Supreme Court Refuses To Pass Interim Order Against Banks In Future Retail's Plea To Defer Loan Default Actions

The writ petition under Article 32 has been filed by FRL seeking directions to set aside or alternatively withdraw the Event of Default Notices addressed by the lenders. On February 1, the Court had sought the banks' response, after FRL sought for deferral of the coercive steps by pointing out the difficulties created by the orders passed in the Arbitration case with Amazon.

Today, Senior Advocate Rakesh Dwivedi, appearing for the banks' consortium, raised preliminary objections regarding the maintainability of the writ petition.

"These are purely contractual matters. Ordinarily, the Court will not interfere under Article 32 in matters of contract. Also, in the consortium, there are 10 private banks and 3 foreign banks and Fundamental Rights are not enforceable against them", Dwivedi submitted. He further submitted that the loans were granted between 2015 and the beginning of 2021, much before the Emergency Award was passed by the Singapore Tribunal in Amazon's case. The defaults had been committed in 2020 and the loans were restructured as per FRL's request. The loans have no linkage with the litigations between Future, Amazon and Reliance, the senior counsel added.

Dwivedi further submitted :

"Our contract involves depositors' interest. So this involves public interest. We have a loan of  Rs 17,000 crores. If it is pushed back to later this year, as requested by Mr.Salve(for FRL), it will grow to Rs 25,000 crores.  And ultimately they are not certain, whether Amazon or Reliance will get it.  So we are looking at an uncertain litigation. If Amazon ultimately wins, Rs 7000 crores will come in. But our loan to FRL only is Rs 17,000 crores. If we take into account the loans to the entire Future group, it will be over Rs 35,000 crores. If Reliance wins, Future will get Rs 25,000 crores, but for the entire group. So in any case, the banks will have to invoke IBC".

Dwivedi put forth a suggestion that the entire assets of FRL can be subjected to open bids by Amazon and Reliance, with a reserve price of Rs 17,000 crores. Sealed bids can be submitted before the Supreme Court. "Whoever bids high, let them take. This is a sure shot, we will get our money, and whoever bids high will get Future", he suggested.

Senior Advocate Harish Salve, appearing for FRL, submitted that he is agreeable to Dwivdedi's suggestion. But he added that Amazon cannot deposit a single rupee here being a foreign multi-brand company.

Senior Advocate Gopal Subramanium, appearing for Amazon, said that his clients have no hesitation in discussing the matter with lenders for a resolution.,

The bench also heard along with the writ petition the civil appeals filed by Future Retail and Future Coupons against the enforcement orders passed by the Delhi High Court with respect to the Emergency Award of the Singapore Tribunal. Though the bench had set aside the High Court's orders on February 1, it had posted the appeals along with the writ petition today for considering interim reliefs. The bench heard elaborate arguments of Senior Advocates Salve and Mukul Rohatgi for Future Group, Subramanium, Aspi Chinoy and Ranjit Kumar (for Amazon) in the civil appeals and reserved orders.

As far as the writ petition is concerned, the bench said that it is not passing any orders. When Dwivedi sought a clarification if banks can take coercive action, CJI said "We are not passing any interim order. We are adjourning the writ petition".

Details of the petition: 

The plea has sought directions restraining the 27 respondent lenders from declaring FRL as a Non-Performing Asset and directing them to extend the timeline stipulated under the Framework Agreement for monetization of the Small Format Stores in line with the minutes of the meeting dated 01.01.2022.

Further directions have been sought to the lenders to extend the "cure period" / "review period" of 30 days under the Framework Agreement.

The plea has sought directions to the Reserve Bank of India to relax the "review period" (of 30days) contemplated under the August 6 Circular in the case of FRL

According to FRL, the injunction orders passed in arbitration and related proceedings initiated by Amazon to which it was erroneously joined as non-signatory party has impeded the FRL's ability to adhere to the timelines of monetisation of Small Format Stores under the Framework Agreement.

The petitioner has argued that despite having acknowledged the fact that the FRL's inability to monetize the Small Format Stores was on account of events outside the reasonable control of FRL and despite having accordingly waived their right to declare FRL's inability to do so as an "Event of Default", lenders have issued Event of Default Notices to the FRL threatening initiation of proceedings under the Insolvency and Bankruptcy Code, 2016

According to FRL, these Event of Default Notices have been erroneously issued despite FRL having expressed and undeniably established its bona fide intent to adhere to the timelines prescribed in the Framework Agreement. Further, FRL had informed and explained the lenders of the orders of injunctions passed in arbitration and related proceedings initiated by Amazon

FRL has submitted that an agreement was arrived at between the parties on 01.01.2022, wherein the Respondent lenders agreed to set up an Asset Sale Committee to monetize the Small Format Stores of the FRL and recover dues under the Framework Agreement. Thus, besides having waived their right to declare the FRL's inability to monetize the Small Format Stores as an Event of Default, the lenders through the fresh agreement arrived at on 01.01.2022 as recorded in the Minutes of the Meeting dated 01.01.2022 extended the timeline for monetization of the Small Format Stores. However, contrary to the agreement, Event of Default Notices threaten the initiation of legal proceedings.

