The legal tussle between Reliance Communication (RCom) and Swedish firm Ericsson took a turn for the worse on when the Supreme Court held Anil Ambani guilty of contempt of court for refusing to cough up the balance of its dues worth Rs 550 crore.
In its 41-page judgement, the top court on Wednesday dismissed the defendants unconditional apology for disobeying the courts earlier orders.
It further directed the Indian businessman, and two other directors of different Reliance firms, to pay Rs 453 crore to Ericsson India within a month, failing which a three-month jail term will follow.
Ultimatum
Responding to Ericsson’s contempt petition, the apex court asked Ambani to purge all the contempt by paying the balance of Rs 453 crore of dues to Ericsson and pay a fine of Rs 1 crore to the Supreme Court Registry, within four weeks.
Upon failing to process the dues by then, Ambani along with Reliance Telecom Ltd. (RTL) chairperson Satish Seth and Reliance Infratel Ltd. (RITL) chairperson Chhaya Virani would each have to serve a sentence of three months imprisonment.
In case of default in paying the fine to the Supreme Court Legal Services Committee, Ambani, Seth Virani would each have to spend an extra month in jail.
Ericsson vs. RCom: How did it begin?
For the European telecommunications major, the process of recovering unpaid dues from RCom has been a futile and winding one, lasting over 18 months.
The dispute began after Ericsson moved Indias bankruptcy courts in September 2017, seeking insolvency proceedings against RCom and two of its units (Reliance Telecom and Reliance Infratel) in order to recover unpaid dues which mainly included payments for services like operation, maintenance, and management of RCom’s network.
Despite providing these services to support the telecom firms nationwide network for a period of seven years and raising invoices from time to time, Ericsson did not receive a dime.
As per the terms of the business agreement between Ericsson and RCom in January 2013, the Swedish firm claimed dues worth Rs 1,500 crore from the Indian company in 2017.
It is worth noting that Ambani at the time was trying to steer a handful of crucial asset sale deals to fruition so that he could reduce RCom’s total debt which was at a whopping Rs 35,000 crore then.
In 2018, however, as part of an out-of-court settlement, Ericsson decided to settle for Rs 550 crore, payable by September 2018. RCom did not follow through on these payment obligations either.
How it got worse
By then, Ericsson had had enough. The Swedish firm, in October 2018, moved the apex court with its first contempt petition, arguing that it had not received the Rs 550 crore that it was owed. The Supreme Court then gave RCom another leeway of three months, asking the Anil Ambani-led firm to pay by December 15, 2018, without fail.
Following the Rafale deal controversy where Ambani’s Reliance Defence pays a central role and has been awarded a major chunk of the offsets contract by the central government, Ericsson raised the question of how Ambani can invest in the billion-dollar fighter jet deal but is still unable to repay its dues. Meanwhile, the deadline arrived and passed, without Ericsson receiving its dues, following which it filed a second contempt plea seeking jail term and restriction on overseas travel for Ambani, in January 2019.
During the hearing on this plea on Wednesday, the SC bench noted that ?118 crore had already been deposited in the courts Registry and directed that this be handed over to Ericsson within a week.
The balance of Rs 453 crore remains in the wind, despite several promises and undertakings given by RCom before the apex court last year.
The bench comprising Justices Rohinton Nariman and Vineet Saran further reprimanded all three defendants for their “cavalier attitude” despite the courts best efforts to lend a helping hand to pay off Ericsson’s dues. In August 2018, in fact, the Supreme Court had granted a massive relief by clearing its assets divestment to Reliance Jio Infocomm so that RCom could pay off its dues to telecom equipment manufacturer Ericsson India within 120 days.
The various undertakings
The court on Wednesday said that the three chairpersons had given conditional undertakings on behalf of their respective companies in order to wriggle out of the commitment to the court.
The trio had given conditional undertakings to the apex court to pay the ?550 crore on August 9, 2018. The bench on Wednesday observed that this amounted to because these undertakings were given despite the apex court granting them a 120-day-grace period on August 3, to pay back Ericsson.
It is clear that the three Reliance companies had no intention, at the very least, of adhering to the time limit of 120 days or to the extended time limit of 60 days plus, as was given by way of indulgence, by the order dated October 23, 2018, the court said.
Their actions were contrary to the undertakings which said the payment of dues was contingent on the sale of the company’s assets as well as its earlier unconditional undertakings authorised by the three companies to the National Company Law Appellate Tribunal (NCLAT) in May, 2018. The bench ruled that the chairpersons undertakings were neither as per the courts orders nor in accordance to the earlier ones given in the NCLAT.
Dismissing RComs argument that the sale of spectrum to elder brother Mukesh Ambani’s Reliance Jio fell through due to the telecom department’s refusal to issue a no-objection certificate, Justice Nariman wrote, It fell through only because the prospective buyer, Reliance Jio, refused to give the undertaking that if called upon, it would pay the erstwhile debts of the seller of the spectrum.”
Court cleared contempt against SBI
Noting how insolvency would mean non-conclusion of RCom’s asset sale to Reliance Jio (in the talks last year), a majority of its creditors led by State Bank of India, opposed Ericssons plea in April 2018, saying that if the company was able to finish the sale of assets (primarily to Mukesh Ambanis Reliance Jio), it could rake in Rs 18,000 crore.
That didn’t happen but Ericsson, in due course, had also filed a contempt plea against the chairman of SBI, who headed the joint lenders forum comprising of 46 financial creditors of the RCom group.
The court on Wednesday, however, dismissed it, ruling that the contempt petition against the Chairman of SBI would not lie inasmuch as the Ericsson transaction and the sale of assets by the joint lenders forum are completely independent of each other.
As for RCom, which needs to figure out a way to pay off its dues within a month’s time, Ericssons counsel and senior advocate Anil Kher notes that the firm has two income tax refunds coming its way amounting to Rs 394 crore in total, that could be used to pay the Swedish company. Additionally, real estate assets like the Dhirubhai Ambani Knowledge City campus in Navi Mumbai and RComs 4-acre property in New Delhi can raise around Rs 10,000 crore.
Prarthana Mitra is a staff writer at Qrius