By Ananya Upadhyay
On 28 February, the country’s sixth largest telecom operator Aircel had filed for bankruptcy. Like many small operators in India, Aircel’s revenues saw a large dip after Mukesh Ambani-led Reliance introduced Jio services. Aircel’s parent company Maxis (Malaysia based), run by Ananda Krishnan, had initially planned to use cash infusion to support the company’s INR 15,500 crore debt but that plan never materialised.
Aircel’s efforts to merge with another operator, Anil Ambani’s Reliance Communications, proved futile too as the latter itself is under a tremendous debt of more than INR 40,000 Crore and is rapidly falling out of business. On 8 March, the National Company Law Tribunal (NCLT) approved Aircel’s bankruptcy application.
The government’s position
According to the Department of Telecommunication (DoT), Axis Bank failed to meet its guarantee for Aircel after the company went bankrupt and thus, in a circular dated the 16th of March, DoT advised all its members and telecom operators not accept or renew any guarantees from the bank. “Axis Bank has failed to invoke a Bank Guarantee issued by them on behalf of Aircel Group of Companies. This action by Axis Bank is a serious breach of trust and contract with Government of India. In view of this, you are hereby directed not to accept any new Bank Guarantee from Axis Bank, including renewals,” the DoT said in its directive.
All telecom companies need to have a lending institution or bank as a guarantor which takes the responsibility of covering losses in case the borrower goes bankrupt. Telecom operators need to produce these bank guarantees periodically to the DoT to fulfil the terms of their contract with DoT, their licensor. When a company fails to do so, the DoT can cash the bank guarantee itself as a punishment for the defaulting company. According to a DoT official, Aircel owes the Department approximately INR 400 crore.
Axis Bank denies it is liable
Axis Bank, for its part, has said that it was the bank that issued the guarantee on behalf of Bharti Airtel, not Aircel. Airtel had an agreement with Aircel to use its spectrum band in a few areas for INR 3500 crore. There is also an ongoing dispute between Aircel and DoT in the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) where Aircel is apparently seeking a stay on the cashing-in of the bank guarantee by DoT. According to the relevant court orders, Axis Bank is not permitted to make payments related to this guarantee. “Once the order is vacated the bank will be pleased to honour the said guarantees, as per the underlying terms. This matter has been communicated to the DoT,” Axis Bank said in its statement.
Some legal experts suggest that the dispute is between Aircel and DoT, and should not affect Axis Bank’s commitments since it only had a fiduciary relationship with DoT. However, others say that, since the TDSAT has put a stay on cashing-in the guarantee, Axis Bank cannot be expected to commit contempt of court by honouring the guarantee. Interestingly, Axis Bank’s shares have experienced only a marginal drop of INR 0.45 or 0.09 percent in value.
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