An appellate tribunal has vacated a stay on insolvency proceedings against Reliance CommunicationsNSE -2.63 % (RCom) and its two units, which will make the Anil Ambani-owned telco the second operator after Aircel in the sector to enter bankruptcy proceedings.
“In the light of the order passed by the Supreme Court (SC), we allow the appellant (RCom) to withdraw the appeal. The interim order on stay of insolvency proceedings stands vacated,” a two-judge bench of the National Company Law Appellate Tribunal’s (NCLAT) led by Justice SJ Mukhopadhaya ruled on Tuesday.
The SC recently disposed of a writ and a special leave petition (SLP) filed by RCom which wanted insolvency proceedings in the dedicated bankruptcy court quashed.
The NCLAT also ordered continuation of the moratorium on recovery of dues from the now-defunct carrier, adding to a series of setbacks to the telecom department’s efforts to take action against the telco for defaulting on three straight spectrum payments over March and April, worth a total of Rs 794 crore. DoT is also considered an operational creditor.
The National Company Law Tribunal (NCLT) will now hear the insolvency case on May 7 and appoint an interim resolution professional (IRP) to manage the company – under a debt of some Rs 46,000 crore – and ultimately sell its assets to repay financial and operational creditors in 270 days.
That deal was scrapped after a series of legal hurdles and disagreements among lenders, following which RCom decided to file for debt resolution under the insolvency process and moved NCLAT for removal of the stay.
RCom was represented by senior advocate Kapil Sibal and advocate Mahesh Agarwal. While its main legal challenger and creditor Ericsson was represented by senior advocate Anil Kher.
The order, though, is silent on whether RCom’s operational creditor Ericsson would need to refund the Rs 576 crore, including interest and penalties, back to the carrier. During previous hearings in the case, the NCLAT had said that if RCom were to go back into insolvency, Ericsson would need to refund the money.
The Insolvency & Bankruptcy Code 2016, prohibits preferential payments to specific creditors during insolvency proceedings and if the case were to end in liquidation, secured financial creditors get priority in receiving any funds generated from a company over unsecured operational creditors.
Ericsson, back in September 2017, had originally filed for insolvency against RCom and its units – Reliance Infratel and Reliance Telecom – for non-payment of dues of over? 1,500 crore which was accepted by the NCLT but later stayed by NCLAT upon an RCom appeal after a settlement for? 550 crore was reached. RCom’s Anil Ambani finally paid up the amount – helped by brother Mukesh Ambani, chairman of Reliance Jio – after being threatened with jail term by the Supreme Court.
According to people familiar with the matter, lenders to RCom led by State Bank of India (SBI) may appeal in the NCLT during the insolvency proceedings that an operational creditor like Ericsson cannot get preference over financial lenders.
“There was never any chance (of refund) since the amount paid was in compliance with SC verdict in a contempt petition. Even otherwise, if we consider the payment to be settlement amount, Ericsson does not have to pay back,” Kher told ET.
