Anil Ambani’s Companies Made ‘Deliberate Misstatements’, Says Supreme Court
This was no ordinary case. Anil Ambani was ordered to be physically present in court over two days as his companies were accused of failing to honour a settlement agreement with telecom equipment maker Ericsson.
It is rare for a prominent industrialist to be summoned to court in India. And even rarer for him to have been found in contempt.
The Supreme Court order labels the Reliance Group companies’ attitude as “cavalier” and finds them guilty of making “deliberate misstatements” and “wilfully” not paying Ericsson the money.
For those new to this saga, this timeline, based on the details in the apex court order, sets out the facts in the case.
Jan. 25, 2013: Ericsson enters into an agreement to operate, maintain and manage Reliance Communications Ltd.’s network.
May 7, 2017: Ericsson, which had raised several invoices but received no payments, issues notices under the Insolvency and Bankruptcy Code, 2016 to RCom and Reliance Telecom Ltd. and Reliance Infratel Ltd.
May 19, 2017: Reliance companies say performance of Ericsson has been inconsistent; but after discussion agree to pay outstanding invoices.
Sep. 7, 2017: The understanding falls through and Ericsson terminates the agreement.
Sep. 8, 2017: As an operational creditor, Ericsson files insolvency cases against the three Reliance companies.
8 months later...
May 15, 2018: The National Company Law Tribunal admits Ericsson’s insolvency petitions and two days later appoints three resolution professionals for the three companies.
May 30, 2018: On appeal by the Reliance companies, the National Company Law Appellate Tribunal stays the NCLT orders and records a statement by the Reliance lawyer that “the matter had been agreed to be settled for a sum of Rs 550 crore, which would be paid within 120 days time” (Sep. 30).
It’s important to note here that around the same time, lenders to these Reliance companies had come to an agreement regarding sale of assets that could help recover the full debt of Rs 55,100 crore. The NCLAT order noted this as well as the settlement with Ericsson and hence stayed the insolvency proceedings against the Reliance companies. But if Ericsson was not paid by Sept. 30 then all orders may stand reversed, said the NCLAT.
Jul. 17, 2018: The Reliance companies file a writ petition in the Supreme Court seeking for the insolvency process to be quashed as only the apex court had the power to do so at the time.
Aug. 3, 2018: The Supreme Court hears the Reliance lawyer and records that “the timeline of 120 days shall be strictly adhered to and payment of Rs 550 crore is to be made on or before 30.09.2018”.
Here’s when the first seed of contempt was sown as pointed out by the order.
The undertakings that were given by the chairmen of these (Reliance) companies, pursuant to this order, were dated 09.08.2018 and are a serious bone of contention between the parties in that these undertakings stated that the sum of Rs 550 crore will be paid “upon sale of assets of the company”.Supreme Court Order (Feb. 20, 2019)
Sep. 27, 2018: Reliance companies seeks extension for payment by 60 days on grounds that sale of other spectrum had not reached completion.
Meanwhile, the originally agreed upon payment deadline of Sep. 30, 2018 passes.
Oct. 1, 2018: Ericsson files a contempt petition stating that the undertakings provided by the chairman of each of the three Reliance companies were not as per the Supreme Court’s order. And that the companies had no intention of paying up on time.
Oct. 23, 2018: The Supreme Court hears Ericsson’s contempt petition and Reliance’s extension request and makes clear “as a last opportunity” that the amount must be paid on or before Dec. 15 and that interest at the rate of 12 percent per annum would also have to be paid for delayed payment beyond Sep. 30. Or else the contempt petition would be revived.
Dec. 12, 2018: Reliance companies seek extension again on grounds that spectrum sale had not concluded. They seek to make the payment within two weeks of receiving a no-objection certificate from the Department of Telecom for the sale of spectrum.
Dec. 13, 2018: The Supreme Court rejects the request for an extension.
On Dec. 15, the second payment deadline passes.
Jan. 2, 2019: Ericsson files a second contempt petition for non-payment of Rs 550 crore.
