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Proxy adviser InGovern Research Services has written to the Securities and Exchange Board of India (Sebi), alleging Future Retail Ltd’s (FRL) resolution professional failed to safeguard the debt-laden company’s assets for creditors and shareholders.

Vijay Kumar Iyer, the resolution professional of the company, didn’t respond to an email seeking comment.

“While the shareholders and other stakeholders await the results of these forensic audit exercises, we wish to bring to your (Sebi’s) attention the complete inaction by the resolution professional of FRL to safeguard the assets of FRL for the benefit of the creditors and public shareholders," the three-page letter said.

InGovern’s letter to Sebi follows Mukesh Ambani’s Reliance Industries Ltd taking over stores of the cash-strapped Future Retail, citing defaults in payments. The stores were sub-leased to Future Retail by Reliance. This overnight takeover of the stores happened even as the two companies were locked in a legal dispute with Amazon.com Inc. over Future Group’s 24,713 crore asset sale to Reliance.

In 2021, Future Retail said it terminated its leases with existing landlords and entered into arrangements with Reliance for operating retail stores. Such arrangements, however, were never disclosed to the stock exchanges and shareholders at the relevant times.

Moreover, their statements in the disclosures directly contradict the statement made by Future Retail in the annual report for the year ended March 2021 that the company does not face a significant liquidity risk with regard to its lease liabilities as the current assets are sufficient to meet obligations to lease liabilities as and when they fall due.

“It is telling that soon after these arrangements were consummated with the alienation of 835 stores that the Corporate Insolvency Resolution Process of FRL commenced. This means that Reliance group, which could only have an unsecured claim against FRL for unpaid rental dues, gained an unfair and undue advantage against the entire class of creditors who had a prior and secured claim against FRL," InGovern said, adding that this fact alone should have been the basis of an application by the resolution professional to set aside such transactions and claw back the retail assets of Future Retail, it said.

With regard to this, InGovern said that “in any bankruptcy process, asset protection and recovery is important".

It is important that all stores and goods that were transferred to Reliance group should be recovered or be recovered from the promoters of Future Retail in the interests of public shareholders and creditors of Future Retail.

Moreover, the letter stated that the resolution professional of Future Retail is ‘duty bound’ to protect and preserve the value of assets of Future Retail and claw-back value, which has been removed unlawfully from Future group by suspicious transactions.

The letter stated that the resolution professional is legally mandated to form an opinion and take action against any preferential, undervalued, fraudulent or exorbitant transaction under IBC.

“The objective of IBC is the maximization of the value of assets of the corporate debtor. However, this objective cannot be achieved by approaching Sebi as the markets regulator does not have jurisdiction. Further, if someone is aggrieved or not satisfied with the conduct of the resolution professional, then the code provides for a mechanism to deal with such a situation, including approaching the NCLT and IBBI. In the event NCLT comes to the conclusion that there are such transactions or the resolution professional is not acting as he is expected, then NCLT can pass the necessary orders," said Ashish Pyasi, associate partner at law firm Dhir and Dhir Associates.

Similarly, in May, the proxy advisory firm and Future group shareholders wrote to the markets regulator demanding immediate action to protect hundreds of thousands of Future shareholders and prevent the company from being referred to an insolvency court, which may wipe out shareholders.

ABOUT THE AUTHOR

Priyanka Gawande

Priyanka Gawande is a senior legal correspondent at Mint. She has worked as legal reporter for four years with both television and digital mediums. Based in Mumbai, she reports on disputes across sectors including banking, corporates and finance. This also includes insolvency and bankruptcy cases and intellectual property rights (IPR) litigation. Her focus also comprises tracking capital markets and disputes relating to securities law. Previously, Priyanka worked with Informist Media for 2.5 years covering major insolvency and bankruptcy cases and corporate developments. She started her career in journalism with Business Television India (BTVi) where she reported on primary markets, banking, finance and insurance companies.
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