InvestorQ : What is this dispute about the bankruptcy of Future Retail and referring the company to NCLT? Why is Amazon against that move?
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What is this dispute about the bankruptcy of Future Retail and referring the company to NCLT? Why is Amazon against that move?

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Rashi Mehra answered.
2 months ago
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There is a strange battle going on at NCLT. On the one hand, Bank of India has referred Future Retail to the NCLT for liquidation proceedings. The reasons are not hard to seek. The consortium of banks led by Bank of India, had lent Rs5,322 crore to Future Retail with little hope of recovering anything amidst a stream of defaults. Even Future Retail is in sync with this decision to be referred to the NCLT. Surprisingly, the objections have come from Amazon, which holds indirect stake in Future Retail via its stake in Future Coupons.

Now, the objection is interesting. According to Amazon, they had objected to the merger deal between FRL and Reliance Retail since it interfered with their first right of refusal, which was not offered to them before signing the merger deal with Reliance Retail in August 2020. Based on the objections raised by Amazon, the NCLT bench reserved its order on admitting Future Retail into the bankruptcy process, despite the application made by BOI. The bench will take more time to deliberate to arrive at an informed view on the subject.

The Amazon counsel has used tough words to describe the approach of Future Retail and the banking consortium. According to the counsel for Amazon, the decision by Bank of India to file a petition to initiate insolvency proceedings against Future Retail was "malicious" in intent. The allegation Amazon counsel also alleged that the lenders to Future Retail, including Bank of India, had explicitly colluded with Future Retail by initiating sale of the distressed company’s assets to Reliance Retail, depleting value of owners substantially.

Incidentally, Reliance has already withdrawn its $3.4 billion offer after secured creditors rejected the deal and voted against the scheme. Amazon alleged that the entire scheme was set up by Future group and the lending banks with the connivance of the Reliance group. Now with FRL forced into liquidation, the banks are holding worthless loans having zero residual value and the shareholders have anyways lost their shirts. It remains to be seen how Amazon justifies these allegations.

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