Bombay High Court Restrains IDBI Trusteeship From Selling Future Retail’s Shares

The Bombay High Court granted ad interim relief to Future Retail Ltd. by restraining IDBI Trusteeship Services Ltd. from selling the retailer’s shares that were pledged against debentures issued by a Future group entity.

This comes after the debenture trustee had issued a mandatory redemption event notice to Rural Fairprice Wholesale Ltd., the entity that issued debentures, and Future Corporate Resources Pvt. Ltd., the entity that owned shares of the retailer. The notice sought to sell shares for recovering dues exceeding Rs 600 crore. These Future group entities moved court seeking permanent injunction against the debenture trustee.

Taking note of the present situation of the market that’s been impacted by the novel coronavirus outbreak, a single-member bench of the Bombay High Court comprising Justice KK Tated issued the order and posted the matter for further hearing until May 4.

Future Retail’s Arguments

Rural Fairprice Wholesale entered into a debenture trust deed in 2018 and 2019 with certain investors for raising money through debentures. Future Corporate Resources Pvt. Ltd., another future group entity pledged its 8 percent shareholding in Future Retail Ltd., against these debentures.

IDBI Trusteeship Services was appointed by the debenture holders as a Debenture Trustee for the transaction.

The prevailing market value of the equity shares at that time was Rs 350 apiece—which has slumped by two-thirds since the Covid-19 outbreak.

Senior counsels Vikram Nankani and Vineet Naik representing the Future Group entities argued that:

• The market value of shares of Future Retail was as high as Rs 300 apiece during March 1—before the impact of Covid-19 on the markets.
• The debenture trustees are fully secured in accordance with the debenture trust deed. The debentures trustees are, however, trying to sell the shares at prevailing prices which is less than Rs 100. A sale of shares at such prices can cause irreparable loss to the Future Group.
• All stakeholders would lose if shares are sold at such low valuations.
• The current situation is in light of the impact caused by the outbreak of Covid-19.
• The fall in security cover for the debentures was on the back of an unprecedented collapse in the markets.
• The effect of Covid-19 was even recognised by regulators like the Reserve Bank of India which granted a moratorium on loan repayments or the Insolvency Board, which increased insolvency thresholds.
• There was no existing default in repayment obligations by Future Retail.

The counsel representing the debenture trustees and other defendants opposed the granting of ad interim relief on the following grounds:

• The debenture trustees are to recover an amount exceeding Rs 600 crore, however the total value of Future Retail’s pledged shares had fallen to Rs 350 crore.
• An ad interim relief must not be granted in light of the slump in share prices.

Counsels for Future Retail were instructed by the law firm Naik Naik and Company.