Future Retail’s related party operational dues nearly 25%

These include Future Consumer, Future Enterprises, Future Specialty Retail and Future Supply Chain Solutions. The retail chain has been under insolvency resolution for about 10 months and has received claims of ₹9,306 crore from operational creditors. Under the Insolvency and Bankruptcy Code (IBC), operational creditors are entities with dues against goods or services they have supplied to a company.

Some of the other related companies that have submitted claims are Aadhaar Wholesale Trading and Distribution, Apollo Design Apparel Parks, and Bloom Foods and Beverages.

Future Retail was referred to the insolvency tribunal last April following the collapse of a buyout deal with billionaire Mukesh Ambani’s Reliance Industries.

A banker, part of the group of lenders looking at the resolution, said the quantum of claims made by group companies in Future Retail is larger than what is usually seen in other insolvency cases. He, however, said it doesn’t threaten recovery for lenders because financial creditors drive the resolution process. Given that operational creditors don’t have voting rights under the insolvency process, lenders are not quite worried.

“Usually, related party demands are not as high as in the case of Future Retail," said the banker cited above.

However, legal experts said related party claims might not be seen on par with others.

“From a perusal of the judicial precedents settled by the courts of our country, it is not uncommon to find that claims from related parties are classified as a separate category under resolution plans and differential treatment is meted out to them thereunder," said Sandeep Bajaj, managing partner, PSL Advocates and Solicitors.

According to Section 5(24) of IBC, related parties include subsidiaries or holding company of a company undergoing insolvency proceedings or someone who is a promoter or has management control.

Experts said although defaulting promoters are barred from submitting resolution plans for their companies under Section 29A of IBC, they are free to claim dues.

“Such related parties can submit claims, and these claims are treated at par with other operational creditors," said Shri Venkatesh, managing partner, SKV Law Offices.

He said the fact that related parties have submitted operational claims of such a large amount further highlights the interconnectedness of the business and the need for proper corporate governance. “However, these claims are still subject to the insolvency resolution process and will be evaluated and decided upon by the committee of creditors," he said.

Others said while claims of related parties are welcome under IBC, such claimants don’t have the power to drive the insolvency resolution process since they are barred by the code to participate in the committee of creditor meetings.

“The sole agenda of the code to deny the entry of related parties of the corporate debtor in to creditor meetings is to avoid conflict of interest between various creditors," said Amir Bavani, founder, AB Legal Advocates and Legal Consultants.

Bavani said in cases where resolution is initiated against big companies such as Future Retail, there are certain large claims from group firms, which not only reflect their interconnectedness but also help the entity to run as a going concern.

Meanwhile, financial creditors, or lenders, have submitted claims of ₹21,555 crore to Future Retail, of which ₹19,185 crore has been verified by a resolution professional as of 15 March. While Bank of New York Mellon has claimed ₹4,670 crore, Union Bank of India and Bank of Baroda have claimed ₹2,002 crore and ₹1,826 crore, respectively.