out of selective excerpts from these documents. One should understand the motivation behind these allegations and the timing of the same, rather than rely on these baseless and malicious allegations."

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