BQ: NCLAT Dismisses Contempt Petition Against Anil Ambani, Others Over Alleged Reliance Infratel Default

23 July 2019: National Company Law Appellate Tribunal on Tuesday dismissed a contempt petition filed against Reliance Group Chairman Anil Ambani and other officials, alleging default by Reliance Infratel Ltd.

“We have found that no case has been made out for contempt,” said a two-member NCLAT bench headed by Chairman Justice SJ Mukhopadhaya.

On July 3, NCLAT reserved its order saying that it will decide whether the the contempt petition filed by HSBC Daisy Investments (Mauritius) and others should be admitted as Reliance Communications Ltd. is going through insolvency proceedings.

Reliance Infratel, is a subsidiary of RCom, and is presently under corporate insolvency resolution process. HSBC Daisy had moved NCLAT over alleged default of payment of Rs 230 crore by Reliance Infratel.

According to the consent terms of the agreement among Reliance Infratel, HSBC Daisy and others, recorded by the NCLAT in its order dated June 26, 2018, the Anil Ambani-owned firm had to pay the amount in the following six months. After the six-month period ended, HSBC Daisy and nine other minority shareholders holding 4.26 percent stake in Reliance Infratel filed the contempt plea.

The counsel appearing for resolution professional said that as RCom was going through insolvency proceedings and was under the moratorium period under the Insolvency and Bankruptcy Code, it cannot pay the money.

In May this year, the Mumbai bench of the National Company Law Tribunal started the corporate insolvency resolution process of RCom, which has a total bank debt of over Rs 50,000 crore.

The Bloomberg Quint 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

ET: SBI probe flags Rs 5,500 crore deals among Anil Ambani companies

10 July 2019: A probe commissioned by SBI has flagged transactions worth Rs 5,500 crore in the books of Reliance Communications and two other Anil Ambani-led Reliance Group entities for further investigation, four people with direct knowledge of the matter told ET. The probe into fund flows at RCom, Reliance Telecom and Reliance Telecom Infrastructure has examined related-party transactions, apparent evergreening of loans and seemingly preferential dealings with entities at which a few Reliance Group employees were directors. The Reliance Group was formerly known as the Anil Dhirubhai Ambani Group.

The probe, which looked at transactions between May 2017 and March 2018, examined over 100,000 entries. Funds flows involving three large entries are particularly under the scanner as the SBI-led lenders’ group suspects fund diversion. The lenders are now looking to initiate a deeper probe to ascertain the authenticity of the dealings of these three entities, said one of the persons. SBI had engaged accounting firm BDO in November 2017 to study the fund flows.

“The report has been tabled before the committee of creditors and questions based on the findings of the report have been raised with the management,” said one of the persons. “The probe came across several transactions which had no logic whatsoever. A deeper analysis showed that these were just adjustment entries made by the company. An indepth investigation is needed to track the flow of these funds.”

A spokesperson for SBI said the bank does not “comment on individual accounts and their treatment”. An RCom spokesperson said the company was undergoing insolvency and queries needed to be put to resolution professional Anish Nanavaty, who didn’t respond to ET.

RCom entered the bankruptcy process in May, when the appellate tribunal vacated a stay on insolvency proceedings against it.

Based on conversations with people who have seen the report, ET understands that a little-known entity, Netizen, received capex advances of Rs 4,000 crore in May 2017 through transactions emanating from Reliance Group companies. What raised suspicion was the size of the amount, which was later set off against liabilities.

“Ideally, the auditors of the company should have reported this transaction in the company’s financials, but they haven’t done so. The way the entity (Netizen) has been defined, it doesn’t technically fall within the purview of a related party,” said another person close to the development. Pathak HD & Associates was the auditor for Reliance Communications.

Questions were also raised on inter-corporate deposits of Rs 600 crore paid to another group company. As per the initial probe, this may have been a preferential transaction that was not carried out at an arm’s length. At least a dozen transactions of alleged evergreening of loans through the letter of credit route worth .`500 crore with three-four banks are also under scrutiny.

“A dozen transactions clearly hint towards banker facilitation in evergreening of loans by using multiple letter of credit transactions — these should be looked at in further detail,” said one of the persons who has seen the initial probe report. Reliance Group companies have a debt of over Rs 1 lakh crore with RCom accounting for Rs 49,193 crore, followed by Reliance Telecom at over Rs 24,306 crore.

