In a move that could lead to the liquidation of Anil Ambani’s telecom businesses, the Department of Telecommunications (DoT) has raised objections to the debt resolution plans proposed for Reliance Communications (RCom) and its subsidiary Reliance Telecom Ltd (RTL) under the Insolvency and Bankruptcy Code. This could signal trouble for Reliance Jio, which is using part of the spectrum allocated to RCom through a spectrum trading deal done in 2016-17.
The DoT told the National Company Law Tribunal’s (NCLT) Mumbai Bench on Tuesday that the proposed resolution, approved by the lenders of the telecom companies, did not take into account the AGR payment dues to be paid to the Government. While 38 lenders of RCom will recover about 70 per cent or ₹23,000 crore of their outstanding ₹33,000 crore of secured debt through the proposed insolvency process, the problem is that the company also owes around ₹25,194 crore to the Government in the form of AGR dues. Under the NCLT-led insolvency process, DoT is considered as an operational creditor and therefore gets nothing of the ₹23,000-crore being recovered.
At the centre of the entire issue is the question about who owns the spectrum allocated to RCom. DoT is of the opinion that spectrum being a public resource, the ownership is with the Government and therefore it cannot be sold by the banks under the insolvency process. Banks led by the State Bank of India believe that the spectrum is the key asset owned by the telecom operator and without it they cannot recover even a fraction of the dues owed by the company. This matter is being heard by the Supreme Court as part of the larger AGR dispute.
If the courts decide in favour of DoT, then the entire debt resolution process of RCom will get derailed. Mukesh Ambani-led Reliance Jio Infocomm and Delhi-based UV Asset Reconstruction Company Ltd (UVARCL), had emerged as the highest bidders for the assets of RCom and its subsidiaries. The combined bid amount was at ₹23,000 crore.
Reliance Jio is already using about 58.75 Mhz spectrum from RCom in the 800 Mhz band through a spectrum trading pact. This will also be impacted if DoT takes back the entire spectrum from RCom for non-payment of AGR dues.
Analysts said that this will be yet another test case for IBC rules. “With RJio and UVARCL emerging as the highest bidders for RCom and its subsidiaries’ assets, concerns pertaining to repayment of massive statutory dues are heightened. Recently, the Supreme Court opined that technicalities would not come in the way of enforcing recovery of the AGR dues,” Sonam Chandwani, Managing Partner at KS Legal & Associates, said.
“But with bidders deemed as operation creditors by the NCLAT, such creditors may not be required to pay AGR dues owed by companies undergoing liquidation thereby circumventing statutory dues. So laws pertaining to payment of liabilities, especially statutory dues should be meticulously assessed and amended as to deter companies from opting liquidation to avoid payment of such dues,” she added.
The Committee of Creditors of the resolution process is led by State Bank of India, the country’s largest bank, and has a total of 38 lenders including ICICI Bank, Punjab National Bank, Bank of Baroda and Canara Bank.
Per resolution plan earlier approved by the CoC, UVARCL would get RCom and its subsidiary Reliance Telecom, while RJio will get Reliance Infratel’s tower and fibre assets. The plan now awaits NCLT approval.
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