ET: NCLAT asks RCom to approach NCLT for Rs 577 crore refund from Ericsson

18 September 2019: The NCLAT on Wednesday declined RCom’s resolution professional’s plea seeking refund of Rs 577 crore from Swiss firm Ericsson, and directed the RP to approach the Mumbai-bench of NCLT for the same.

Reliance Communications is presently going through the Corporate Insolvency Resolution Process under the supervision of the Mumbai-bench of National Company Law Tribunal.

The RP had filed and interim application with the NCLAT, contending that Ericsson, which is only an operational creditor of the company, should return the money paid by it, as RCom is now under the resolution process.

However, a two-member NCLAT-bench headed by Chairperson Justice S J Mukhopadhaya asked that the RP may raise all arguments for refund of money begfore the NCLT.

It also said that the RP may file appeal before it, in case of adverse order by the NCLT on this issue.

“We are not inclined to take this interim Application…,” said the NCLAT.

RCom had paid a sum of Rs 577 crore to Ericsson India after the Supreme Court had directed it to pay.

In February this year, the apex court held Rcom’s promoter Anil Ambani and two of his top executives guilty of contempt of court for wilfully failing to pay the dues of Ericsson.

On April 30 this year, RCom withdrew the cases, which challenged an NCLT order that allowed insolvency resolution process against the company, from the NCLAT.

RCom in May last year had filed a petition before the NCLAT against the NCLT order on a insolvency plea moved by Ericsson.

The Mumbai-bench of NCLT on May 15, 2018, admitted an insolvency petition filed by Ericsson against RCom and two of its subsidiaries — Reliance Infratel and Reliance Telecom.

The NCLAT on May 30, 2018, had stayed the operations of NCLT orders.

Ericsson India had in September 2017 moved insolvency petitions against RCom, Reliance Telecom, and Reliance Infratel before the NCLT for failing to pay their dues amounting to nearly Rs 1,500 crore.

It is estimated that RCom has been reeling under debt of over Rs 46,000 crore.

The company had chalked out plans to sell assets for about Rs 25,000 crore and use it for clearing debt of around 40 lenders.

RCom was expecting to realise Rs 975 crore from sale of spectrum to Jio which it promised to use paying off dues of Rs 550 crore to Ericsson and Rs 230 crore to settle dues of its minority stakeholder Reliance Infratel.

Reliance Jio, however, declined to take over any past liability of RCom for which the Department of Telecom may raise demand in future.

The Economic Times reported

ET: RCom RP can’t demand ₹576-cr refund: Ericsson

5 September 2019: Telecom equipment maker Ericsson has said Reliance Communications’ resolution professional has no right to seek a refund of Rs 576.77 crore paid to the Swedish company under the Supreme Court’s directions.

“Without prejudice to our rights and before we respond to your communication dated 23.08.2019, at the outset, we deny the right of resolution professional to seek refund of the amount paid to Ericsson in furtherance to the orders… passed by the… Supreme Court of India,” Ericsson said in a letter dated September 4.

In the letter, which ET reviewed, Ericsson sought to know under what provisions the refund was sought. It asked for copies of the minutes of meetings held by the telco’s committee of creditors, a list of financial and operational creditors who attended the meetings where the refund was discussed, copies of the tribunal order appointing Deloitte as the resolution professional, and any applications filed by financial and operational creditors.

Ericsson’s legal representative, senior advocate Anil Kher, confirmed the contents of the letter.

Deloitte sought the refund, saying the Swedish company had to be treated at par with other operational creditors and that the insolvency resolution process that Ericsson had initiated against RCom had resumed.

Ericsson petitioned for RCom’s bankruptcy in September 2017 over non-payment of dues worth over Rs 1,500 crore. The bankruptcy court admitted the petition but, under RCom’s appeal, the National Company Law Appellate Tribunal stayed the order and a settlement was chalked out with Ericsson.

However, RCom failed to pay the settlement amount of Rs 550 crore and the matter went to the apex court, under whose direction it was finally settled in March 2019, when the telco paid the amount with interest to Ericsson to save chairman Anil Ambani from being jailed for contempt.

The queue of operational creditors includes tower companies, equipment vendors and the Department of Telecommunications. Ericsson’s stand may force RCom and its units to approach the appellate tribunal. The battle may eventually head to the Supreme Court, experts said.

