NCLT Initiates Insolvency Proceedings Against Future Lifestyle Fashions

NCLT Initiates Insolvency Proceedings Against Future Lifestyle Fashions

The National Company Law Tribunal (NCLT), Mumbai by its division member bench of Kuldip Kumar Kareer (Judicial Member) and Shyam Babu Gautam (Technical Member) has admitted petition filed by Bank of India Limited to initiate insolvency proceedings against Future Lifestyle Fashions Ltd on an alleged loan default of Rs. 4.96 billion.

Future Lifestyle Fashions Limited is an integrated fashion establishment owning popular apparel brands and operating stores across the country.

A company petition was filed by Bank of India (hereinafter called Financial Creditor) seeking to initiate Corporate Insolvency Resolution Process (CIRP) Future Lifestyle Fashions Limited (hereinafter called Corporate Debtor) alleging that the Corporate Debtor committed default in making payment to the Financial Creditor.

The Petition was filed by invoking the provisions of Section 7 Insolvency and Bankruptcy Code, 2016 (hereinafter called IBC) read with Rule 4 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

It was submitted that the Corporate Debtor had failed to make payment of an aggregate amount of Rs. 185,84,50,611 including interest till 21st August 2022 forming part of the Financial Debt.

It was further submitted that at the request of the Corporate Debtor, the Financial Creditor granted credit facilities aggregating to Rs. 435 crores to the Corporate Debtor in 2013 which was last renewed on 16th January 2020. The Corporate Debtor had also availed certain long-term loans, short term loans etc. from banks and other financial institutions (hereinafter collectively called “Lenders”).

The Corporate Debtor filed a Reply to the Petition on 21st October 2022 stating that the pandemic has significantly affected the business of the Future Group of Companies and led to liquidity issues for the Corporate Debtor which is also a part of the same group company. Therefore, the Corporate Debtor proposed a “Resolution Plan” dated 26th July 2022 in terms of the RBI Circular dated 7th July 2019 vide which restructuring of the debt owed by the Corporate Debtor was proposed where the outstanding amounts were to be repaid over 10 years along with interest at the rate of 8.5% p.a. starting from FY-2024.

It was submitted that the said restructuring plan was discussed with the Financial Creditor and other lenders in several Joint Lender meetings until September 2022 and the Corporate Debtor even requested the Financial Creditor to implement the proposed “Resolution Plan” and allow the business of the Corporate Debtor to be revived.

The Corporate Debtor argued that the Financial Creditor was seeking to disrupt the proposed “Resolution Plan” by filing the Petition and hence deserved to be dismissed.

However, the bench on perusal of the Framework Agreement and the Financial Statements annexed to the Petition, found that that the principal amount of debt had been disbursed and this fact was not disputed by the Corporate Debtor. The Corporate Debtor, in fact, expressly admitted its default in making repayments owing to financial constraints faced by it due to the pandemic. The date of default and subsequently, the date of classification of the account as Non-Performing Assets (NPA) under the Framework Agreement executed after restructuring the original debt was recorded as 31st May 2022.

Thus, the bench observed, “there is no sufficient reason for the Corporate Debtor to withhold the repayments due to the Financial Creditor. We have noted that since this Petition has been filed on 12th September 2022, it is not barred by Limitation. The Financial Creditor has thus successfully demonstrated and proved the debt and default in this case. It is noted that the Corporate Debtor admits the said outstanding debt. Therefore, this Bench is of the view that that this Petition satisfies all the necessary requirements for admission under Section 7 of the IBC.”

Accordingly, the bench allowed the company petition and initiated CIRP against Future Lifestyle Fashions Limited, while appointing Mr. Ravi Sethia as the Insolvency Professional.