Supreme Court Seeks Banks' Response To Future Retail's Plea To Defer Coercive Steps Over Loan Default

The Supreme Court of India on Tuesday directed the consortium of 27 banks to file an affidavit in response to the writ petition filed by Future Retail Ltd (FRL) seeking the deferral of coercive actions over loan defaults.A Bench comprising the Chief Justice of India NV Ramana, Justice AS Bopanna and Justice Hima Kohli also asked FRL to serve copy to the Reserve Bank of India and posted the matter day after tomorrow.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.Senior Advocate Harish Salve, appearing for the FRL, opened the arguments by submitting, "RBI had come up with a scheme in August 2020 for those who got hit by COVID. Our retail business in the first lockdown went completely belly up".Referring to the ongoing dispute with Amazon, Salve submitted that the FRL was faced with various injunctions orders and it could not materialize its assets for making payments to the consortium of banks as per the one-time settlement agreements. "What the banks had suggested, one of the assets we have is the small-format stores. Banks said, at least sell the small-format stores. Because of the injunctions, we could not alienate the assets. So the banks expressed their displeasure. On December 31, 2021, we wrote a letter to the banks explaining all these. We told the Banks, why don't you take over the assets and sell it. Banks can invoke SARFAESI and they have a superior right. On 1st January 2022, the banks also obtained legal opinion to set up an Asset Sale Committee. On 5th January, we get "Event of Default Notices". The reason why we came here is, under the RBI guideline, the next step is the declaration of Non Performing Assets. Once it is declared NPA, the next step is Section 7 of the IBC. If this company goes into liquidation, everything will become infructuous", Salve continued.Salve submitted that what the company needed was some time. If the deal with Reliance goes through, all debts could be cleared. The merger with Reliance will require the sanction of NCLT. If things go uninterrupted, hopefully by August the merger scheme will be finalized, he added."The other company, Amazon, has offered you money?", CJI asked Salve."Amazon said they will ask Samara to buy all retail assets at 7,000 cr. 7000 crore is only what we owe. So it is like samara wants to have it cheap", Salve replied. "How do you solve the problem I don't understand", CJI remarked."If the banks could give time till September, hopefully by then the deal will be complete and everyone can be paid off. If the Arbitrator holds that we can culminate the deal with Reliance, it is a relief", Salve said."Why don't you expedite the arbitration proceedings?", CJI asked. Salve replied that the hearing is starting tomorrow. He pointed out that if the company goes under liquidation, the banks will not get much after the "hair-cut".Senior Advocate Mukul Rohatgi, appearing for the promoters of the company, submitted that coercive steps will follow them after the declaration of NPA, such as declaration as wilful defaulters, removal as directors, and possibly criminal proceedings under SFIO.Writ not maintainable: Consortium of BanksSenior Advocate Rakesh Dwivedi, appearing for the Consortium of Banks, submitted that the writ petition is not maintainable as there was no issue of violation of fundamental rights and the matter flowed from contractual relationships. He pointed out that many of the respondents are private banks and foreign banks against whom the fundamental rights are not enforceable."There should be no interim order. The default has already occurred one month ago", Dwivedi submitted.He pointed out that the averment in the writ petition that FRL is not in a position to carry out its day to day affairs till March 2022. The writ petition itself is a testimony of the bankruptcy of FRL."We have nothing to do with Amazon or their arbitration. We are not parties to the arbitration", Dwivedi clarified. "Mr.Dwivedi, if this is your stand, why don't you file the affidavit?", CJI asked."We can file the affidavit. But there should be no interim order", Dwivedi submitted."You have to take a realistic approach otherwise no party will get any benefit out of this. If writ can be maintainable or not is a different story", CJI remarked. "I am representing all the 27 banks. We have to take a business call", Dwivedi replied.Senior Advocate Gopal Subramaniam submitted during the hearing that Amazon was interested in the survival of FRL. "The scheme proposed by them is violative of the injunction order", Subramaniam added.The bench directed the consortium of banks to file an affidavit and posted the matter day after tomorrow. 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...

Supreme Court Seeks Banks' Response To Future Retail's Plea To Defer Coercive Steps Over Loan Default

Srishti Ojha

The consortium of banks objected to the maintainability of the writ petition contending that no fundamental rights issue was involved.

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