The Economic Times reported

ET: Reliance Communications lenders to seek Rs 580 crore from Ericsson claiming violation of IBC

23 July 2019: Lenders to Reliance Communications (RCom) have decided to send a demand notice to Ericsson, asking the Swedish telecom equipment maker to refund the Rs 580 crore that it received from the erstwhile Anil Ambani-owned telco under a Supreme Court directive, according to people directly aware of the matter. The lenders claim the payment to Ericsson qualifies as a ‘preferential transaction’ under the Insolvency and Bankruptcy Code (IBC).

The decision was taken at a recent meeting of RCom’s committee of creditors, and the consortium of lenders led by SBI is likely to send a formal communication to Ericsson soon, according to two independent sources. RCom was admitted for insolvency proceedings in the National Company Law Tribunal in February.

Lenders may Move Court if Ericsson Refuses

If Ericsson refuses to refund the sum, the lenders may explore legal options, the sources said.

A ‘preferential transaction’ involves a payment to a single creditor or set of creditors ahead of others who are waiting in queue and whose claims rank higher in order of importance as per the IBC.

In this case, Ericsson qualifies as an operational creditor since it provided services to RCom. Hence, the payment to the Swedish company ahead of other secured financial creditors — such as banks — was in violation of the insolvency law, the sources claimed.

A spokesperson for Ericsson said the company had not received any request from RCom’s lenders. A source close to the company said the payment had been received as part of contempt proceedings filed by Ericsson against RCom in the apex court, after the latter refused to honour payments for services rendered to it.

“It is a policy of the bank not to comment upon individual accounts and their treatment,” an SBI spokesperson said in response to ET’s queries.

The Supreme Court had held RCom chairman Anil Ambani and two directors guilty of contempt on February 20 as they had failed to obey the court’s orders to deposit sums claimed by Ericsson. The trio was instructed to make the payment or face a jail term.

RCom eventually made the payment, accompanied by a statement from Anil Ambani thanking his elder brother Mukesh and sister-in-law Nita for their “timely support”. People familiar with the matter said Mukesh Ambani, the chairman of Reliance Industries, had contributed around Rs 480 crore for the Ericsson payment. These people said this was an outright payment by the RIL chairman and not a loan.

Ericsson had been battling RCom in court for over 18 months before it finally got a favourable order and received its dues.

The company had filed an application to take RCom to insolvency proceedings in May last year to recover dues, but agreed to halt the legal action after the telco promised an upfront payment. The assurance was backed by a personal guarantee from Anil Ambani.

Ericsson eventually dragged RCom to the Supreme Court after the latter reneged on its promise. Though RCom had initially opposed Ericsson’s plea to initiate insolvency proceedings against it, the embattled telco eventually withdrew its opposition.

Ericsson later claimed RCom was allowing itself to be subjected to insolvency proceedings to avoid paying it.

Financial creditors have claimed as much as Rs 85,000 crore as dues from RCom and two of its arms — Reliance Telecom and Reliance Infratel — after the companies were admitted for insolvency proceedings.

The parent and the two units collectively house spectrum, domestic fibre assets and telecom towers. RCom had shut its wireless telephony services business last year. Another RCom unit — Bermuda-incorporated Global Cloud Xchange, which houses the undersea cable business — is not part of the insolvency proceedings.

The Economic Times reported

BS: Doha Bank moves law tribunal, seeks stay on decisions of RCom lenders

30 May 2019: In a surprise intervention in the Reliance Communications (RCom) insolvency matter, Doha Bank, which is one of the financial creditors to RCom’s subsidiary Reliance Infratel, has moved the National Company Law Tribunal (NCLT) seeking a stay on the decisions of the meeting of the committee of creditors (CoC) held on Thursday.

Doha Bank has alleged that the corporate bank guarantees given by Reliance Infratel for RCom have been invoked by the banks and this, in turn, has increased Reliance Infratel’s debt significantly.

The invoking of corporate guarantees by banks has resulted in a significant reduction in the voting rights of a syndicate of four banks, including Doha Bank, which together had an exposure of around Rs 1,400 crore in Reliance Infratel. The counsel, appearing on behalf of Doha Bank, said that the four banks earlier had a 55 per cent voting right in the Reliance Infratel CoC. But now, with banks invoking the corporate guarantees, and interim resolution professional accepting the claims, their voting rights have been reduced to 15 per cent. 

