Noted columnist and managing director of India’s first independent corporate governance research and advisory firm, InGovern Research Services, Shriram Subramanian on Wednesday said, the Future Group saga necessitates the need for a robust class action law in India where promoters and independent directors should be held more accountable for their actions.
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“First thing we need to do is to strengthen the power of lenders. We do have the Insolvency and Bankruptcy Code at place but the entire process is very slow in India due to which lenders keep waiting in the wings. Another institution which needs further strengthening is what is known as class action suit, wherein, a number of minority investors shareholders can get together and file a class-action suit against the company and the directors and the promoters,” he said while speaking at The Plunge Daily’s Twitter Spaces Session.
“In the Future Retail case, minority investors have lost almost Rs 60,000-70,000 crores for the inaction of the promoters, the company and the directors. So, a class action suit might have put more pressure on the company to safeguard the interests of minority shareholders. The provision, however, exists and Future Group probably would have been much amenable to such a class action suit, ” he added.
Referring to the letter written by FRL’s independent directors in Nov 2021, where they feigned ignorance of transaction between future coupon limited and Amazon, Mr Subramanian said: “That seems too much of a hyperbole, how can they be ignorant of a transaction of such importance. They also claimed to be ignorant of the signed term sheet with Samara Capital. So, Rs 7,000 crore was available for Future Retail Limited and the board chose not to take it”.
“That would have been a big lifesaver for Future Group at that point of time because they would not have needed to shut stores or send away employees. Now, they are defaulting on loans, and many of their employees have left”.
Mr Subramanian recounted the massive decline in Future Group’s valuation and pointed out that FRL lost its way because “it took a lot of debt, spun off a lot of companies and tried to benefit only the promoters at the cost of minority shareholders”.
“The trouble really started in 2018 when it reached its peak market capitalization of Rs 90,000 and from there it has come down to Rs 5,000 crore. It’s almost a loss of 90% plus value to all shareholders and in this minority shareholders must have lost more than Rs 60-70,000 crores and in the process, lenders also have lost,” he said.
Mr Subramanian said while the Amazon-Future-Reliance matter is sub-judice in the Court, the role of independent directors of FRL Group should be scrutinised.
” In this particular case, the inactions of the promoters as well as independent directors of Future Group have come to the fore time and again. Last week only, Future enterprises reportedly defaulted on Rs 19 crores to lenders. So, what are the directors trying to do? How are they trying to safeguard the company and the interests of lenders as well as minority shareholders?” he questioned.
Mr Subramanian also called the SEBI’s move to make bifurcation of CMD post voluntary citing lack of compliance as farcical.
“Even the regulator is under tremendous pressure from corporate lobbyists, and there are many Indian promoter-led companies where the CMD, the Chairman and Managing Director is the same individual including Reliance Industries. So, CII and FICCI did lobby for that to be dropped. So to say that the mandatory clause was dropped due to lack of compliance is laughable.”