How Anil Ambani's RCom reasoned for not paying Ericsson, but the SC saw through it

The Supreme Court of India has held Reliance Communications chairman Anil Ambani and two other directors guilty of contempt of court over not paying the dues to the Indian arm of Swedish telecom major Ericsson. The apex court has ordered them to pay Rs 453 crore to Ericsson within one month, or face prison time. RCom had reasoned that it tried to move "heaven and earth" to ensure Ericsson gets its due but was unable to do so due to failure of assets sale deal with Jio. However, this line of reasoning fell short of convincing the Supreme Court.

Over the year and a half, the Anil Ambani-led Reliance Group had been working to terminate its consumer telecom businesses and focus on other avenues. The debt-ridden Reliance Communications had decided to cease operations and sell its assets to Mukesh Ambani-led Reliance Jio in 2017 as part of a strategic debt restructuring plan. The proceeds from sale of assets worth Rs 25,000 crore were meant to pare the Rs 46,000-crore debt in RCom's books.

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While the funds from asset sale to Jio could have been used to pay back Ericsson's dues, did not frucitfy. According to RCom, lack of consensus between the lenders and hurdles due to litigations from Department of Telecom (DoT) were what held the deal back. The company had even filed a contempt plea before the Supreme Court against the DoT for holding back the asset sale plan back in December 2018.

Reliance Communications also complained of troubles from its lenders in clearing the debt resolution plan. In an earlier statement, the embattled telecom firm had said that its 40 lenders, both Indian and foreign, had failed to form a consensus, as mandated by the Reserve Bank of India on February 12, 2018, on the important issues even after 45 meetings over the course of 12 months. Earlier reports suggest the lenders were against using the proceeds from asset monetisation plan to Jio for settling its debt with Ericsson.

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Now that the company has filed for bankruptcy before the National Company Law Tribunal, RCom has limited options to explore with respect to repaying its dues. RCom is planning to propose the same asset sale plan as before for the debt r/esolution via the NCLT. With matters in the hands of the tribunal, the resolution procedure could be completed within the simulated time frame of nine months.

However, Anil Ambani and the two other directors - Reliance Telecom Chairman Satish Seth and Reliance Infratel Chairperson Chhaya Virani - are supposed to pay back Ericsson India within one month. Penalty of Rs 1 crore has been imposed on each of them too, failure to pay which also will result in incarceration.

Meanwhile, senior advocate Mukul Rohatgi, who represented RCom in the Supreme Court, said that the group will honour the court's direction on repaying the dues of Ericsson.

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(Edited by Vivek Punj)