HomeInsideBiyani Future Retail promoter Kishore Biyani writes a letter to Amazon

Biyani Future Retail promoter Kishore Biyani writes a letter to Amazon



Biyani Future Retails promoters, Kishore Biyani have written a letter to Amazon regarding the formers deal with Reliance Industries.

Full letter:

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Amazon.com NV Investment Holdings LLC

Dear Sir,

This communication is addressed on behalf of Future Corporate Resources Private Limited (“FCRPL”), Mr. Kishore Biyani, and other Promoters (collectively referred to as “the Promoters”), in response to the captioned correspondence.

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At the outset, the 3rd October FCPL Notice, 3rd October FRL Notice, the 29th October FCPL Letter, the 29th October FRL Letter, the 9th November Letter, and the 2nd December Letter collectively allege multiple, repeated, and egregious breaches of the “FCPL SHA” and the “FRL SHA”. Whilst we deny the alleged breaches of the FCPL SHA, as more particularly dealt with hereinafter, we wish to remind you that you are not a party to the FRL SHA. Accordingly, the allegations of breaches under the FRL SHA made by you, are ludicrous and warrant no response.

At the further outset, we deny that we have acted contrary to and reneged on contractual obligations for personal gain or benefit, as alleged or at all. Such assertions are wholly unsubstantiated. We deny that there has been any Event of Default, as alleged or at all, and that we are liable for damages or liquidated damages either in law or in terms of Section 23.2(4) of the FCPL SHA.In any event, nothing in the 3rd October FCPL Notice, 3rd October FRL Notice, the 29th October FCPL Letter, the 29th October FRL Letter, the 9th November Letter, and the 2nd December Letter, shall be deemed to be admitted by us for want of specific traverse.

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As can be seen from Recital F of FCPL SHA, the Promoters had approached you to invest in FCPL, with a view to strengthen and augment the “Business” and unlock the value in FCPL. “Business” is defined in Annexure 1.1 of the FCPL SHA, and means, the business of wholesale trading of goods and merchandise and marketing and distribution of corporate gift cards, loyalty cards, and reward cards to corporate customers, and such other business conducted by FCPL, from time to time, in accordance with its Organisational Documents and the approved Company business plan. Based on this objective, you invested in acquiring 49% of the share capital of FCPL, in terms of the Share Subscription Agreement (“SSA”).

At the time when the FCPL SHA was executed, you were aware that the “Future Group”, which consisted of 8 Listed Entities and its promoter group companies, had borrowed amounts from various banks and other financial institutions for the purposes of investment into its listed entities and business operations. These borrowings were securitized inter alia, by pledging shares held by the Promoters and Promoter Entities in the listed entities, primarily being Future Retail Ltd (“FRL”), Future Consumer Ltd (“FCL”), and Future Lifestyle Fashions Ltd. (“FLFL”), pursuant to the execution of various loan documents and/or agreements (“existing loan documents”). Lender-wise details of the encumbrances under the existing loan documents were furnished to you at the time of signing of the FCPL SHA, as also subsequently before you subscribed to the shares of FCPL. There is no change in the “business” of FCPL, as defined in the FCPL SHA.

You were also aware that as part of the pledge of FRL shares under the existing loan documents, security cover of a specified multiple of the outstanding loan amount was to be provided at all times, and in the event of a fall in the security cover, it was incumbent to top up the same, either with the security of additional shares or cash security, as the case may be. Consequently, your awareness, at all times, of the risks associated with the existing loan documents, cannot be lost sight of. It, therefore, follows that the FCPL SHA was signed subject to the existing loan documents.

Section 17.2 of the FCPL SHA must be construed in the above backdrop. It must also be read as a whole. Whilst it is true that Section 17.2(i) provides that the promoter shall, at all times during the tenure, agree and undertake that the Promoter FRL security, representing at least 16.8% of the issued, and paid-up equity share capital of FRL, on a fully diluted basis shall be free from, and not subject to, any encumbrances (referred to therein as the “Minimum Shareholding”), there is, however, an implied condition under Section 17.2(i), to the effect that the same is subject to the existing loan documents as on August 22, 2019. In other words, any fall in the Minimum Shareholding, as a result of discharge of the obligation by the Promoters or FCPL, under the existing loan agreements in force with existing lenders, as on the date of signing of the FCPL SHA, simply does not, and cannot constitute a breach of Section 17.2(i).

On a true and correct interpretation of Section 17.2, and as intended by the parties, the agreement and/or undertaking by the Promoters to maintain the Minimum Shareholding means that the Promoters shall not pledge further shares against new or fresh loans or funding, such that it results in the fall of the Minimum Shareholding. That the Promoters did not, from the date of signing of the FCPL SHA until March 2020, i.e. when the fall in the Minimum Shareholding began, borrow any amounts against the pledge of FRL shares, is not in doubt and/or dispute.

