The Supreme Court ruling offers some reprieve to cash-strapped Vodafone-Idea
Reliance Communications Ltd, Aircel Group and Videocon Telecommunications Ltd are now in bankruptcy proceedings
The Supreme Court on Tuesday gave telecom operators 10 years to clear government dues, offering some reprieve to cash-strapped Vodafone Idea Ltd, but given its delicate finances, the telco’s run of troubles appears to be far from over.
Operators, including Vodafone Idea, Bharti Airtel Ltd and Tata Teleservices Ltd, will now have to make an upfront payment of 10% of the total dues as demanded by the Centre by 31 March, the top court directed.
Thereafter, they will have to pay the balance amount in equal annual instalments over 10 years at an interest rate of 8%, the apex court ordered.
The order of the three-judge bench comes as a relief for Vodafone Idea, for which survival was at stake, given that its cash reserves and profits were not enough to cover the ₹58,254 crore that it owes the government in adjusted gross revenue (AGR) dues.
“A measured leeway has been granted, but Vodafone Idea and Bharti Airtel may seek a review of this order owing to their enormous outstanding dues," said Suvigya Awasthy, associate partner, PSL Advocates and Solicitors.
In the order, the Supreme Court observed that giving 20 years for payment of AGR dues, as sought by the department of telecommunications (DoT), would be “excessive".
Telcos, the top court said, must be granted “reasonable time", considering the financial stress in the industry and the banking sector’s involvement.
However, it clarified that there is no room for dispute and re-assessment of the dues.
The bench, headed by Justice Arun Mishra, however, left the matter on whether spectrum holdings of telcos can be sold under insolvency proceedings to be decided by the National Company Law Tribunal (NCLT).
Reliance Communications Ltd, Aircel Group and Videocon Telecommunications Ltd are now in bankruptcy proceedings.
The court directed DoT to complete the assessment of AGR dues arising on account of spectrum trading between two telcos and raise demands within six weeks.
Shares of Vodafone Idea slumped to end nearly 13% lower, indicating that investors probably judge that the worst is not over for the telecom company.
Bharti Airtel shares, however, surged after the judgment, gaining more than 6% on BSE.
For Bharti Airtel, the telecom department’s estimate of dues stands at ₹43,780 crore, but according to the telco’s self-assessment, it owes ₹13,004 crore.
The telecom company has already paid this amount along with an additional ₹5,000 crore in ad-hoc payment.
The apex court said that any failure of annual instalment payment will attract interest in addition to a penalty, and interest on the penalty without the reference of the court. “Besides, it would be punishable for contempt of court," the order said.
The Supreme Court bench also directed the managing director/chairman or any other authorized officer of the companies involved to furnish an undertaking within four weeks to make payment of arrears as per the order.
The top court directed that the existing bank guarantees submitted regarding the spectrum are to be kept alive until the AGR dues are paid.
On 24 October, the apex court upheld the telecom department’s broader definition of AGR and ordered the telecom companies to pay levies based on that definition, along with interest on the principal amount and penalty.
The department calculates levies such as spectrum usage charges and licence fees based on AGR.
In that order, the Supreme Court had directed 15 telecom companies, including the ones that have shut operations, to pay ₹1.47 trillion in AGR-related dues within three months.