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Kumar Mangalam Birla’s resignation on Wednesday from the board of Vodafone Idea could be a precursor to the company filing for bankruptcy at the National Company Law Tribunal (NCLT).
According to sources, if the government does not announce a bailout plan soon, Vodafone Idea is likely to file for bankruptcy at the NCLT using section 10 of the Insolvency and Bankruptcy Code (IBC), which allows the company the option and power to voluntarily file for insolvency proceedings.
Financial collapse
As the accounts of Vodafone Idea are current, lenders cannot take the company to the NCLT. However, with ₹22,500 crore of dues payable between December 2021 and April 2020, the company has been warning that it is on the brink of financial collapse.
In his June 7 letter to the Cabinet Secretary, Rajiv Gauba, Birla reiterated this position: “I want to emphasise that without immediate and active support from the government on these issues….VIL’s financial situation will drive its operations into an irretrievable point of collapse.”
According to Nishit Dhruva, Managing Partner, MDP & Partners, Advocates & Solicitors, Vodafone Idea can file for voluntary insolvency under section 10 of IBC as well as section 59 of IBC.
“Even if the company has not defaulted on its loans as of now, a corporate debtor can always submit to the court it is unable to pay its debts. Debts necessarily do not only include those of banks, but also other operational and trade debts,” he said. However, to file for insolvency under section 59, an opinion will need to be formed that all debts of the company can be paid in full from the proceeds of its assets, Dhruva warned.
Special resolution
Furthermore, filing for insolvency under section 10 of the IBC by Vodafone Idea will require a special resolution (75 per cent) of the shareholders’ approval, observed Suharsh Sinha, Partner, AZB & Partners. “The threshold for initiating insolvency is ₹1 crore, and the default need not necessarily be that of loan but also failed to pay government dues,” said Sinha.
Deepak Thakur, Partner, L&L Partners, cautioned that the outcome in the insolvency proceedings of Vi may not be that encouraging as there are no buyers available. “Given the stiff competition in the telecom sector with little margins of profitability, it seems unlikely that the lenders’ interests would be fully protected if any such voluntary insolvency is initiated,” he said.
From experience with Aircel and RCom insolvencies, the authorities have been wary of using insolvency as a track to avoid the governmental dues. Therefore, a telecom analyst said that Vodafone Idea should beware of pushing the authorities in this direction. Vodafone Idea, Vodafone and the Aditya Birla Group did not offer any comment on this issue.
Meanwhile, in the aftermath of Birla’s resignation, Vodafone Idea CEO, Ravinder Takkar, sent out an e-mail to employees, assuring that it is business as usual and that there is no cause for panic.
The withdrawal of retrospective tax by the government is unlikely to have any impact on Vodafone Idea. The tax dispute was with Vodafone, which has already written off its India investments, and has stated that it won’t be making any new investments into the India joint venture.
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