Doha Bank also said that the interim resolution professional had admitted the claims of the banks that have invoked such bank guarantees without informing the four syndicate banks. This, it said, marginalises them in the CoC. The matter will be next heard on May 31. Separately, the interim resolution professional filed the progress report on RCom’s corporate insolvency resolution process (CIRP) to the tribunal. In the last hearing, the tribunal had asked the interim resolution professional to submit the progress report of the CIRP and had granted exclusion of 357 days spent in litigation from the CIRP process. 

The CoC meet on Wednesday was supposed to review the claims admitted and appoint a resolution professional. Lenders voted in favour of appointing Deloitte as the resolution professional. RBSA Advisors was the interim resolution professional. 

The CIRP of the debt-ridden telco resumed after the National Company Law Appellate Tribunal (NCLAT) vacated the stay on the CIRP of RCom. 

Operational creditor Ericsson, in September 2017, had originally filed for insolvency proceedings against RCom. This was accepted by the NCLT over RCom’s failure to pay dues to the tune of Rs 1,500 crore. However, insolvency was later stayed by the NCLAT as both parties reached a settlement, with RCom agreeing to pay Rs 550 crore. Meanwhile, RCom moved the Supreme Court, seeking an extension of the deadline to pay the amount to Ericsson because of a delay in completion of spectrum sale and other assets, to which the apex court granted it time till December 15, 2018. After RCom failed to pay, Ericsson moved the SC wherein the court ordered Anil Ambani, Reliance Telecom Chairman Satish Seth, and Reliance Infratel Chairperson Chhaya Virani to pay Rs 453 crore by March 18, or face a jail term of three months. Anil Ambani later paid the amount.

Ericsson has been opposed to RCom’s move of undergoing insolvency proceedings. Under proceedings, dues of financial creditors are settled first and then operational creditors get paid. The NCLAT observed in case proceedings against RCom and two other firms were restarted, Ericsson might have to refund the money.

The Business Standard reported

FE: Why Ericsson may be asked to return Rs 580 crore to RCom; all that happened so far, and what’s next

17 April 2019: Anil Ambani’s Reliance Communications, which recently had to pay Ericsson dues worth Rs 580 crore, saving its chairman from going to jail, may get the money back if it moves to insolvency proceedings, the NCLAT (National Company Law Appellate Tribunal) had said earlier last week. Since financial creditors get preference over operational creditors under the Insolvency and Bankruptcy Code of 2016, and Ericsson being an operational creditor, it will be expected to return the money it got in dues.

This is because the insolvency proceeding that Ericsson had initiated against RCom was put on stay by the tribunal, and the settlement between the two happened outside the insolvency provisions when the stay was in effect, said Daizy Chawla, a lawyer. Now, if the stay were to be vacated to allow the insolvency proceedings to resume, the settlement money paid in the interim would have to be returned, Daizy Chawla, Senior Partner, Singh and Associates, told Financial Express Online.

The NCLAT is expected to hear RCom’s application for vacating the stay on 30 April 2019.

What next for Ericsson?

When Mumbai NCLT had asked for insolvency proceedings against RCom, Ericsson should have gone ahead with it, Daizy Chawla told Financial Express Online. “Justice Mukhopdhyay agreed for RCom’s proposal of settlement, which was never in the provision,” she said. Now that RCom seems to have no other option, it wants to go ahead with insolvency proceedings, she added.

On the other hand, there was no application for withdrawal of insolvency petition. In RCom’s case, there is no Committee of Creditors formed yet, hence there is nobody to authorise the withdrawal. “Even if there was a committee, Ericsson would not have got the payment before financial creditors, nobody would have accepted that,” Daizy Chawla said citing the provisions of IBC.

Daizy Chawla’s firm represents one of the other operational creditors with dues pending from RCom.

Now, Ericsson needs to file an application for withdrawal of insolvency petition with NCLT. Meanwhile, RCom would be looking for the court to vacate the stay on the insolvency proceedings. Much would depend on whether the NCLAT allows RCom’s application for withdrawal of stay on insolvency, or Ericsson’s application for withdrawal of the proceedings. Daizy Chawla says that there can’t be a decision on withdrawal of the insolvency proceedings before the Committee of Creditors (CoC) is formed.

