In a major relief to the Future group, the Bombay high court on Monday barred IDBI Trusteeship Services Ltd from invoking pledged shares of Future Retail on behalf of UBS AG till 4 May.
The court’s order comes amid share prices of Future group companies plummeting because of extreme market volatility due to the Covid-19 pandemic and the restrictions put in place to contain it.
The ruling may also help set a precedent for other courts on similar matters and provide some comfort to promoters of many BSE 500 companies whose value of pledged shareholding has plunged more than 30% in the recent stock bloodbath. The total value of pledged promoter shares of these companies has plunged to ₹1.27 trillion on 20 March from ₹1.78 trillion on 31 December.
Future group firms—Future Corporate Resources Pvt. Ltd and Rural Fairprice Wholesale Ltd—had petitioned the high court after IDBI Trusteeship Services invoked the pledged shares. Future Corp is the holding company of Rural Fairprice and a promoter shareholder of Future Retail. IDBI Trusteeship had invoked 8% of shares of Future Retail.
There were two trust deeds worth ₹670 crore and the outstanding amount is ₹610 crore. The lender against these trust deeds was UBS AG’s London branch.
The counsels for Future group, Vikram Nankani, argued that the stock prices of Future Retail have been tremendously impacted by the current market volatility.
The share price has plunged to ₹82.85 as on Monday, from about ₹303 on 28 February.
The combined impact of debt and covid-19 panic has led Future group stocks—Future Enterprises, Future Lifestyle Fashion, Future Retail and Future Supply Chain Solutions—to shed 48-68% of their value since the start of the year.
Hearing the plea, Justice K.K. Tated observed that the difference in price when the trust deed was executed and now due to share market collapse made for a case for granting interim relief.
“Considering the present situation of the market and covid-19, I am of the opinion that the plaintiffs (Future group companies) are required ad-interim protection till next date,” said Justice Tated.
The matter will be heard next on 4 May.
“This is a significant judgement and would give a signal to the lenders to not resort to a knee jerk reaction and wait for things to settle down before invoking pledges,” said Vineet Naik, counsel for Future group.
Some of the other companies who are likely to benefit from the court order against pledge invocation on depressed prices include SpiceJet, IndusInd Bank and Gayatri Projects. These companies saw the steepest declines in pledged promoter shareholding value.