Future Retail has tried to clear the air on how it suddenly lost control of over 1100 stores to Reliance Retail but ended up tying itself in knots as it failed to explain why it had clamped down on material disclosures to investors and the stock markets when a dreadful financial crisis was brewing in its backyard.

Replying to a letter from the Bombay Stock Exchange seeking clarifications on recent news reports, the Kishore Biyani firm said it was “surprised” when Reliance Retail unilaterally terminated the leases on the stores and “forcefully took control of hundreds of Future Retail stores”.

The Biyani firm has denied that it had been involved in a conspiracy with the Ambanis to transfer assets of the loss-making Future Retail.

The letter, however, made several revelations that it had never disclosed earlier — either in its annual reports or in its regulatory disclosures to the stock exchanges.

Future Retail said that since March 2020, the operations of its retail business had been significantly impacted by the Covid-19 linked lockdown. The company, the letter said, had seen a massive decline in its sales and “complete erosion of its net worth due to mounting losses”.

The second and the third wave of Covid-19 had “further aggravated the financial deterioration of FRL”, it said.

FRL first disclosed that its net worth had turned negative in its second quarter results for the period ended September 30, 2021 when it quantified it at a negative Rs 994 crore. By the close of the third quarter, this had ballooned to Rs 2,074.25 crore.

In fact, in its Annual Report for 2020-21, the company had said: “The net worth of the company (excluding capital reserve) has decreased from Rs 4,403.06 crore to Rs 1,323.35 crore due to the loss for the current year and shares issued during the financial year.” This means that it took a little over two quarters for the business to go belly up.

The letter also claims that after it signed the Rs 23,713 crore deal with Reliance Retail in August 2020 for the sale of the retailing business, Future Retail “was unable to raise any additional capital and thus continued to remain in default on various commitments”.

Future Retail said that many lessors issued termination notices as well as filed suits for recovery and eviction from properties. “To ensure continuity of stores for the benefit of all stakeholders, (the) Reliance Group reached out to these lessors and signed a fresh lease deed in respect of such properties and sub-leased on a Leave and License basis to FRL,” the letter added.

The letter, however, does not mention the identities of the original lessors; many of them are believed to be Future group entities because Biyani has always asserted in the past that he liked to own the properties where he housed his retailing ventures.

According to the FRL annual report for 2020-21, FRL had over 1,308 stores in 397 cities and a total retail space of around 15.69 million square feet for various formats.

The annual report also said these leasing arrangements were “non-cancellable” — possibly because these were struck with other Future group entities — and that they ranged between 3-25 years on an average.

The Biyani firm said it was “surprised” when Reliance Retail unilaterally terminated the leases.

The letter does not say why the Future group chose not to legally contest actions by Reliance Retail — which only fans suspicions that it was probably complicit all along.

But what really takes the cake is the revelation that the Reliance group has started issuing offer letters to the employees of FRL.

“The transfer of employees was supposed to take place pursuant to the Scheme (agreed upon in August 2020) and not through any other mechanism. The FRL board has once again requested to reconsider the issuance of the termination notices, offer letters to employees and other actions initiated by them in the recent past,” the letter said.

For the record, Future Retail had 21,839 employees of which 20,250 worked in its stores as of March 31, 2021.

The letter also does not make clear how the Reliance group could issue termination notices to FRL employees before handing them fresh employment contracts.

SC hearing

Meanwhile, the Supreme Court did not issue an injunction against the sale of more assets of Future Retail in response to a 370-page Amazon petition that came up for hearing on Wednesday.

The apex court asked Future retail to file its response to the Amazon plea and posted the matter for hearing on March 23.