Meanwhile, Ericsson refused to comment on the reports that it may have to return Rs 580 crore in dues that it recently recovered from Reliance Communications, should the insolvency proceedings on the Anil Ambani-led company resume. When asked what would be Ericsson’s next step regarding the RCom case, Ericsson India head Nitin Bansal refused to comment stating that the matter is sub judice.

Ericsson-RCom case: Soured relations

RCom and Ericsson had begun their business transactions in 2013 to provide services for RCom’s networks. When RCom failed to pay Ericsson on time in 2016 and after several months of waiting and assurances, Ericsson was the first creditor to move NCLT in September 2017. NCLT allowed the initiation of insolvency proceedings for RCom, which was put on stay, with RCom promising to pay Ericsson about Rs 550 crore as settlement fees to avoid insolvency.

On 19 March 2019, RCom paid around Rs 580 crore to evade its chairman from going to jail after the matter had escalated to the Supreme Court.

The Financial Express reported

BS: NCLAT seeks Anil Ambani’s response in contempt plea moved by HSBC Daisy

17 April 2019: HSBC Daisy had moved the NCLAT alleging that Anil Ambani’s companies Reliance Infratel, Reliance Communications Infrastructure and RCom have breached a consent decree by not paying the Rs 230 crore settlement amount within 180 days of June 29, 2018 when the agreement was taken on record by the appellate tribunal.

Minority investors of Reliance Infratel had moved NCLAT alleging oppression and mismanagement after the company had allegedly not taken their consent for the selling the tower and fiber assets. They had moved the NCLAT in an attempt to thwart the then sale to Reliance Jio Infocomm, which had then forced Reliance Infratel to settle the issue with them.

Following the agreement, both the parties had submitted to the NCLAT their final consent terms after which the appellate tribunal had allowed both parties to withdraw their appeals. The said agreement amount, however, was never paid, HSBC Daisy has alleged.

This is the second such contempt petition moved against Ambani and his companies. Earlier on February 20, The Supreme Court had held RCom Chairman Ambani and two of his top executives guilty of contempt of court for wilfully failing to pay the dues to telecom equipment maker Ericsson.

The court had also directed Ambani, Reliance Telecom Chairman Satish Seth, and Reliance Infratel Chairperson Chhaya Virani to pay Rs 453 crore within four weeks or face a jail term of three months. It also slapped a fine of Rs 1 crore each for their “cavalier attitude” towards the court’s orders.

Ericsson India had in September 2017 moved insolvency petitions against RCom, Reliance Telecom, and Reliance Infratel at the Mumbai Bench of the National Company Law Tribunal (NCLT) for failing to pay their dues amounting to nearly Rs 1,500 crore. The petition was admitted by the NCLT in May 2018, following which the three Reliance group companies approached the NCLAT.

It was in the NCLAT that Ericsson India and the three Reliance companies had come to a settlement that the latter would pay Rs 550 crore within 120 days that is by September 30, 2018. The companies had failed to do so, following which the contempt petition had been moved by Ericsson India.

The Business Standard reported

BQ: NCLAT To Decide Over Insolvency Plea Of Reliance Communications

8 April 2019: The National Company Law Appellate Tribunal said it would decide on the insolvency of debt-ridden Reliance Communications Ltd. The Anil Ambani-led Reliance Group company has pleaded with the tribunal to go ahead with insolvency proceedings against it as it is unable to pay dues to its lenders.

Swiss telecom gear maker Ericsson, which received its unpaid dues of Rs 550 crore from RCom last month following a Supreme Court order, is opposing the move.

A two-member bench headed by Chairman Justice SJ Mukhopadhaya also observed that if insolvency proceedings against RCom are allowed, then Ericsson would have to return Rs 550 crore.

“Why one party will take amount and let the financial creditors suffer,” said the NCLAT, adding that either it may quash RCom bankruptcy proceedings in NCLT or allow bankruptcy case to proceed.

The appellate tribunal also said that it would consider the reply filed by the Department of Telecom over the RCom’s plea against the show-cause notice issued by it over spectrum charges due on April 30, the next date of hearing.