Furthermore, sub-sections (iv) and (v) of Section 17.2 must be read harmoniously with Section 17.2(i). When so done, it becomes manifest that the parties did, in fact, contemplate the prospect of a breach and/or an occurrence of an “Event of Default” under the existing loan documents, and the way forward in that case.

Section 17.2(iv) provides that in the event of a breach or an “Event of Default” under any agreement entered into by the Promoters or a Promoter affiliate, with a Promoter lender, namely, the existing loan documents, where under, the Promoter lender makes or is entitled to make a claim for interest over the Promoter FRL shares, you shall, upon immediate notice by the Promoters and in good faith, discuss the manner in which an alienation or disposal of FRL shares can be prevented, including without limitation, by you providing finance directly or through your affiliates, or facilitate financing the financial institutions, on such terms as may be agreed for the purposes of discharging the obligations towards the Promoter lenders. Though Section 17.2(iv) also provides that there is no commitment or obligation on your part to discharge the obligations of the Promoters towards the Promoter lenders, nonetheless, you did not show any “good faith”.

In fact, during the period March to August 2020, all your actions lacked good faith. Except for offering lip service and perfunctorily attempting to show your concern, there were no serious or genuine efforts made by you. The correspondence during this period bears out that you really had no intention to assist the Promoters/FCPL in preventing the alienation or disposal of the FRL shares. What you merely did, was put up a façade of “facilitating” the raising of finance by the Promoters.

Section 17.2(v), on the other hand, provides that you have a right, exercisable in your sole and absolute discretion, requiring the Promoters to fully and duly replace all the then existing Promoter lenders with Replacement Financial Institutions (“RFIs”), who, pursuant to their appointment, shall provide the requisite financing, so as to fully discharge the outstanding debt of the existing Promoter lenders. In this regard, it further bears noting that the terms of funding/borrowing offered by the RFIs shall commensurate, and be no less favorable than, the terms that would have been ordinarily offered for the financing of the like.

A holistic reading of Section 17.2 clearly brings out the intention of the parties. It was to ensure that the Promoter FRL Securities were, at all times, to be protected and prevented from alienation or disposal. To this end, you too had a role to play. Ever since, and for that matter, even before the execution of the FCPL SHA and the SSA, you knew that Promoters had borrowed around Rs. 10,000 crores from various lenders, including Indian Banks like the Vijaya Bank, Syndicate Bank, Punjab National Bank, Central Bank of India, and a financial institution like IFCI Limited. Given the existing debt situation at the time of signing the FCPL SHA, you knew very well that in order to preserve the Call Option you had thereunder between the 3rd and 10th year, the FRL Shares had to be protected.

The reason for such a long duration vis-à-vis the Call Option is well known. It is because both, at the time of signing the FCPL SHA and presently, Indian laws do not permit you to invest in multi-brand retail businesses, without prior government approval. Hence, inter alia preserving FRL Shares was, one of the key elements at all times to the arrangement encapsulated under the FCPL SHA. It is not as if once you subscribed to the shares by investing Rs.1410 crores, we alone would be responsible for protecting the FRL Shares, given the pre-existing debts of the Future Group. You, therefore, walked in to the transaction having full knowledge of the risk of not being able to preserve and protect the FRL shares, without further investment from your side.

Until the outbreak of the COVID-19 pandemic in March 2020, we did all that was required to protect the Promoter FRL Securities. The situation in March 2020 went beyond the Promoters’ control.

Since March 2020, the situation was as follows: i. Retail businesses were among the worst hit, on account of nation-wide lockdown announced by the Central and State Governments in India; ii. All 1534 stores of FRL were shut and ceased operations from March 23, 2020, with the exception of supplying “essential goods”, which too had minimal output, inter alia due to logistical and inventory constraints; iii. FRL sales dropped significantly resulting in the funding requirement to service its debt and fixed costs, to continuously increase; iv. FRL could not find lenders by reason of falling revenues and increasing costs and debts, resulting in a sharp and sudden fall in the market price of FRL shares, which, in turn, had a cascading effect on the Promoter FRL Securities;v. The free fall of the market price of FRL shares meant that the existing Promoter lenders called for a “top-up” in the Security Cover, by way of the pledge of additional FRL shares or cash security;

vi. In view of the prevailing market conditions, caused mainly on account of the COVID- 19 pandemic, the Promoters had the ability to raise further funds, particularly given the restriction to do so under Section 17.2(i) of the FCPL SHA.

In light of the aforesaid, the Promoters promptly notified you about the occurrence of “Event(s) of Default” under the existing loan documents. The first such communication was addressed on March 16, 2020.

