The ₹24,713 crore deal between Reliance Industries and Future Retail has been derailed with nearly 70 per cent of the secured credtors rejecting the proposal. The results of the shareholders’ voting that had taken place on Wednesday were disclosed by Future Retail on Friday
The Kishore Biyani-owned Future Retail informed the stock exchanges that it has secured 85.9 per cent of the shareholder votes in favour of the deal with Reliance. More than 78 per cent of shareholders and unsecured creditors supported the deal but FRL did not get the requisite 75 per cent favourable voting from secured creditors.
Future Retail’s lenders are led by Bank of India, Union Bank of India, Bank of Baroda, State Bank of India, Indian Bank, Central Bank, Axis Bank, and IDBI Bank.
Roadblock
According to corporate law experts, the deal with Reliance cannot go through as the NCLT would not approve the deal if the majority of secured creditors have not given their nod.
Ketan Mukhija, Partner, Link Legal, explained that the Indian company law requires approval by 75 per cent creditors to a proposed scheme of arrangement. In the instant case, the lenders have rejected Reliance’s proposal of the scheme relating to the sale of Future’s retail assets to RIL.
Accordingly, “the said transaction will not pass the muster of law and the scheme will not be sanctioned by the NCLT. There can be several reasons and considerations for the lenders to have taken such a step, including preferential treatment to bondholders, etc. but the courts do not usually question the commercial wisdom of such decisions,” Mukhija said.
K Narasimhan Advocate Madras High court, too said that unless the scheme is approved by all three classes of shareholders and creditors, it is considered rejected.
“The deal is not likely to go through since 75 per cent secured creditor votes were not received,” JN Gupta, founder, proxy advisory firm SES.
In August 2020, Reliance had agreed to buy out assets of multiple companies of Future Group. It had decided to buy the assets for the logistics, retail and wholesale businesses of the Kishore Biyani–owned company, among others, for a valuation of ₹24,713 crore.
However, Amazon, which had invested ₹1,400 crore in one of the Future Group companies in 2019 had opposed this deal. It had dragged Future Group’s companies into arbitration on grounds that it violated an agreement in which Reliance was a restricted party.
After the e-commerce giant won an interim award in its favour, it moved Indian courts to seek enforcement of the award. This was countered by the Future Group. Since then, multiple cases have been filed in different courts by both sides. These cases may be withdrawn now since the deal in question itself is in jeopardy.
The litigations, according to Future Group that has been making losses for at least five quarters now, has further eroded the company’s financial strength. The company has defaulted on payments to lenders and vendors, among others. Market experts said that the lenders may now drag Future Retail into insolvency process unless Amazon steps in to help with a strategic investor.