Centre’s Appeal TDSAT Order to refund to Reliance Communications(Rcom).5 min read

BY : ABHAY SAXENA

Background:

Reliance Communications Limited (popularly, R.Comm) was an Indian mobile network provider headquartered in Navi Mumbai that offered voice and 2G and 3G data services.

In February 2019, the company filed for bankruptcy as it was unable to sell assets to repay its debt. It has an estimated debt of ₹ 50,000 crore against assets worth ₹18,000 crore.

As of March 2019, the company has reworked its strategy and continues to operate fixed-line communications, data center services, enterprise solutions as well as subsequent cable networks under the banner name, “The New Reliance Communications”.

The Company was founded by Anil Ambani in 15th July 2004.

In 2013, Rcom signed a multi-year managed services agreement (MSA) with Ericsson to manage services of wire line and wireless network of 100,000 km of fibre and mobile infrastructure in 11 telecom circles in India. This arrangement was a smooth business relationship until 2016, post which RCom struggled to pay the dues. This has been seen as an impact of Reliance Jio that disrupted the Indian telecom industry with its aggressive pricing after its commercial launch in September 2016 that affected all leading telecom players.

By September 2017, Ericsson terminated the MSA and approached the NCLT to recover dues of Rs 1100 crores. By May 2018, the NCLT initiated insolvency proceedings even as RCom tried to sell spectrum and other assets. At the same time, RComm reached out to Ericsson and agreed to pay Rs 550 crore as a settlement with a personal guarantee from Anil Ambani on the condition of withdrawal of insolvency proceedings. The Supreme Court reviewed the matter in August 2018 and ordered RComm to pay up Rs 550 crore to Ericsson by 30 September. RComm failed to comply with the payment and sought an extension of 60 days to comply. Ericsson filed a contempt petition in Supreme Court.

In February 2019, the Supreme Court has held Anil Ambani and three others guilty of contempt of court and directed them to make payments by 19 March. In the meantime, Mukesh Ambani, the elder brother of Anil helped him with a bailout of 463 crores which he paid just a day before the deadline on 18 March.

The Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT), was established to adjudicate disputes and dispose of appeals with a view to protect the interests of service providers and consumers of the telecom sector and to promote and ensure orderly growth of the telecom sector. The TDSAT consists of a Chairperson and two Members.

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Current Issue:

This case (Union of India V. Reliance Communication Ltd. & ANR.) is one of the many battles between RCom and the DoT over dues. RCom had provided DoT with bank guarantees for Rs 908 crore on deferred spectrum charges for the 2013 and 2015 auctions, with payment to be made over 18 years. While RCom wanted the excess money to be returned after the department encashed the bank guarantees, DoT preferred to keep it as buffer for other liabilities of the operator.

The argument peaked when DoT threatened to cancel RCom licences in 14 circles and revoke spectrum allotted in 2013 and 2015 if the bank guarantees were not replenished. RCom complied. The department said it encashed bank guarantees after RCom did not make payment for spectrum in April, breaching license conditions.

Today Rcom and its units, which keeled under a debt of Rs 46,000 crore, are under the reins of resolution professional –Deloitte and have four bidders aiming to buy the assets. The bidders are – Reliance JioInfocomm, Bharti Airtel, UV Asset Reconstruction Co and private equity firm Varde Partners.

The Committee of Creditors (CoC) of which DoT is also a member, expects to raise at least Rs 14,000 crore from the sale of the Telco’s assets, including spectrum, fibre and towers, based on bids received. At that level, the haircut would be about 70% for financial lenders that have filed claims of Rs 49,000 crore against RCom and its units Reliance Telecom and Reliance Infratel.

Assets up for sale include airwaves in the 850 MHz band in 14 of India’s 22 telecom circles, about 43,000 telecom towers, some fibre and data centres. The next CoC meeting is expected this Wednesday.

So far the lenders are negotiating for hithe amount from the bidders and the sale, which was expected to be completed by January 10, should get over by the first week of February.

Conclusion:

The Supreme Court rejected the government’s plea challenging the telecom appellate tribunal’s order directing refund of Rs 104.34 crore to Reliance Communications (RcomNSE 0.00 %). The apex court’s verdict will be a blow to the telecom department which was hoping that the amount will be used against any liabilities of the now-bankrupt Telco.

On Tuesday, a bench of justices R F Nariman and S the  Bhatt said, “We don’t find any merits in the appeal”. The response was to Department of Telecommunications (DoT)’s a petition against a Telecom Disputes Settlement and Appellate Tribunal (TDSAT)’s an order directing the government to return Rs 104.34 crore to Rcom.

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