It is, however, a matter of record that you failed to nominate any RFIs. No written intimation to this extent was even sent by you. Your failure to exercise this right, when the circumstances warranted the same, contributed to the loss of control over the Promoters’ FRL Securities.

Needless to add, you are fully aware of the laws of India. A corporate debtor, who is unable to discharge its debt, can be made subject to a restructuring or resolution process, where the management not only loses all control but the promoter equity holding is also at the risk of being wiped out. Banks and other lenders, on account of mounting debt, which had increased to around Rs. 11,250 crores as of June 30, 2020, started to exert tremendous pressure to restructure the businesses, failing which, they would be compelled to initiate action. Any such action would have resulted in the collapse of the entire business. These facts were also known to you.

In such dire circumstances, you were not expected to sit on the fence by simply calling for information and data and doing nothing to prevent the alienation and disposal of the Promoter FRL Securities. The least you could have done was to nominate RFIs as soon as possible, or within a reasonable time. By not nominating any RFIs, you contributed to the deterioration of the asset value of Promoters FRL Securities.

At that stage, the options were limited. One was to allow the law to take its own course. The other, was to salvage the value of the Promoter FRL Securities. Disappointed with your lackadaisical conduct in protecting the Promoter FRL Securities, of which, you were to be ultimate beneficiary through the Call Option, and under pressure from other lenders and bankers, we started parallel discussions with other potential investors to avoid any harsh steps from the lenders and bankers. One of the potential investors was Reliance. This fact was well-publicized in the media since June 2020. You were apprised about the same during various discussions. In fact, the “exclusivity condition” imposed by the Reliance, while conducting due diligence and negotiating the deal, was also categorically communicated to you. However, for 3 months, until the end of August 2020, you came up with no concrete proposal to prevent the disposal and/or alienation of Promoter FRL Securities. You, therefore, abandoned your right to nominate RFIs, leaving the Promoters/FCPL with no choice but to consent to FRL’s proposed transaction, so as to salvage the: overall residual value in Promoter FRL Securities; and, the interest of all other stakeholders of FRL, as also the other companies involved in the transaction.

In this factual background, since we took all reasonable steps to prevent the alienation of FRL Shares, albeit without success, on the one hand, and given the lack of good faith on your part coupled with the abandonment of your right to nominate RFIs, under Section 17.2(iv) and Section 17.2(v) of the FCPL SHA respectively, on the other, we stood absolved of the obligations, if any, under the FCPL SHA.

As aforesaid, Section 17.2. (i) is impliedly subject and/or subservient to the existing loan documents. All the existing loan documents were fully honoured until the outbreak of the COVID- 19 pandemics. Protecting FRL shares is inter alia key and fundamental to the FCPL SHA, as also accepted by you, being a valuable investment by FCPL. All other rights and obligations of the parties to the FCPL SHA are concomitant with and revolve around the protection of Promoters FRL Shares. If the transaction with the Reliance/MDA Group was not finalized, FRL would inevitably have faced insolvency and/or liquidation, in which event, the entire equity would have been wiped out, leaving you with nothing. We, therefore, deny having acted for personal gain, as alleged or at all. We have, in fact, acted in the public interest, namely, in the interest of the banks, other lenders, and public shareholders. We have also ensured that the investments of FCPL continue to remain encumbrance free.

On account of breach of the FCPL SHA on your part, as stated above, we are absolved and/or discharge of the obligations under the FCPL SHA, including those Section 8, Section 13.1, Section 13.2, and Section 14.

Given that FCPL is discharged of its obligations inter alia under Section 13.2, you were not entitled to exercise the rights vested in your favour under Clause 13.2.4 of the FCPL SHA to act as the Constituted Attorney of FCPL, which could have only been exercised upon the occurrence of a breach under the FRL SHA. You have, however, illegally exercised your rights thereunder by addressing letters dated October 3, 2020, October 28/29, 2020, and November 8/9, 2020 to SEBI, the stock exchanges, FRL, the Audit Committee, and the Independent Directors of FRL, as the Constituted Attorney of FCPL, and alleged breaches under the FRL SHA.

There is yet another breach by you. It is your case that there is a “single integrated transaction” arising out of the FRL SHA and the FCPL SHA. This directly contravenes Section 15.17 of the FCPL SHA, which states:

“15.17. For the avoidance of doubt, Parties hereby expressly record their understanding that the Promoters and the Investor have no agreement or understanding whatsoever in relation to the acquisition of shares or voting rights in, or exercising control over, FRL and that the Company, the Promoters, and the Investor otherwise do not intend to act in concert with each other in any way whatsoever.”27. Your contention, that there is a “single integrated transaction”, also violates the Foreign Exchange Management Act, 1999 (“FEMA”). Therefore, the two SHAs must be regarded as independent. This contention is also in breach of Section 27.2 of the FCPL SHA, by which, the parties have agreed that the FCPL SHA is the sole repository of the contractual terms between the parties. Moreover, Section 27.4 of the FCPL SHA provides that any modification/variation/alteration of the FCPL SHA can only be in writing and executed between parties.

