There has been a long standing war between Mukesh Ambani and Anil Ambani which is a well known fact. On March 19, 2019 Mukesh took the internet to storm by saving his younger brother and helping him clear 453 crores owed by Reliance Communications to Ericsson.
“Is he out of his mind?!!!” “Is he crazy?!!!”
To understand this let us go a little earlier . On Jan 25th 2013, Reliance Communication and Ericsson entered into an agreement where Ericsson agreed to provide managed services to RCom. At this time the share price of Reliance was valued about 81. After this agreement the Reliance jumped to 150 points within 6 months and then dropped to 34 by 2017. This is due to severe competition in the market and the new entrant JIO which captured major market share. This has resulted in defaulting payments and salaries.
Why RCom Lost its market share?
In September 2017 Ericsson terminated the contract with RCom due to a breach in agreement and filed petition in NCLT asking for liquidation of the telecom operator RCom claiming a total worth of 1500 Cr owed to the company. At this same time RJio was entering into an agreement with RCom for acquisition of right to use certain spectrum in the 800 MHz band. RCom hoped such a deal would help them cover the charges to secured creditors but has resulted in stalemate due to lot of factors.
While Mukesh Ambani’s RJio was making headlines with strong performances, the younger brother Anil Ambani’s Reliance Communications recorded 11.38 lakh subscribers leaving the network in Feb 2018 as per TRAI data.
Synopsis of the case – The Judicial eye
- On May 17th, Ericsson filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 against all Reliance Group on the ground of non-payment of purported admitted amounts.
- On Sep 17th, Ericsson terminated the agreement with RCom and refused to comply the MSA. RCom then later invoked the arbitration agreement under the provision of the MSA(Master Service Agreement) and said that the termination was unlawful and was not in accordance of the terms in the MSA.
- Ericsson then filed an application under Section 17 of the above act seeking interim measures and thereby claiming substantial amount from RCom
- The arbitral tribunal restrained RCom from transferring, alienating , encumbering or disposing any assets without specific permission of the arbitral tribunal.
- Being aggrieved by this order, RCom filed a commercial arbitration petition under Section 37 impugning the part of order in so far reliefs are granted against the Ericsson.
- RCom said that assets have been encumbered much prior to the date of execution of the MSAs. It also said the Ericsson was aware of the Joint Lender Forum(JLF) as per the RBI guidelines created in RCom where RCom owes 38000 crores to this said JLF. It also said that the sale of asset to RJio was involuntary and was directed by JLF.
- It also stated that Ericsson being an unsecured creditor could not stop the process and also if it achieved in getting an injuction would land up getting nothing out of this. It said that the money obtained out of this would directly go to the creditors.
- RCom argued that the that the sale of all the assets of each of the petitioners would not even fetch the amount to clear the entire liability of the secured creditors and that Ericsson might not get anything out of this transaction.
- Ericsson countered the argument that RCom had been all throughout making promises to release the dues of Ericsson and had furnished several payments schedule from time to time with promises and undertakings to make such payments. The Ericsson relied upon the said promises and undertakings rendered by the RCom and based thereon continued to provide services to the RCom from time to time. It had also submitted cheques provided by RCom which was dishonoured.
- Bombay HighCourt dismissed the removal of injuction plea by RCom freezing the transaction of sales to RJio stating that RCom accepts that it had made false promises to Ericsson but failed to pay the required amount. Court also found it unreasonable for RCom to take a stand that Ericsson could not recover any amount from this transaction.
- Supreme Court then removed the injuction but then ordered RCom to pay 550 Crore to Ericsson toward the dues by September 2018
- RCom misses the September 30 deadline and seeks an extension of the deadline by 60 days but the plea is dismissed.
- The Court grants an opportunity to Anil Ambani to overcome contempt by paying Ericsson the balance amount after deducting the Rs 118 crore already deposited in the Court. The Court sets March 19 as the deadline and says a default would result in Ambani facing three months imprisonment.
- Mukesh Ambani bails out his younger brother by providing a Rs 462 crore lifeline. Anil Ambani pays the final instalment just a day before the Supreme Court deadline and avoids a potential jail term.
- RJio then terminates the agreement for sale of telecom assets by mutual understanding
In this series of events it might look like Mukesh Ambani might emerge as a Robin Hood to Anil but it could as well turn as a strategic business move by Mukesh.
Lets face the facts, by saving RCom Mukesh was able to break the contracts with Anil Ambani on mere 500 crores. Now RCom has no other option than to go for bidding of it spectrum sale. Vodafone and Airtel, Indias largest mobile carrier, on the other hand continues to report losses. This makes India’s bleeding telecom sector to keep the auction prices very low allowing Jio to spend less on acquiring RCom’s Spectrum. It is a well known fact that RJio uses 1 lakh RCom towers.
Did this case actually help Ericsson or RJio is something which will unfold in the next few months.
References
Business Management 