Jan. 21, 2019: The three Reliance companies write letters stating that of the total Rs 570 crore outstanding, including late payment interest, Rs 118 crore had been deposited with the court on Jan. 9. The remaining Rs 453 crore would be paid by Jan. 31 contingent on the withdrawal of the two contempt petitions and pending arbitration proceedings.
Feb. 1, 2019: RCom announces that it will not resist the corporate insolvency resolution process that had so far been stayed.
Ericsson files a third contempt petition against the Reliance companies.
Ericsson’s lawyer made three arguments.
Mysterious Change In Reliance Undertakings
That as per all orders passed the payment of Rs 550 crore was not conditional upon the sale of spectrum. This was clear from the undertakings filed by directors of the three Reliance companies. But the undertakings filed by the same directors thereafter brought in the spectrum sale condition for the first time.
That there was no bona fide effort to pay Rs 550 crore. Even though promises of full payment were made.
He, therefore, argued that both on account of furnishing false undertakings to this court as well as wilfully breaching the said undertakings and this court’s orders, the administration of justice has been sought to be interfered with.Supreme Court Order (Feb. 20, 2019)
Left In The Lurch
Instead of honouring the Jan. 21, 2019 letter, the Reliance companies changed their mind and decided to pursue insolvency, thereby leaving Ericsson in “the lurch”.
Reliance’s lawyers argued four points.
Spectrum Sale Condition
The Rs 550 crore was to be paid from the sale of assets and the undertakings of the chairmen of the three Reliance companies was as per the NCLAT order. Besides Ericsson had not complained about these undertakings at the time.
Despite their best efforts the DoT did not give an NoC for spectrum sale, a critical pre-condition to their mind for payment of Ericsson dues.
Attempts To Pay
The deposit of Rs 118 crore in January 2019 shows the Reliance companies had made efforts to pay. And that they are still ready to pay whatever they could from the proceeds of income tax refunds.
Once the insolvency process restarted Ericsson could stand in line as an operational creditor to claim the full Rs 1,500 crore.
They also made a fervent prayer that the special leave petition and the writ petition should be dismissed as withdrawn, as the inevitable has now occurred, and the corporate insolvency resolution process has to now go forward.Supreme Court Order (Feb. 20, 2019)
The Supreme Court arrived at three important conclusions.
1. Reliance Companies Filed Two Contrary Undertakings
The Supreme Court order includes relevant excerpts of the two sets of undertakings filed by the Reliance companies. The first, by directors of the three companies, makes no mention of the payment to Ericsson being contingent to any asset sale. The second, by the chairman of these companies, Anil Ambani, includes the asset sale provision.
To say that the sum of Rs 550 crore would be paid only out of sale of assets of the three Reliance Companies is a deliberate misstatement made in the undertakings as well as the applications for extension of time filed before this court, which was done with the purpose of circumventing the orders of this court.Supreme Court Order (Feb. 20, 2019)
2. DoT Cannot Be Blamed For Failed Spectrum Sale
The apex court pointed out that DoT had made clear in court that the NoC could only be given as per certain guidelines, one of which required the buyer of spectrum to undertake responsibility of the seller’s debt.
The sale of spectrum to Reliance Jio, therefore, did not fructify, not because the DoT wrongfully refused to give its NoC, as has been alleged by the Reliance companies in their pleadings filed in this case. It fell through only because the prospective buyer, Reliance Jio, refused to give the undertaking that if called upon.Supreme Court Order (Feb. 20, 2019)
3. Reliance Companies “Wilfully” Refused To Pay The Amount
The judgment noted that in their letters dated Jan. 21, 2019, the Reliance companies had made it clear that the entire payment would be made in 10 days if the contempt petitions and arbitration were withdrawn. But in their reply to the contempt petition, the Reliance companies said they were “disabled” from the amount and that they “were and are unable to pay”.
On these grounds, the court found the three Reliance companies, and the people in charge of them, guilty of contempt.
The RCom Group has been ordered to pay Ericsson Rs 453 crore within four weeks. On failing to do so the chairman of the three Reliance companies, Anil Ambani, would be sentenced to three months’ imprisonment.
The court also fined the companies Rs 1 crore each. Failure to pay within four weeks would amount to one month of imprisonment for the chairman.