Shareholders of Future Retail, proxy advisory firm move Sebi

Regulator asked to prevent firm from being referred to the insolvency court

MUMBAI: Shareholders of Future Retail Ltd and proxy advisory firm InGovern Research Services have written to the markets regulator demanding immediate action to protect hundreds of thousands of Future shareholders and prevent the company from being referred to an insolvency court, which may wipe out shareholders.

More than 412,000 public shareholders own 85.69% of Future Retail, with the Kishore Biyani-led promoter group holding just 14.31% as of March 31.

While retail investors have written to the Securities and Exchange Board of India (Sebi) and the exchanges, InGovern has separately asked Sebi to reverse Reliance Industries Ltd’s takeover of Big Bazaar stores, conduct a forensic examination of Future Retail’s finances, ensure it can repay creditors and prevent further losses to the company’s shareholders. Mint has reviewed a copy of the letters written by the investors and advisory firms to Sebi.

In a surprise move in February, Reliance Industries, which initially offered to buy out Future Group’s assets for ₹24,713 crore, started to take over hundreds of Big Bazaar stores at prime locations across the country, taking away the primary revenue source of Future Retail. Reliance took control of 950-odd Big Bazaar stores in total, sending shares of Future Retail plummeting.

Future Retail’s shares have plunged ZZ% since the Reliance takeover of Future Retail stores became public on February 26. However, the stock has been steadily declining after Amazon blocked Reliance’s takeover of Future Group’s retail, wholesale and other assets.

In a April 13 letter, InGovern sought Sebi’s intervention to conduct a forensic audit of Future Retail to investigate the dealings of its promoters.

In the letter, InGovern also brought to Sebi’s notice the spate of changes in directors and key managerial personnel over the past year. They include Shailendra Bhandari ceasing to be an independent director on April 30, 2021, Sridevi Badiga resigning as an independent director on June 1, 2021, Rahul Garg resigning as an independent director on March 14, 2022 and CEO Sadashiv Nayak joining on August 25, 2021 and resigning on March 31, 2022.

“Currently, the company has two executive directors and three independent directors, without the minimum number of six directors on the board. All these resignations of independent directors and the newly appointed chief executive officer point out that all is not well with the company and the Future group, irrespective of the ongoing dispute with Amazon,” InGovern’s letter to Sebi said.

“Sebi, as the market regulator, needs to take into account the changes in directorships and institute a forensic audit of the accounts of the company. As we had pointed out in our letter of December 2021, the company has undertaken a number of related-party transactions in March 2021 that are detrimental to the interests of minority shareholders,” InGovern said in the letter, calling for a forensic audit.

In another letter on April 19 to lenders of Future Retail, InGovern said it is surprising that the creditors are initiating insolvency proceedings against Future Retail without first securing the assets of Future Group that are being alienated.

“In addition, there is a need for a forensic audit of all accounts of Future Group companies. Without these two measures, insolvency, by itself, will be against the interests of all stakeholders—the lenders and the shareholders,” said the letter to FRL lenders.