It may also be noted that by failing to fund and/or facilitate the funding required by the Promoters, you lost the ability to become the single largest shareholder of FRL by exercising the Call Option vested in your favour under Section 15 of the FCPL SHA. Such ability was lost in April 2020, as it is an admitted position that as on April 9, 2020, the unencumbered Promoter FRL Securities constituted only approximately 0.5% of the shares in FRL, excluding the shares held by FCPL. The shares held by FCPL in FRL have been duly protected from encumbrances by us till date, in accordance with the terms of the FCPL SHA. Therefore, it is apparent that on the one hand, you did not bother to preserve your “protective, special, and material rights” under the FCPL SHA, by protecting your right and ability to become the single largest shareholder of FRL, whilst on the other hand, you seek to contend that the FRL SHA and FCPL SHA constitute a “single integrated transaction” to protect your “protective, special, and material rights” under the FCPL SHA. Your conduct smacks of mala fides, with a view to obstruct the merger with the Reliance and cause wrongful gain to yourself. Furthermore, even if your above contention is accepted, it would involve FCPL and the Promoters in a transaction, which would be illegal as per the applicable FEMA Regulations. This was never the intention of FCPL as well as the Promoters.

Re: 2nd December Letter

You have, at paragraph 5 of this letter, briefly set out the communications exchanged on behalf of the promoters with you. You have been selective in your references. You have not referred to the complete chain of communications through emails, text and WhatsApp messages, and oral discussions and presentations. These communications took place simultaneously at different levels and between different persons. Significantly these communications will show that (i) we put-forth various alternative proposals for your consideration, including a proposal to increase Amazon’s effective shareholding in FRL from 4.8% to 19.1%, by investing an additional INR 1,470 Crores, (ii), we made attempts to negotiate with other financial institutions and/or funds (for example Samara) to prevent alienation or disposal of Promoter FRL Securities, (iii) we could not go ahead with Samara because they wanted your NOC which was not forthcoming; (iv) we also explored the possibility of forming a consortium of financial institutions including other investors (eg Premji), who wanted your participation, which you did not consent to, using FDI laws as the reason, (iv) you were at all times fully aware of the exclusivity period with Reliance of 4 weeks from 2nd July 2020 and its extension up to 14th August, but as a party to FCPL SHA made no concrete plan or proposal.

What is of equal significance, however, is that in your own narration, you have not been able to show any positive measure or steps adopted by you to achieve the objective of protecting the Promoter FRL Securities from alienation, including but not limited to nominating RFIs. The only irresistible conclusion is that neither were you interested in making a further investment nor were you in a position to find an alternative investor to do so, leaving us with no choice to save FRL from ostensible liquidation.

You were well aware that in light of the disruption caused due to the COVID-19 pandemic, the lenders were chasing various companies of the Future Group for honouring their obligations. Being totally disillusioned and fed up with your lackadaisical attitude, we were left with no option, but to accept the offer from the Reliance. Given the fact that Reliance is one of the largest conglomerates in the country and globally, we believed that this was the best deal in the interest of all the stakeholders of various companies of Future group including FRL, as it addressed the concerns of the lenders, employees, shareholders (public shareholders of the listed companies) of the Future Group companies including FRL. You, alone, are responsible for contributing to this situation, having failed to bail out FCPL and/or the Promoters from preventing alienation or disposal of the Promoter FRL Securities.

Your contention that we were required to take your consent before giving our consent to FRL for going ahead with the composite scheme of the arrangement, assumes significance only if we could mutually save the Promoter FRL Securities from alienation and/or disposal. This never happened, despite our best efforts. Accordingly, the consent was appropriately granted by FCPL on 29 August 2020. For the reasons mentioned above this consent which was granted does not amount to any breach as alleged by you or otherwise.

We are fortified in our above contentions, by the order dated December 21, 2020, of the Hon’ble Delhi High Court in Suit CS (COMM) 493/2020 filed by Future Retail Ltd. And in particular paragraphs 9.14 to 9.18 and 10.1 to 10.31 thereof.

In the circumstances, we were released of our obligations under the FCPL SHA.

Yours sincerely,

Future Coupons Private Limited

Future Corporate Resources Private Limited

Promoters (through their Authorised Representative)

With agency inputs.


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Krishna Mali
Krishna Mali
Founder, CEO & Group Editor of TechGraph.

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