Anil Ambani said recently that his group was fully committed to meeting all future debt-servicing obligations in a timely manner through asset sales that are already at various stages of implementation.

Global auditing firm PwC had recently informed the ministry of corporate affairs about certain alleged irregularities in the books of accounts of Reliance Capital and Reliance Home Finance, part of the same group. The irregularities, which involved alleged diversion of funds and transactions between the two firms and other group companies, came to light while PwC was auditing the books of the two companies for the first quarter ended June, ET had reported earlier.

The Economic Times reported

BS: NCLAT reserves order on admission of contempt plea filed against Anil Ambani, other officials

3 July 2019: The National Company Law Appellate Tribunal (NCLAT) on Wednesday reserved its order over admission of contempt petition filed against Reliance Group Chairman Anil Ambani and its other officials by minority shareholders alleging non-payment of dues by Reliance Infratel.

A two-member bench, headed by NCLAT Chairman Justice S J Mukhopadhaya, said it will decide whether the contempt petition filed by HSBC Daisy Investments (Mauritius) and others should be admitted as Reliance Communications (RCom) is a now going through insolvency proceedings.

Reliance Infratel, against which also the contempt petition has been filed, is part of RCom.

The counsel appearing for resolution professional said that as RCom was going through insolvency proceedings and was under the moratorium period under the IBC, it cannot pay money.

In May this year, the Mumbai bench of the National Company Law Tribunal (NCLT) started the corporate insolvency resolution process of RCom, which has a total bank debt of over Rs 50,000 crore.

HSBC Daisy had moved the appellate tribunal over alleged default of payment of Rs 230 crore by Reliance Infratel and stated that the company has not fulfilled an undertaking given by it.

As per the consent terms of the agreement among Reliance Infratel, HSBC Daisy and others, recorded by the NCLAT in its order dated June 26, 2018, the Anil Ambani-owned firm was to pay the amount in the following six months.

After the six-month period ended, HSBC Daisy and nine other minority shareholders holding 4.26 per cent stake in Reliance Infratel filed the contempt plea.

The Business Standard reported

ET: SC dismisses DoT’s plea on RCom spectrum case

2 July 2019: The Supreme Court Tuesday dismissed the telecom department’s petition against a tribunal order that had stated that liabilities of past dues related to spectrum usage charges (SUC) rested only with Reliance Communications (RCom) and not the buyer, which in that case was Reliance Jio.

The SC’s verdict comes on the back of a bitter war fought between RCom, Department of Telecommunications (DoT) and Jio on the spectrum deal which never materialised because of lack of consent from the government. The DoT had wanted the buyer -Jio – to agree that it would be responsible for past liabilities of RCom as well when it buys spectrum from the Anil Ambani-led telco. Jio refused to accept DoT’s terms and the deal fell through, forcing RCom to move into insolvency.

The matter was contested in Telecom Dispute Settlement Appellate Tribunal (TDSAT) and the tribunal in February had said that the liability of past dues related to SUC rested only RCom and asked the government to reconsider its refusal to give a no objection certificate (NOC) to the spectrum sale.

DoT moved SC but its plea was dismissed Tuesday.

However, SC’s judgement today may have little impact on RCom’s spectrum sale since the bankrupt telco under a debt of Rs 46,000 crore is in the insolvency court. The reins of the operator are now in the hands of resolution professional (RP), Deloitte.

“Now we may consider to file another application or see what comes out of the resolution since RCom is in insolvency. All creditors will now have to take a haircut,” said a DoT official, who did not want to be named.

RCom’s spectrum – once valued at Rs 7,300 crore – may find few takers during the insolvency process since bidders may prefer to go for a fresh set from the upcoming spectrum auctions to be held later this year than get embroiled in any legal battles with the DoT.

The Economic Times reported

BQ: Three Chinese Lenders Look To Sell RCom Loans Ahead Of Insolvency Resolution

1 July 2019: Chinese lenders to Reliance Communications Ltd, including China Development Bank, Exim Bank of China and Industrial & Commercial Bank of China, are in the midst of negotiations with foreign funds to sell their loan exposures to the insolvent telecom firm, two people in the know confirmed.

The three lenders have a total exposure of over Rs 15,000 crore to RCom, undergoing insolvency proceedings. RCom owes more than Rs 49,000 crore to all its financial creditors, according to data provided by the resolution professional of the company.

