Future Group’ shareholders have lost over ₹ 60,000 crore in wealth in just a couple of years, InGovern Research Services has alleged in its letter to the Finance Ministry. The corporate governance advisory firm has claimed that the Kishore Biyani-owned firm has been involved in “abusive related-party transactions” between 2018 and 2021.

InGovern has written a six-page-long letter to Nirmala Sitharaman, Finance Minister, Rao Inderjit Singh, Union Minister of State in the Ministry of Corporate Affairs, and Ajay Tyagi, Chairman of SEBI. A copy of the letter was reviewed by BusinessLine .

Third-party transactions

InGovern has claimed that the company has seen an increase in the number of third-party transactions over the past few years. It said FRL entered into “abusive related party transactions” that seem to have paid inflated amounts enriching the promoters, rather than conserve cash,” it alleged.

It urged that if any illegality and/or fraud is found to have been committed by the promoters and/or Independent Directors of the Future Group companies, “stringent urgent action must be taken such that the interests of all stakeholders are protected”.

InGovern’s letter claimed that in FY2019-20, ₹ 6,000 crore were paid towards security deposits, advances to suppliers and purchase of store infrastructure from related parties. “The increase in security deposits in FY20 over FY19 was disproportionate to the growth in business where the number of physical stores has been reducing from 1,511 to 1,350 and then to 1,308,” it alleged.

When contacted, a Future Group spokesman said the company has never been approached by InGovern to provide any information or clarifications on our financial reports, which is the standard practice by all proxy advisory firms, before they issue an opinion.

Clarified to lenders: Future

“The allegations being made are motivated, baseless, and unwarranted. These same allegations were made a few weeks back by Amazon in a letter to some of the independent directors of Future Group companies. We have since clarified and provided detailed information to all our lenders, creditors and all stakeholders,” the company said.

InGovern has claimed that these related-party transactions solely benefited the promoters at the expense of other stakeholders, its vendors, employees, commercial banks and shareholders.

Future Group has several of its companies, including Future Enterprises, Future Consumer, Future Retail, Future Supply Chain Solutions, Future Market Networks, and Future Lifestyle Fashions listed with the stock exchanges.

Its letter further stated that given the plethora and maze of 6 companies, multiple private holding companies and subsidiaries and cross-holding of shares, “it is difficult to trace the cashflows unless a thorough forensic audit is conducted of all Future Group companies to establish the true state of affairs of the group,” it said.

InGovern pointed out that for all these six companies, ‘Qualified Opinions’ and ‘Emphasis of Matter by the Statutory Auditors’ were raised. This, according to the firm, reflects that the funds have been mismanaged and the financial statements do not reflect the true picture.

As per InGovern’s research, the indebtedness of the six listed companies as of March 31, 2020 totalling to ₹16,744 crore which is limited to just the secured debt from commercial banks and other market instruments.

Also read: Future Retail’s independent directors should have raised the red flag: Proxy advisory firms

Last year, post Covid, Future Retail’s stocks tanked. This pushed the Kishore Biyani-owned company to pledge more shares to its lenders.

In August 2020, Future Retail sold its assets to Reliance for ₹ 24,713 crore subject to approvals. This deal was challenged by Amazon, which had invested ₹1,400 crore in Future Coupon Private Limited in 2019. Amazon had alleged that it had invested in FCPL on a condition that Future Retail could not sell its assets to restricted parties, including Reliance.

‘Factual inaccuracies’

InGovern has alleged that shareholders have lost over ₹60,000 crore in wealth in just a couple of years. “Since 2018, the stock market investors have sensed the mismanagement and the diversion of funds by the promoters and have lost confidence in the Future Group,” it said.

Future group said that there are significant factual inaccuracies in each of the points quoted. “Each of the publicly-listed companies function independently and have no cross-holdings amongst them.”

The company explained that the Boards of each of the publicly held Future Group companies have a majority of Independent Directors. In addition, the Boards have representatives of reputed institutional shareholders such as Premji Invest, L Catterton, Blackstone, Proterra and Nippon Express.

“Each and every financial report of the companies have also been subjected to thorough and extensive reviews by all lenders, statutory auditors and institutional shareholders,” it said.

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