Lenders to Future Retail Ltd have abandoned plans to sue the company for the unapproved transfer of hundreds of its stores to Reliance Retail, two bankers aware of the plans said, adding that they will enforce their rights through the debt recovery tribunal and bankruptcy tribunal instead. The change in stance comes after Future claimed it was unaware of the takeover, and banks believe suing the company now will only create further complications.
Lenders have tasked Bank of Baroda with filing a case under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) Act before the debt recovery tribunal (DRT), the bankers cited above said on condition of anonymity.
Loans to Future Retail were classified non-performing in January after the company missed payments.
“We have given consent to take the company to DRT,” one of the two bankers said.
Lenders believe they have a better chance of recovering their security—the seized stores and their inventory —through DRT rather than pursuing a protracted bankruptcy resolution designed to turn around a stressed company with a resolution plan.
Amazon and Reliance have been fighting over Future for about 18 months, and banks simply want a quick exit route.
The bankers cited above said procedures to take Future Retail to the bankruptcy courts are ready as well; however, all banks have not agreed to this as admitting the company under the Insolvency and Bankruptcy Code (IBC) triggers an immediate moratorium on fresh recovery proceedings or attempts to enforce security interest, reducing the possibility of any quick recovery.
“Some of us are not buying Future’s claim that the whole episode caught it by surprise, but we would rather look at recovery through IBC or DRT instead of seeking immediate action against the company. Given the circumstances, a deal in favour of Reliance would still benefit bankers,” the first banker said.
In the last week of February, Reliance Industries took possession of hundreds of stores run by Future Retail after terminating their leases.
On 15 March, lenders published an advertisement stating that anybody dealing in the company’s assets should keep in mind that these are subject at all times to the charge of the lenders. They said the charge could be pursued and enforced against anyone dealing in these assets.
“The advertisement was meant to state our stance that such transfers encroach upon our rights. There should be a status quo on assets until the matter is settled legally,” the banker added.
Legal experts said that since lenders have separate loan agreements with the Future group, there is no restriction on them from exercising any rights under those agreements.
“If they want, they can start realizing their securities if they deem fit to do so,” said Ashish Pyasi, associate partner at law firm Dhir and Dhir Associates.
Pyasi pointed out that if insolvency proceedings get triggered, then these transactions can be questioned as “avoidable transactions”, and the NCLT has powers to examine and bring back the assets. Under IBC, transactions done to undermine creditors’ rights are called avoidable transactions.
In August 2020, Reliance Industries agreed to buy Future group’s retail assets on a slump sale basis for ₹24,713 crore. While cash-strapped Future group is trying to expedite the deal with Reliance to pay creditors and save the Big Bazaar retail chain from a possible collapse, a relentless legal battle is underway.
Meanwhile, a clutch of Future group entities on Saturday announced meetings of its shareholders, secured and unsecured creditors on 20 and 21 April through video conferencing. On 28 February, the Mumbai bench of the NCLT had allowed the Future group to convene meetings of its shareholder and creditors regarding the proposed deal with Reliance.