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Kishore Biyani-led Future Retail (FRL) said on Wednesday that it was committed to taking all actions necessary to seek value adjustments and reversal of takeover of stores by the Reliance group.
The beleaguered retailer said its board had held two meetings and notified Reliance that such a “drastic and unilateral action” had not only come as a “surprise” to FRL but also complicated the positive scenario, which had started building up after the Competition Commission of India’s order in December in its favour.
FRL’s statement came in response to the stock exchanges seeking clarifications over the public notice by Amazon, which had accused Future and Reliance of ‘fraud’.
On February 25, Reliance Retail started taking control of stores that it had subleased to the Future group. In an exchange filing on February 26, the Future group had said it received termination notices for a significant number of stores due to huge outstanding. FRL has taken strong objection to this and put the Reliance group on notice to reconsider all other actions initiated over the last few days, it said.
“FRL’s board has also notified the Reliance group that assets such as store fixtures, store infrastructure, merchandise, inventory, etc. belonging to FRL and lying inside these stores, are hypothecated as security in favour of the FRL lenders,” the company said in the exchange filing. “The board has called upon the Reliance group to ensure that the possession of the secured assets is not transferred and retained unharmed for the benefit of the lenders.”
According to a source, while the Future group purchased the bulk of its FMCG and food stocks from JioMart and was making payments in a staggered manner, a chunk of fashion and general merchandise stocks belonged to Future. With the takeover of the Future group’s stores, Reliance has also taken over physical assets that include items like escalators and chillers.
The company said its board had objected to the act of the Reliance group issuing offer letters to employees of FRL since the transfer of employees was to take place after the scheme of arrangement, and not through any other mechanism. Reliance also began the transfer of 30,000 FRL employees to its manpower and staffing company Reliance SMSL.
Ashish Kumar Singh, managing partner at Capstone Legal, said, “One of the possible ways to get back the control of the stores taken over by Reliance is by challenging the unilateral cancellation of the leases. It is also to be noted that time is also a very important factor in case a challenge is to be made to the unilateral cancellation.”
FRL clarified that there had been several media reports and public notices issued by Amazon misreporting that FRL had handed over its retail assets to Reliance in breach of orders of the Tribunal and the Supreme Court. “Such reporting is inaccurate and factually erroneous. FRL has not handed over the stores to the Reliance group,” FRL said.
FRL explained in the filing that its operations had been significantly impacted due to lockdowns announced to contain the spread of Covid-19. The company has seen massive erosion in its sales and complete erosion of its net worth due to mounting losses.
The second and third waves of the pandemic worsened the financial condition of the company and its strained cash flow led to a build-up of unpaid dues to vendors and lessors. FRL had announced a scheme of arrangement (scheme to sell Future Group’s retail, logistics, and warehousing businesses to Reliance Retail for ~24,713 crore) with Reliance which not only ensured continuity of business but also a significant repayment of dues to lenders as well as protected interest of all other stakeholders, FRL explained in its filing.
Post the announcement of the scheme with the Reliance group, the retailer was unable to raise any additional capital and thus continued to remain in default on various commitments.
FRL also informed the exchanges that many lessors issued termination notices to the company and filed suits for recovery and eviction from properties post which the Reliance group reached out to these lessors and signed fresh lease deeds in respect of such properties and sub-leased on a leave & license basis to FRL.
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