Tata Teleservices Limited (TTSL) and Tata Teleservices Maharashtra (TTML), together referred to as Tata, to combine their Consumer Mobile Businesses (CMB) with Bharti Airtel
- Tata CMB to merge with Bharti Airtel.
- Over 40 million customers to join Bharti Airtel and benefit from state-of-the-art 4G mobile network, with fall back on its 3G and 2G ecosystem.
- Merger on a debt-free, cash-free basis.
- All past liabilities and dues to be settled by Tata.
- Bharti Airtel will assume a small portion of the unpaid spectrum liability of Tata.
- Merger to bolster Bharti Airtel’s pre-eminent spectrum pool, with significant additional spectrum in 1,800, 2,100 and 850 MHz bands, all widely used for 4G.
- Transaction will also provide Bharti Airtel right to use Tata’s existing fibre network.
- Merger of TTL’s customers and revenue base will further strengthen Bharti Airtel’s Revenue Market Share (RMS).
- Tata to retain its stake in Viom and take care of associated liabilities.
- The merger is being done on a debt-free, cash-free basis, except for Bharti Airtel assuming a small portion of the unpaid spectrum liability of Tata’s towards the DoT, which is to be paid on a deferred basis.
Structure of the transaction
The transaction is a Slump Sale of The CMB undertaking . [Section 2(42C) of the Income Tax Act, 1961] Undertaking includes any part of the undertaking or a unit or division of the undertaking or a business activity as a whole but does not include individual assets or liabilities or any combination thereof not constituting a business activity
Firstly from the side of Companies Act,2013
Section 180. (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—
- to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
Explanation.—for the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;
The boards of TTSL and TTML have approved this transaction. Before the transaction gets operationalised, the approval of the shareholders of TTSL and TTML through a special resolution as required under section 180(1) of the Companies Act,2013 shall be obtained
Restrictions on ‘Transfer of License’
- The Licensee shall not, without the prior written consent of the Licensor as described below, either directly or indirectly, assign or transfer this License in any manner whatsoever to a third party or enter into any agreement for sub-License and/or partnership relating to any subject matter of the License to any third party either in whole or in part i.e. no sub-leasing/partnership/third party interest shall be created. For provision of the service by the Licensee, the Licensee may appoint or employ franchisee, agents, distributors and employees.
- Further, the Licensee may transfer or assign the License Agreement with prior written approval of the Licensor, in the following circumstances, and if otherwise, no compromise in competition occurs in the provisions of Telecom Services:-
- (a): When transfer or assignment is requested in accordance with the terms and conditions on fulfilment of procedures of Tripartite Agreement if already executed amongst the Licensor, Licensee and Lenders; or
- (b): Whenever amalgamation or restructuring i.e. merger or demerger is sanctioned and approved by the High Court or Tribunal as per the law in force; in accordance with the provisions; more particularly Sections 391 to 394 of Companies Act, 1956 [more particularly Sections 230 to 232 of the Companies Act 2013];Provided that scheme of amalgamation or restructuring is formulated in such a manner that it shall be effective only after the written approval of the Licensor for transfer/merger of Licenses, and
- Prior written consent/No Objection of the Licensor has been obtained for transfer or merger of Licenses as per applicable guidelines issued from time to time.Further, the transferee/assignee is fully eligible in accordance with eligibility criteria as applicable for grant of fresh License in that area and show its willingness in writing to comply with the terms and conditions of the License agreement including past and future roll out obligations as well as to comply with guidelines for transfer/merger of Licenses including for charges as applicable; and
- All the past dues are fully paid till the date of transfer/assignment by the Transferor Company and Transferee Company; and thereafter the transferee company undertakes to pay all future dues inclusive of anything remained unpaid of the past period by the outgoing company.
||Compliance requirements under license agreement
||Prior approval of TRAI for the Understanding (agreement) to transfer the CMB business under condition 6.4 of the agreement
||Shareholder special resolution from each of the TTSL and TTML general meeting of shareholders
||NCLT order under section 232 of the Companies Act 2013 approving the reconstruction through transfer of undertaking
Rights of Secured creditors
Rights of Secured creditors who have a security interest over the property of the undertaking that is now subject to the Understanding(agreement). The rights of the Secured Creditors like Banks and Financial Institutions are protected under Recovery of Debts due to Banks and Financial Institutions Act 1993
Under CHAPTER IV – PROCEDURE OF TRIBUNALS – Section 19. Application to the Tribunal.—
Where a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction
- the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or
- any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or
- The cause of action, wholly or in party, arises.
RECOVERY OF DEBT
The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Tribunal to pass a final order in respect both of the original claim and of the set-off.
CHAPTER V RECOVERY OF DEBT DETERMINED BY TRIBUNAL Section 25.
Modes of recovery of debts.—The Recovery Officer shall, on receipt of the copy of the certificate under sub-section (7) of section 19, proceed to recover the amount of debt specified in the certificate by one or more of the following modes, namely:-
- attachment and sale of the movable or immovable property of the defendant;
- arrest of the defendant and his detention in prison;
- Appointing a receiver for the management of the movable or immovable properties of the defendant.
Transfer of Property Act 1882
- The mortgagee (Banks and FIs) have the right under section 67 – right to obtain from the court an order that the mortgagor shall be absolutely debarred of his right to redeem the property or an order that the property be sold and 68 – right to sue the mortgagor for recovery of the mortgaged money where by any cause other than the wrongful act of the mortgagor or mortgagee, the security has become insufficient as defined under section 66 and the mortgagee has given 6 months to the mortgagor to provide another security in the absence of which he can sue the mortgagor for the mortgage money -of the Transfer of Property Act 1882.
- In the understanding the liabilities of Rs 40,000 crore will not be taken over by Bharti and need to be managed and repaid by Tata Teleservices. In that context, the transfer of the Consumer Mobile Business as an undertaking would mean that the underlying assets over which the secured creditors have a security interest will lose the security.
- They need to be either settled or secured by alternative security as contemplated under section 69 of the TP Act 1882.
- in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53.
- Section 43 (3) For the purposes of sub-section (2), a preference shall not include the following transfers— (a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee;
- The transfer of the CMB business as an undertaking between TTSL and Bharti is not a transaction between a debtor and a financial creditor but a transaction made in the ordinary course of business between TTSL and Bharti. Hence the transaction is not hit by the provisions of section 43(2). It comes under the exclusions mentioned in section 43(3) (a).
The taxability under the Income Tax Act 1961- Slump Sale
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