Bankruptcy court orders liquidation of Future Retail as resolution eludes

It's the end of the road for Kishore Biyani-led Future Retail Ltd, which once led India’s organized retail revolution.

The National Company Law Tribunal (NCLT) on Monday ordered liquidation of the company, setting in motion a process that will see its assets being sold to pay off its dues.

Legal experts believe that this would be a significant blow to the company's lenders. The decision comes after the resolution professional failed to get any resolution applicants to turn around the insolvent company.

A bench led by Justice Kuldip Kumar Kareer said: "It is evident that the maximum period of the CIRP (corporate resolution insolvency process) has expired and no resolution plan has been approved by the CoC. We are of the considered opinion that this is a fit case for liquidation."

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Sanjay Gupta has been appointed as the liquidator in the matter.

In November 2023, the resolution professional of Future Retail had filed an application before the Mumbai bench of the NCLT, seeking liquidation of the debt-laden firm. The application was filed based on the resolution passed by the Committee of Creditors in October last year.

The Committee of Creditors, led by Bank of India, had filed an insolvency application against the company in April 2022 after it failed to repay the lenders. The retail firm owes more than ₹17,000 crore to both its financial and operational creditors. Subsequently, after three months, the NCLT admitted the company under insolvency in July 2022. Bank of India was represented by advocate Rishabh Jaisani.

“From a legal standpoint, the liquidation of Future Retail by the NCLT represents a critical enforcement of insolvency laws, underscoring the tribunal's role in addressing corporate financial distress. This move disrupts the retail industry by terminating the company's operations, affecting supply chains and employment, while enabling creditors to reclaim assets through a structured liquidation process. For lenders, the legal proceedings crystallize substantial financial losses, necessitating write-offs and provisioning for non-performing assets (NPAs), thereby impacting their financial stability and highlighting the necessity of robust legal frameworks to manage large-scale corporate insolvencies effectively," said Tushar Kumar, an independent counsel at the Supreme Court.

On the other hand, Alay Razvi, partner, Accord Juris, said the decision to liquidate Future Retail will create ripple effects across the retail industry.

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"...this decision will surely disrupt the industry and partnerships. The inability to recover such a large amount will inevitably impact the balance sheets of a lot of creditors involved. It is a heavy cost to pay by the creditors, who can barely recover any amount. This decision may give rise to stricter norms and regulations and, more importantly, reassess their financial strategies," Razvi said.

As many as 49 players, including Reliance Retail, Jindal Power Ltd. and Adani group had submitted expressions of interest for Future Retail in April 2023. Reliance Retail Ventures Ltd, the holding company for retail operations of Reliance Industries Ltd (RIL), and April Moon Retail Private Ltd, a joint venture between Adani Airport holdings and Flemingo group, had also submitted their bids.

Others who had evinced interest included Century Copper Corp, Greentech worldwide, Harsha Vardhan Reddy, J C Flowers Asset Reconstruction Pvt Ltd, Pinnacle Air Pvt Ltd, Universal Associates and WHSmith Travel Ltd, among others. However, none of the firms lasted till the final attempt in reviving the company.

Despite a flurry of interest initially, none of the applicants submitted final resolution plans. Space Mantra, which was not a part of the initial list of bidders, ended up as the sole resolution applicant with a ₹550 crore bid. Its plan was rejected by lenders following which the resolution professional approached the tribunal to liquidate the company.

Prior to its bankruptcy, Future Retail used to operate some of India’s most popular retail chains. This included department store chain Big Bazaar, Foodhall, fbb, Easyday and Heritage. As of 31 March 2021, the company had 1,308 stores in 397 cities. Troubles started to mount for the debt-laden group back in 2008 over excessive debt, worsened by the pandemic in 2020. Consequently, in 2020, the group decided on a slump sale of its retail and manufacturing assets, including 19 group companies, to Reliance Retail. The deal was subsequently challenged by rival Amazon that stalled the sale of the group's assets. However, in 2022 Reliance Retail took control of over 800 stores of Future Retail.