Future Group is fighting its final battle for existence. Supreme Court’s ruling that upheld Singapore Emergency Arbitrator’s award against Reliance Retail’s ₹24,713 crore takeover of Future group companies may have a bigger impact on Kishore Biyani’s retail chain as it is on the verge of bankruptcy. Most retail outlets are shut because of the Covid-19 pandemic restrictions. Vendors have stopped supplies as dues ballooned to more than ₹6,000 crore, say company sources.
“If the deal delays further for three more months, the group companies will end up in insolvency. We don’t have adequate cash flow to repay the loans and clear the credits of vendors. Insolvency is the only option without this deal,” he said.
Insolvency will hit banks. The cash-strapped group companies jointly owe around ₹19,000 crore to banks, besides the ₹6,000 crore dues to the vendors. FRL alone owes ₹6,278 crore debt with 28 banks, including SBI, Union Bank, Bank of India, Bank of Baroda, Axis Bank, and IDBI Bank, among others. “We don’t have any assets that can be liquidated to recover loans. Our stores are on rent and products are supplied by the vendors. A major portion of the income is going to employees and vendors,” he added.
The Supreme Court order on Friday is a major relief for Amazon, which contested the deal on the grounds that it is an investor in Future Coupons and in turn a shareholder in Future Retail Ltd (FRL). The flagship firm FRL is part of the Reliance-Future deal. The top court has allowed the appeal filed by the E-commerce giant against a Delhi High Court. The Delhi High Court had earlier stayed the attachment of properties of Future Group companies and Kishore Biyani in relation to the deal.
In April, the lenders of group companies had executed the onetime restructuring (OTR) of debt under the RBI guidelines issued on August 6, 2020. But the bankers agreed for OTR on condition of conclusion of deal with Reliance Retail Ventures Ltd (RRVL). “The banks agreed for OTR because we had better chance of recovering the loans while executing the Reliance deal. The OTR itself will become invalid if the deal falls through,” said a banker involved in the process.
In August last year, RRVL had agreed to pay ₹24,713 crore for key formats of Future group including Big Bazaar, FBB, Foodhall, Easyday, Nilgiris, Central and Brand Factory, besides the group’s logistics and warehousing business. It had also agreed to take over certain borrowings and liabilities. As the first step of the deal, Future group has been in the process of consolidating the retailing businesses scattered across six entities—Future Enterprises, Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chain, and Future Market Networks.
According to the Future executive, the group is looking at all legal options, including filing a review petition as well as new litigations. He refused to detail further. However, a Reliance Retail executive says the apex court didn’t say anything about the merit of the Reliance-Future deal. “The court said the emergency arbitration is valid under Section 17(1) of the Arbitration and Conciliation Act, 1996. However, the actual arbitration is yet to complete in Singapore,” he says.
Earlier this year, a three-member tribunal comprising Singaporean barrister Michael Hwang, Albert van den Berg and Jan Paulsson had been formed at the Singapore International Arbitration Centre (SIAC) after the emergency arbitrator’s award. Some of the reports suggested that the tribunal constituted at SIAC for arbitration proceedings related to the deal has concluded its five-day long final hearing. The tribunal’s award will have better legal ground in India after the apex court ruling on Friday, said legal experts.
The verdict on Friday was pronounced by a Supreme Court bench of Justices RF Nariman and BR Gavai. Both the fronts deployed a battery of lawyers including Gopal Subramanium and Harish Salve, the two senior advocates appeared for Amazon and Future Retail, respectively.