The petitioner has pointed out that the respondent lenders have also reserved their rights and remedies under the Framework Agreement and other Financing Documents, which includes remedies under the wider security available under the Financing Documents or even proceeding to declare the FRL's account as Non-Performing Asset.

FRL has submitted that it called upon the lenders to withdraw the Event of Default notices and requested them to adhere to the agreement of 01.01.2022, the they however erroneously, arbitrarily and without any reasoning failed to take any action.

According to FRL, not only are the acts of the Respondents unreasonable, arbitrary and without any justification or reasoning but they would also compromise FRL's very existence let alone severely hamper the it's right to carry on trade and business.

FRL has submitted that the following consequences could take place pursuant to the Event of Default Notices:

• FRL's account will be declared as a Non-Performing Asset.
• Pursuant to declaration as a Non-Performing Asset by any of the Respondent lenders, FRL's account would stand classified as a Non-Performing Asset by other lenders not even covered under the Framework Agreement
• Respondent Lenders would be free to initiate proceedings against FRL including insolvency proceedings under theInsolvency and Bankruptcy Code and to enforce the Security under the Framework Agreement thereby denuding the FRL of its asset base.
• The Respondent lenders could disclose / publish FRL and its Board of Directors as wilful defaults thereby reducing its credit rating and consequently compromising its ability to raise any further finance.

The Petitioner has submitted that the Petitioner's challenge to the orders of injunction operating against it which have restrained it from monetising the Small Format Stores by 31.12.2021 are pending before the Supreme Court.

FRL has submitted that with the onset of the COVID - 19 pandemic its business,which largely depends on the ability of customers to visit its stores was adversely impacted. Consequently, it impacted FRL's ability to meet its bank obligations, leading to an accumulation of liabilities and a cash deficit of approximately Rs. 5,000 crore. Against this, the FRL had dues of approximately Rs. 4,275 crore falling due between March and September 2020.

According to FRL, given its deteriorating financial position, with no other alternative in hand, on 29.08.2020 the Board of Directors of the FRL approved a scheme of amalgamation of FRL and Reliance in the best interests of its employees (over 23,000 in number), lenders, vendors and its shareholders (approximately 4 lakh in number) and also to salvage the intrinsic value of the FRL

FRL has submitted that as an additional measure, on 27.09.2020, it filed respective applications with the lenders under the August 6 Circular, seeking restructuring of its Facilities in view of the impact of the COVID-19 pandemic on its financial position and cash flows.

FRL and the lenders executed the Framework Agreement on 26.04.2021 and the Existing Outstanding were restructured as set in terms of the Framework Agreement. Further, all the Facilities repayable to the lenders continued to be secured by the Security created under the "Financing Documents"

According to FRL, it was required to monetize its Small Format Retail businesses by 31.12.2021 and the proceeds from monetization of the Small Format Retail Business of around INR 3,000 crore was to be utilised towards repayment of the re-structured facilities in accordance with the Framework Agreement.

However, Amazon invoked arbitration proceedings before the Singapore International Arbitration Centre and the Emergency Arbitrator passed an order interalia restricting FRL from selling its Retail Assets without the consent of Amazon.

This has been followed by series of litigation between Amazon and Future before the Supreme Court, Delhi High Court and Tribunal.

Future Retail & Reliance Deal:

During hearing of the special leave petitions filed with regard to the Amazon-Future case, the Future Group had submitted before the Supreme Court that being in a financially precarious situation, Future Retail Ltd will "sink with 30,000 employees losing their jobs" if the Rs 26,000 crores deal with the Reliance doesn't go through.

Both FRL and Future Coupons Pvt Ltd argued that FRL should be allowed to go forward with the interlocutory proceedings of the scheme with Reliance to ensure that they would be able to finalise the deal once the dispute with Amazon is concluded.

It was argued that Amazon wants to paralyse everything, as they are not interested in FRL and they are targeting the Reliance group which is their real competitor.

Case Details: Future Retail Ltd vs Reserve Bank of India & Anr |W.P.(C) No. 48/2022