“DoT reply would be considered on April 30. Let us be very clear which are the assets of corporate debtor, whether they have some right of asset. Can you take away licence? If yes, what is the value of the company (RCom) then,” the NCLAT said.

The NCLAT’s direction came during the hearing of applications moved by three RCom executives. Earlier on Feb. 4, the tribunal had said that until further orders of the NCLAT or the Supreme Court, no one can sell, alienate, or create third-party rights over RCom’s assets.

The NCLAT on March 26 stayed the two notices issued by the DoT to RCom over cancellation of its spectrum licence for a delay in payment. Its two-member bench had also stayed the DoT’s letter dated March 20, 2019, to Axis Bank to encash the bank guarantee of Rs 2,000 crore given by the Anil Ambani group firm.

On May 15, 2018, the Mumbai bench of NCLT had admitted an insolvency petition filed by Ericsson against Reliance Communications and two of its subsidiaries seeking to recover unpaid dues.

However, on May 30 NCLAT granted a conditional stay on insolvency proceedings against RCom and its subsidiaries — Reliance Infratel and Reliance Telecom.

The tribunal had directed RCom and its subsidiaries to pay Rs 550 crore to Ericsson India in 120 days, failing which it will direct insolvency proceedings against the company.

On Feb. 1, RCom had informed that it has decided to opt for insolvency proceedings following its failure to sell assets for paying back its lenders.

Last month, Anil Ambani warded off a possible jail term as RCom cleared dues of Ericsson on March 18 with money received from elder brother Mukesh Ambani.

Anil Ambani made a Rs 550 crore payment, including interest, to Ericsson just a day before the expiry of the deadline set by the Supreme Court to clear dues or face a three-month jail term.

The Bloomberg Quint reported

BS: Anil Ambani’s stake dips to 22% in RCom; Banks sell 15.6% pledged shares

28 March 2019: Anil Ambani group’s stake in Reliance Communications fell to 21.97 per cent after its lenders — IndusInd Bank and RattanIndia Finance — invoked the shares pledged with them and sold it in the markets.  

The lenders invoked and sold 15.6 per cent of RCom stakes pledged to them, said a source close to the development. The source said that the rest of Anil Ambani group’s stake was not pledged with the banks.

While IndusInd Bank invoked 4.52 per cent from the total 9.37 per cent stake pledged with it, RattanIndia Finance invoked pledged shares with total stake of 11.08 per cent in the bankrupt telecom firm. As of December 2018, Anil Ambani group entities owned 53.08 per cent stake in the company. Of this, 30 per cent of the company’s stake was pledged with the lenders and since January, this block of 30 pc stake has been off-loaded in the market by lenders, according to BSE data. L&T Finance and STCI Finance also sold RCom’s shares recently, the BSE data shows.

On Thursday, RCom shares closed at Rs 4.35 per cent on the BSE, down 5 per cent over Wednesday’s close. The company had a market value of Rs 1,203 crore as of Thursday, according to BSE statistics.

On March 18, RCom terminated an agreement with Mukesh Ambani-owned Reliance Jio to sell its telecom infrastructure for Rs 18,000 crore. This was after the company did not get approvals from the government and lenders in time for the transaction. In its discussions with the department of telecom, Jio had declined to pay RCom’s past dues, which led to the DoT to refuse permission for the deal.

RCom had a debt of Rs 45,000 crore. In June 2017, public sector banks had approved a standstill agreement with the company, under which the lenders did not seek their dues till December 2018.  

In February, RCom had said it would move the National Company Law Tribunal under the Insolvency and Bankruptcy Code, citing its failure to get permission from government and lenders. The company had promised to sell its real estate worth Rs 10,000 crore to pay its lenders. But till date no transaction has been announced by the company.
The Indian lenders, led by State Bank of India (SBI), IDBI and China Development Bank, meanwhile, are awaiting the fate of the IBC proceedings to get their money back.
On March 12, the National Company Law Appellate Tribunal (NCLAT) had pulled up SBI, saying the bank gave false hopes that it would recover Rs 37,000 crore by selling RCom’s assets. The NCLAT rap came after the banks did not agree to release Rs 260 crore lying in an escrow account to pay RCom’s equipment supplier, Ericsson. The money was later paid after Mukesh Ambani, Anil Ambani’s elder brother, bailed him out.

