Lenders to cash-strapped Future Group are clutching at straws as two giants, Mukesh Ambani’s Reliance Group and Jeff Bezos’s Amazon, are locked in a fight over Kishore Biyani’s companies.

Banks, who have loan dues worth Rs 14,730.36 crore to collect from Future Retail, are staring at another big hole in their balance sheets unless the courts come out with an open bidding formula.

Future Retail lenders are approaching the Debt Recovery Tribunal (DRT) to recover their secured assets which include store fixtures, merchandise and inventories.

Some banks also intend to invoke the personal guarantees of  promoter Biyani if Future Group fails to be transparent in its dealings and to put in place a repayment plan, a source said.

At the centre of the problem is the sudden takeover of Future Group’s stores by Reliance due to unpaid rent dues. On 9 March, Future Retail informed stock exchanges that Reliance had taken possession of 835 stores, including 342 large-format stores such as Big Bazaar and FBB, and 493 small stores such as EasyDay and Heritage.

Reliance took possession following termination of sub-leases on these properties.

“In some cases, even the inventory is financed by Reliance, particularly during the Covid period. So, the claim for the banks will be much less. This illegal takeover, if not stopped by the courts, will be a big loss to the banks,” said a senior official of a public sector bank on condition of anonymity.

Future Retail has 1,500 stores accommodating 15 million square feet of retail space. Only the store fixtures, merchandise and inventories at the stores are hypothecated to the banks.

Out of the nearly Rs 30,000 crore debt exposure banks have to Future Group, Rs 14,730.36 crore of loans is to just Future Retail. Of this, Rs 3,754.43 crore is in the form of bonds.

With the one-time restructuring of Future Group’s debt failing, banks are expecting lower recoveries from these accounts.

“We are tired of the events that are unfolding. Invoking Kishore Biyani’s personal guarantee is one of the steps we plan to exercise. We will wait to see what the SC has to say on the issue when it takes up the matter on March 23,” said a lender in the consortium.

The personal guarantee, however, is for a small portion of additional funding that the banks undertook, he added.

Meanwhile, Amazon and Reliance are fighting a legal battle to take over Future Group’s assets. Amazon, which has an indirect stake in Future Retail, has told the Supreme Court that efforts at resolution with Future Group has fallen through.

Amazon has accused Future Retail and its promoters of attempting to remove the substratum of the dispute by purportedly transferring and alienating the retail assets in favour of the Reliance group.

In the first round of hearing at the apex court, banks submitted that they are custodians of public money so Amazon and Reliance should have an open bidding with a base price of Rs 17,500 crore.

“It looks like a surreptitious deal. We are not happy about it. Invoking of Biyani’s personal guarantees may be done only after SC has heard the matter,” said another senior banker.

On 14 March, Bank of India issued a public notice that all movable fixed assets and current assets, including receivables, spares, inventories and cash flows are subject to a fixed charge for the benefit of lenders. Anyone dealing with the assets could be subject to clawbacks available under the law including for “preferential transactions”, “undervalued transactions” and fraud, the notice said.

Amazon ran an ad in leading newspapers on 15 March accusing Reliance and the Future Group of striking a fraud deal. These actions have been done in a clandestine manner by playing a fraud on the constitutional courts in India, Amazon said, warning stakeholders about the illegal transaction.

Meanwhile, Future Group expressed surprised at the overnight takeover of its stores by Reliance. Rejecting Amazon’s allegations, it accused Reliance of forcefully taking control of hundreds of its stores.

“Reliance Group has unilaterally terminated the leases and forcefully take over control of hundreds of Future Retail’s (FRL) stores…Such termination of leases and takeover of stores by Reliance Group has come as a surprise to FRL and its board since, throughout the entire period, the Future Group and Reliance Group have been collaborating to ensure full continuity of businesses,” the company said in a regulatory filing.

“FRL’s board has also notified Reliance that assets such as store fixtures, store infrastructure, merchandise, inventory, etc. belonging to FRL and lying inside these stores, are hypothecated as security in favour of the FRL lenders. The board has called upon the Reliance group to ensure that the possession of the secured assets is not transferred and retained unharmed for the benefit of the lenders,” the company added.

In August 2019, Amazon acquired 49% stake in Future Coupons Pvt Ltd (FCPL), the promoter entity of FRL, for Rs 1,431crore. This investment came with a non-compete clause that prohibited Future Group from selling its retail assets to rivals like Reliance. The deal also had a provision for the disputes to be settled at the Singapore International Arbitration Centre (SIAC).

A year later, Future Group struck a Rs 24,713-crore asset-sale deal with Reliance Industries. Amazon approached the SIAC and stopped the deal signed in August 2020 between Reliance Industries and Future Group. Future Group said it was cash-strapped and was stripped off any other options. Both parties have also challenged each other in the Indian courts, including the Supreme Court.