The Chinese lenders have been in talks with U.S. based fund Varde Partners and other distressed asset investors such as SC Lowy Financial HK Ltd. and Bank of America Merill Lynch for the sale of these loans. Discussions were first initiated six months ago but a deal has not yet been struck, the people quoted above said.

During the initial talks, investors were negotiating a valuation of about 40-50 cents to the dollar, implying a 50-60 percent haircut for banks, said one of the people quoted above. However, the negotiations took a turn for the worse after Rcom was admitted for insolvency. Investors are now willing to offer only 15-20 cents to the dollar, leading to a much larger haircut of 80-85 percent for lenders.

Negotiations on a possible sale are continuing, the people quoted above said. CDB, Exim Bank of China, ICBC, SC Lowy and Bank of America Merrill Lynch did not respond to queries mailed on Friday. A spokesperson for Varde Partners said that the company has no comments to offer.

Why Chinese Banks Want To Exit?

RCom and its Chinese lenders have had a contentious relationship for over two years now. The loans to RCom were originally given as part of an arrangement where the telecom company would use the funds to purchase equipment from Chinese manufacturers.

In 2017, when the domestic banks were working on a restructuring proposal for the telecom company, the Chinese lenders decided that they did not want to participate.

In June that year, the domestic banks agreed to restructure RCom under the strategic debt restructuring route, since that allowed banks a standstill arrangement for 18 months. Under such a standstill arrangement, banks would not need to classify the account as a non-performing asset. The lenders would also be required to temporarily take over majority equity in the company, so that they may sell the company to a new investor.

The Chinese lenders, however, were not keen to use this route and preferred to refer the company for insolvency. By November 2017, CDB filed an insolvency petition against RCom at the Mumbai bench of the National Company Law Tribunal (NCLT).

According to the first person quoted above, the case was eventually withdrawn after domestic lenders intervened, convincing the Chinese banks that their dues would eventually be returned. BloombergQuint could not determine whether Indian lenders gave any implicit guarantee to Chinese banks.

In December 2017, RCom entered into an agreement with Mukesh Ambani’s Reliance Jio to sell its telecom assets. This gave the lenders some hope. By December 2018 however, it had become clear that the sale was not progressing as expected due to delay in regulatory clearances. RCom and Reliance Jio eventually called off the sale agreement.

According to the first person quoted above, the Chinese lenders were also closely watching the events unfolding at another stressed telecom company, Aircel Ltd, which was also undergoing insolvency proceedings. Lenders had to take a 99 percent haircut to their loan exposures in the case of Aircel. CDB had an exposure of Rs 2,700 crore to Aircel, which had to be mostly written off.

This experience has given the Chinese lenders more reason to try and exit their loan exposure to Rcom before the insolvency process is completed.

So far, the resolution professional for RCom has collated and disclosed all the claims made by financial and operational creditors to the company. The resolution professional will soon put out a request for expression of interest from interested bidders.

The BloombergQuint reported

ET: Government backs revocation Aircel spectrum for non-payment of dues: Ravi Shankar Prasad

27 June 2019: The government has told the National Company Law Tribunal (NCLT) that it is liable to revoke the spectrum of Aircel for non-payment of dues, telecom minister Ravi Shankar Prasad said in the Rajya Sabha.

The minister added that the government will stand to lose revenue if the spectrum remains unused. In a similar case related to Reliance Communications, legal opinion was being sought.

“The National Company Law Tribunal (NCLT) has ordered DoT to maintain status quo and not take any coercive action. The DoT has filed affidavits rejecting the averments of Aircel and has submitted that the spectrum and license are liable to be revoked/ terminated on failure to make payments. The matter is subjudice,” the minister said.

Aircel has filed lawsuits seeking to restrain DoT from terminating the license and revoking the spectrum.

“In respect of spectrum assigned to Reliance Group of Companies, legal opinion / options are being examined,” he said.

The outcome of legal process will determine the financial implications for the government. Further, if spectrum remains unused, the revenue share of the government accruing from spectrum usage charges and license fees will be reduced as well.

DoT has previously told the dedicated bankruptcy court that Aircel did not own the spectrum as an asset, a stance the defunct telecom operator opposed, saying that without airwaves, its entire resolution process would be derailed.

The resolution professional which now heads Aircel said that if spectrum was withdrawn now, the telco would head straight into liquidation.

The telco told the bankruptcy court that its spectrum was worth Rs 11,000-20,000 crore and the licences, except for the Tamil Nadu circle, would expire only in 2026.