Interestingly, Anil Ambani’s promoter entities in February had sued Edelweiss Financial Services in the Bombay High Court after the financier sold the pledged shares of Reliance group companies in the market to recover dues.  On February 8, the ADA group said L&T Finance and certain entities of Edelweiss group, invoked pledge of listed shares of Reliance group and made open-market sales of the value of approximately Rs 400 crore in early February.

The group had said the “illegal, motivated and wholly-unjustified action” by the two groups has precipitated a fall of Rs 13,000 crore, an unprecedented 55 per cent, in market capitalisation of the Reliance group over four days, causing substantial losses to its shareholders.

The Business Standard reported

BQ: RCom Vs Ericsson: Round Two Begins At The Supreme Court

28 March 2019: The second act in the Reliance Communications Ltd.versus Ericsson saga started in the Supreme Court today.

The Anil Ambani-group company sought to withdraw its objection to the insolvency application filed by Ericsson. The Swedish telecom equipment maker, which recovered dues worth over Rs 500 crore from RCom, opposed the withdrawal of objections and now wants the insolvency proceedings to end.

The matter came up before a bench of Justice Rohinton Nariman and Justice Vineet Saran. It directed Ericsson to respond as to why it doesn’t want the insolvency proceedings, initiated as a result of its application, to continue.

In 2017, Ericsson had approached the NCLT with a petition to initiate insolvency proceedings against RCom for failing to clear dues worth Rs 1,500 crore. It was admitted by the Mumbai bench of the National Company Law Tribunal on May 15 last year. This is at the centre of the arguments before the apex court now.

The end of the insolvency process is critical for Ericsson, failing which it may be forced to return Rs 550 crore that it has secured. That’s because after the NCLT admitted Ericsson’s insolvency application, RCom had approached the NCLAT against it.

In May last year, the NCLAT granted a conditional stay on the insolvency process. This was granted since RCom agreed to pay Rs 550 crore to Ericsson as a settlement amount. In the same order, the NCLAT noted:

The payment of Rs 550 crore in favour of the ‘Operational Creditor’ [Ericsson] shall be subject to the decision of these appeals. If the appeals are dismissed, the ‘Operational Creditor’ will pay back the amount to the ‘Corporate Debtors’ [RCom].

This means if appeals to the NCLT order—which had paved the way for the insolvency process—are dismissed, the proceedings under the bankruptcy law will start and Ericsson would need to pay back Rs 550 crore to RCom.

This could be why Ericsson is now arguing to withdraw its insolvency application. The apex court has given the company two weeks to file its reply.

The Bloomberg Quint reported

FE: Ericsson case: Supreme Court to hear RCom plea

27 March 2019: The Supreme Court will hear on Thursday Reliance Communications’ plea seeking permission to withdraw its appeal against initiation of insolvency proceedings by Ericsson India last year. A Bench led by Justice RF Nariman will also hear on Thursday another application by Ericsson which also wants to end the insolvency proceedings it had initiated against RCom and its two group firms – Reliance Infratel and Reliance Telecom – last year as the beleaguered telecom company had paid Rs 550 crore to Ericsson as per the apex court’s orders.

Ericsson, in its application, stated that it has received the settled payment of Rs 579.74 crore “with up to date interest for the same (excluding TDS Certificates under Income Tax Act, 1961 for an amount of Rs 2.9744 crore).”

RCom’s dues to Ericsson arose out of a settlement reached on May 30, 2018 when the beleaguered telecom company had agreed to repay dues of Rs 550 crore to the Swedish equipment supplier by September 30, 2018. However, RCom failed to pay the money, saying that its sale of spectrum to Reliance Jio Infocomm had not gone through.

RCom had failed to pay for its supplies procured from Ericsson in 2014, the latter initiated insolvency proceedings against it before NCLT to recover Rs 1,500 crore. Subsequently, the two parties arrived at a settlement on May 30 before NCLAT by which RCom was required to pay Rs 550 crore.

The NCLAT had also on May 30, 2018 halted insolvency proceedings against RCom after the case was admitted by the Mumbai bench of National Company Law Tribunal on May, 16, 2018. This appellate tribunal had also then allowed the Joint Lender Forum with whom the assets of the Reliance companies are mortgaged, and also the three companies to sell the assets of the beleaguered companies and to deposit the sale proceeds with SBI.

The Financial Express reported