The dedicated bankruptcy court has admitted three insolvency petitions filed against Reliance Communications (Rcom) and its subsidiaries, by telecom gear maker Ericsson, dealing a severe blow to the telco’s plans of selling most of its wireless units to Reliance Jio Infocom (Jio).
The decision, which came after nearly eight months since the Swedish telecom equipment maker moved the National Company Law Tribunal’s (NCLT) Mumbai bench to recover Rs 1150 crore in dues, effectively makes the Anil Ambani owned carrier bankrupt, the second such after Chennai-based Aircel.
“All three petitions have been admitted and Ericsson has to suggest the name of the interim resolution professional (IRP) tomorrow morning,” said Anil Kher, senior lawyer representing Ericsson in the matter.
RCom’s stock fell by 7.78% on the Bombay Stock Exchange, closing at Rs 12.45 on Tuesday.
The NCLT decision was announced after market hours.
RCom, which is running against time to complete its deal with Jio and pare its debt of Rs 45,000 crore, is likely to move National Company Law Tribunal (NCLAT) against the latest order of NCLT as early as Wednesday, sources said.
“Reliance Communications Limited and two of its subsidiaries Reliance Telecom Limited and Reliance Infratel Limited, await the detailed orders of the Hon’ble NCLT Mumbai, allowing the Ericsson application for admitting the companies to debt resolution under IBC. The companies will decide the next course of action after studying the orders,” an RCom spokesperson said in a statement issued to BSE on Tuesday.
Experts said once a bankruptcy petition is admitted by the NCLT, the company will be run by the IRP, who will take charge of all the assets of the company. A list of debtors and creditors will be made to find out all the pending dues and the IRP will have 180 days, as per the Insolvency and Bankruptcy Code (IBC) to figure out options as it deems as fair to financial and operational creditors.
As things stand, none of the bankers, secured or unsecured creditors can get anything from RCom as the company can no longer sell its assets. “Now they cannot do any business, litigation or sell any of its assets… at times there are orders that directors cannot leave the country,” said a person aware of the process.
RCom was aiming to sell its towers, fibre, spectrum and nodes to Jio for about Rs 18,000 crore. According to sources in the courtroom, this case will finally head Supreme Court since neither side will back down.
Reliance Infratel, the tower subsidiary of Rcom, is also battling HSBC Daisy Investments and other minority shareholders opposing the sale of the tower assets.
For the Anil Ambani owned telco, this would be second time in last two years that its attempt to bring down debt is thwarted, due to legal hurdles. Last year, courtroom battles were one of the main reasons why its merger deal with Aircel did not go through. Because of the broken deal, asset management company Brookfield, did not pick up RCom’s towers as well.
During its many arguments, both representatives of RCom and 28 banks led by SBI had put forth to the bench that if the petition is admitted, it would stop the sale leading to a big loss for the financial lenders and also hurt public interest.
However, Ericsson had argued that it was unfair that operational creditors like them are taken advantage of and told that if the sale goes through then it is lenders who get the money while creditors are left at large. Ericsson had argued that it has had 9,000 employees working on RCom and its subsidiaries and despite many promises and re-negotiations on payment schedules, dues were not cleared.
There is also an arbitration case on between these two firms on similar lines.