The Economic Times reported

ET: Aircel RP, suitor in talks with existing telcos for spectrum sale

15 June 2019: Aircel’s resolution professional and its proposed acquirer UV Asset Reconstruction Co. Ltd (UVARCL) have started talks with Bharti Airtel, Vodafone Idea and Reliance Jio to sell the bankrupt telco’s spectrum, said people with knowledge of the matter. That appears to contradict the stand of the Department of Telecommunications (DoT) that only the government can sell airwaves via auctions, they said.

The DoT’s view stemmed from the realisation it could get only Rs 2-3 crore from the resolution process cleared by the committee of creditors (CoC). That compares with the Rs 10,000 crore it has sought and the Rs 2,000 crore approved by the resolution professional Deloitte, said the people cited above. DoT’s opposition is also based on the government’s view that spectrum is a sovereign asset and a telco is only given right of use for a specific time period, they said. It doesn’t become the operator’s property.

“UVARCL has already held initial round of talks with existing telcos to sell Aircel’s spectrum in the 900 MHz and 1800 MHz bands,” said one of the persons.

Spectrum is Aircel’s most valuable asset. Another person said that the spectrum bands, which are valid until 2026 except for Tamil Nadu, “should evoke interest from the telcos planning to expand their 4G base but at about a 20-25% discount on the base price offered in last auction.” Aircel has previously told the National Company Law Tribunal that its spectrum is worth Rs 1,100-2,000 crore. Bharti Airtel, Vodafone Idea, Reliance Jio Infocomm, Aircel, Deloitte and UVARCL did not respond to queries.

Less than Rs 100 crore has been earmarked for operational creditors, including the DoT, in the resolution plan approved by the CoC, according to the people aware of developments. “Aircel’s asset value has depleted tremendously,” said one of them, “and given the circumstances even the financial creditors cannot recover a lot and thus the operational creditors have even a lesser chance.”

Financial creditors will in all “be able to recover about Rs 3,000 crore or at most 20% of their exposure,” he said. The DoT argued before the NCLT that Aircel’s spectrum should be returned, added to the pool and auctioned at market rates.

“The DoT needs to recover its dues but there is not much one can do since the assets’ value has deteriorated,” said the person. Apart from spectrum, the assets include the enterprise business, fibre and land parcels along with some infrastructure. The NCLT Mumbai bench at its last hearing on Monday, directed resolution professional Deloitte to send the DoT its proposal on how the government can recover the money.

“The DoT can fight and even take the matter up to the Supreme Court,” said one of the people cited earlier. “It was aware of the resolution plan since it had attended the committee of creditors’ meetings but did not have a voting right by virtue of being an operational creditor.”

Aircel declared bankruptcy in March 2018 after failing to repay debt of Rs 20,000 crore. It faced claims worth Rs 20,000 crore from lenders and that for a similar amount from operational creditors. The company has been administered by Deloitte for a year and is in the last stage of the insolvency process, as part of which the CoC has agreed to hand over the reins to asset reconstruction firm UVARCL.

An application for the appointment of the asset reconstruction company is also pending in the NCLT. The government will probably want the spectrum to revert to it as the Aircel case could set a precedent, said experts. Reliance Communications has also landed up in the insolvency court and is battling the DoT over airwaves, they pointed out.

The Economic Times reported

DNA: Share pledge sword dangles over ADAG

14 June 2019: Reliance Group chairman Anil Ambani has a battle at hand as he plans to rescue the promoters’ pledged shares in some of the sister companies. If the debtors are not repaid, the promoters stand to lose control in at least three companies considering that over 95% of their shareholding is pledged with creditors.

In Reliance Capital, the promoters have pledged 96.93% of their holding while in Reliance Infrastructure it is as high as 98.34%, as per data available till March-end 2019. The promoter holding in these two companies stand at 47.48% and 40.98% respectively, the data showed.

The promoter holding in Reliance Power was 56.29%, of which 78.72% shares were pledged. In Reliance Naval & Engineering, the entire promoter holding, standing at 29.84%, has been pledged with various creditors.

Reliance Innoventures Private Ltd (RIPL) is the ultimate holding company of Reliance-Anil Dhirubhai Ambani Group (ADAG). It has strategic holdings in various listed operating group companies through intermediate holding companies. It is also engaged in the business of electricity through windmills. It holds a majority of the promoter shareholding in Reliance Communications, Reliance Capital, Reliance Power and Reliance Infrastructure, directly and through subsidiaries.

