The Mumbai bench of the National Company Law Tribunal (NCLT) on Wednesday admitted Bank of India’s petition to initiate a corporate insolvency resolution process (CIRP) against Kishore Biyani led-Future Retail Ltd, after reserving its orders on 27 June.
The petition has been admitted under section 7 of Insolvency and Bankruptcy Code (IBC).
A bench led by Justice Shyam Babu Gautam and Justice Pradeep Narhari Deshmukh after hearing both the parties said “that the existence of debt and default has been proved, therefore, we hereby admit this company petition”.
Vijay Kumar Iyer has been appointed as the interim resolution professional for the company.
The bench also dismissed the intervention application filed by Amazon that opposed the initiation of insolvency proceedings against the debt-laden firm, on the grounds that it scuttles its rights.
“As per Para 285 of the EA (emergency arbitration) Order, there is no injunction against the lenders from exercising their contractual rights or statutory rights. Further, the banks are exercising their statutory rights in accordance with law as they are not party to the arbitration proceedings,” said the NCLT in its order.
Amazon is expected to challenge the order in the National Company Law Appellate Tribunal (NCLAT).
With the admission of FRL into insolvency, a moratorium kicks-in till the resolution of insolvency; meaning any other enforcement or legal proceedings are paused.
“This Bench hereby prohibits the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority, transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest,” said NCLT in the order.
“Proceedings initiated by Amazon against FRL before SIAC (Singapore International Arbitration Centre) also ought to be stayed otherwise any award passed by SIAC may be in conflict with the Indian law," said Sandeep Bajaj , Managing Partner PSL Advocates and Solicitors.
Bajaj also added that after this order, and if the same is not interfered with by the NCLAT, the financial creditors will now form the committee of creditors and drive the entire CIR Process.
According to Tarun Agarwal, co-Founder & head of a Jaipur-based law firm TBA Legal, the remedy available with Amazon is to challenge the rejection of its intervention application by the NCLT before the NCLAT under section 65 of IBC. Section 65 deals with the provisions relating to the penalty for fraudulent or malicious initiation of proceedings. The adjudicating authority can impose a penalty.
“It is also noteworthy that since the moratorium imposed under Section 14 of the IBC does not have an extra-territorial jurisdiction, any foreign seated arbitration against FRL may continue. However, the limitation under current legal framework is that any award passed in such an arbitration proceeding will not be enforceable against FRL by Indian courts," said Agarwal.
Future Retail owes its creditors led by Bank of India more than Rs 15,000 crore, which led the bankers to drag the company to the bankruptcy court. Bank of India’s dues amount to Rs 856.10 crore. The Bank of India, on 14 April, initiated insolvency against Future Group for non-payment of dues that were due under the terms of the Framework Agreement entered into between the company and the bank.
Amazon in its plea had alleged collusion by lenders however the NCLT dismissed the allegations as ‘baseless’.
“Allegation of collusion of the Lenders with Corporate Debtor and MDA (Mukesh Dhirubhai Ambani) group seems to be baseless, since, at the time of voting by the secured creditors, the financial creditor and the other lenders had opposed the scheme of arrangement, same has been admitted by the intervenor himself. The onus to prove the existence of fraud is on the party alleging the same and in the present case, the applicant had miserably failed to establish the same,” said NCLT.