Home / Companies / News /  Govt moves SC for bank guarantee from RCom before Jio deal

New Delhi: The centre on Monday approached the Supreme Court to reiterate its demand of 2,940 crore in bank guarantees from Reliance Communications Ltd (RCom) for its payment liabilities on spectrum, before clearing the Anil Ambani-led telecom firm’s proposed asset sale to elder brother Mukesh Ambani’s Reliance Jio Infocomm Ltd. Justice A.K. Sikri admitted the petition and set the next date of hearing on Tuesday.

The centre’s move assumes significance as it could clear the decks for the RCom-Jio deal, which is part RCom’s debt resolution plan and is pending before the department of telecommunication (DoT) for approval.

The centre approached the apex court to challenge a Telecom Disputes Settlement and Appellate Tribunal (TDSAT) order on 1 October, which rejected DoT’s plea seeking bank guarantees before approving the RCom-Jio deal.

Additional solicitor general P.S. Narasimha told the court that the centre was looking for some kind of a security for the outstanding spectrum dues. He said the centre did not have details of encumbrance of the land offered by RCom as a guarantee.

Narasimha further argued that the telecom guidelines clearly mandate the government to secure outstanding dues only by bank guarantees, and by no other method.

“There is no precedent for the centre to accept land/buildings as security towards unpaid dues...the land provides no such securitisation and cannot be monetized on demand. Undertaking not to alienate property worth 1,400 crore is not in compliance with trading guidelines," the centre said.

In response to the centre’s plea, RCom’s counsel Kapil Sibal said the company was not in a position to make the payment as it was undergoing insolvency proceedings.

“I can’t give a bank guarantee. If this deal is not allowed to go through, a lot of entities will suffer. Banks who are secured creditors will be in jeopardy and the deal falls through."

The beleaguered telecom operator, which had been struggling with a mountain of debt and a failed merger with Aircel, finally decided to wind up its wireless business in December 2017.

Back then, it had said that RCom will essentially become a business-to-business (B2B) entity instead of a business-to-consumer (B2C) company, and will provide submarine cable systems with latest technology to meet India’s growing cloud infrastructure and data capacity demand from global enterprises and over-the-top service providers.

It had also announced a deal with Reliance Jio under which RCom’s assets, including 122.4MHz of 4G spectrum in the 800/900/1,800/2,100MHz bands, over 43,000 towers, 178,000 route km of fibre with a pan-India footprint and 248 media convergence nodes covering 5 million sq ft, used for hosting telecom infrastructure, will be bought by Reliance Jio. RCom wanted to seal the deal by March 2018, but all assets have not been sold yet.

In August, RCom had said it had completed the sale of its media convergence nodes and related infrastructure assets worth 2,000 crore, besides the sale of fibre worth 3,000 crore to Reliance Jio. However, the spectrum sale was stuck after the DoT sought bank guarantees before clearing the transaction.

“The Hon’ble Supreme Court will have to ascertain the consequence of allowing the petition filed by the government as that could have a negative impact on the companies ability to pay off the banks and also scuttle the asset sale of RCom to Jio. Furthermore, it is patently clear that any amount that RCom plans to raise to effectively service its debt will be through the proposed route of asset sale", said Simranjeet Singh, principal associate at Athena Legal, a law firm.

Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.

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