The group is planning asset sales to recoup the shares, while timely asset sale is critical to servicing the debt. As per data till March 2018, the group’s consolidated debt stood at Rs 1.72 lakh crore. The figures for the fiscal year ended March 2019 are not available as some of the group companies are yet to announce their fourth-quarter results.

A detailed questionnaire sent to Reliance ADAG on the shares pledged and the company’s plans to pare debt did not elicit any response till the filing of this report.

“Going forward, Reliance Capital’s ability to monetise its core and non-core investments and unlock value by divesting stake in group exposures in a timely manner to service repayment obligations, reduce debt levels and maintain profitability and liquidity profile will be the key rating sensitivities,” Brickworks said in its rating rationale.

The group is in the final stages of selling its 42.88% stake in Reliance Nippon Life Asset Management Ltd, which is expected to bring in Rs 6,000 crore. Reliance is also selling its FM radio business to Jagran Prakashan for over Rs 1,000 crore. Reliance Capital has a debt of Rs 18,000 crore in the bond market.

Adding to the group’s woes, PwC, the auditor of Reliance Capital and Reliance Home Finance refused to complete the auditing work. While PwC complained that the company was not forthcoming with the information, the company refuted allegations calling it baseless.

“PwC’s observations are completely baseless and unjustified. PwC has acted prematurely without even statutory discussions with the audit committee,” Reliance Capital said in a regulatory filing.

Earlier this week, Ambani in a media conference call said: “Despite challenging conditions and no financial support from financiers, the group has repaid the principal of Rs 24,800 crore and made interest payments of Rs 10,600 crore between April 1, 2018, and May 31, 2019.”

However, the company declined to give a break-up of the debt payment, or to whom it was repaid.

Reliance Communications, the telecom arm of the group, filed for bankruptcy in the National Company Law Tribunal (NCLT). Domestic banks have an exposure of over Rs 22,000 crore to RCom. “It is unlikely that any money will flow back to the banks from the liquidation process,” said a banker.

The DNA India reported

ET: DoT asks Aircel to return spectrum as arrears unpaid

11 June 2019: The Department of Telecommunications (DoT) has demanded Aircel return its spectrum to the government since it has not cleared the arrears against it, creating a major hurdle in the carrier’s bankruptcy process that could hurt lenders.

DoT on Monday told the dedicated bankruptcy court that Aircel did not own the spectrum as an asset, a stance the defunct telecom operator opposed, saying that without airwaves, its entire resolution process would go kaput. The government’s stand, if accepted, could affect the bankruptcy process of another telco, Reliance Communications, as well, hurting its lenders too. Without spectrum — their most valuable asset — both telcos would be less attractive to buyers.

“Spectrum is not an asset of any company. It is only granted for permissive usage and not an asset to be occupied. Today, we have large sums to be recovered and they continue to use our services without payments,” DoT’s legal counsel, additional solicitor general Anil Singh, told a National Company Law Tribunal (NCLT) bench headed by Justice MK Shrawat.

“They (telcos) are getting all the benefits while the dues are getting added. The licences are controlled by us and you do not own or purchase spectrum,” the DoT lawyer said.

ET had reported DoT’s stance on the matter in its June 6 edition.

“Spectrum is an intangible asset for the service provider. This is the single asset we have and without this, the corporate insolvency process will fall through,” said senior counsel Ravi Kadam on behalf of Aircel’s resolution professional. “Licences of spectrum are mortgaged by me to the banks and if you take it away, what happens to the banks,” he added.

NCLT was hearing Aircel’s plea for an injunction against DoT’s application that the telco’s spectrum be withdrawn due to non-payment of dues. The telco told the bankruptcy court that its spectrum was worth Rs 11,000-20,000 crore and the licences, except for the Tamil Nadu circle, would expire only in 2026. The resolution professional said DoT had attended meetings of the company’s committee of creditors, and insisted that if spectrum was withdrawn now, the telco would head straight into liquidation.

The telecom department’s counsel, on his part, said refusal to pay dues and use the spectrum to trade would lead to rewriting of contracts.

For the government, this case is crucial. People aware of the case said the current plan under the insolvency process was to give the spectrum to the asset reconstruction company as part of the assets. The government had formed a six-member panel to ascertain, among other things, how to “safeguard” the value of public resources, such as spectrum, in cases where telecom operators have filed for insolvency.

The Economic Times reported