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RELIANCE COMMUNICATIONS LIMITED VS STATE BANK OF INDIA

Case Comment, Publications

INTRODUCTION

The conflict between the three Reliance Companies, recognised names in the Indian telecoms industry, and State Bank of India (SBI), a significant bank in the public sector for the nation, is centred on each party’s financial struggles. These companies, which are an element of the Reliance Group, were established and transformed by Mr. Anil Ambani,  who was having financial problems as a result of massive debts and the intense rivalry in this industry. Everything began when Ericsson and Reliance Communication (RCom) reached a deal for the provision of management, maintenance, and operating services under their Managed Service deal. Ericsson filed three notifications under the Insolvency and Bankruptcy Code, 2016 [2], for the purpose of paying the overdue balance since RCom was unable to pay for the services supplied by Ericsson. Different orders were given as a result of petitions being filed with the NCLT and the NCLAT, respectively. In order to contest the corporate insolvency resolution procedure that had been authorised by the former courts, RCom finally filed a writ petition. After making all the necessary measures, RCom was still required to pay Ericsson the unpaid balance, so they turned to the State Bank of India in an effort to lessen their financial load.

FACTS OF THE CASE

  • 25.01.2013– RCom and Ericsson signed an agreement, where Ericsson would provide management services to RCom in exchange of monetary payments called as the Managed Service Agreement.
  • 07.05.2017– Three notices were issued under the Insolvency and Bankruptcy Code, 2016, in favour 3 reliance Companies namely Reliance Communications Ltd. (RCom), Reliance Telecom Ltd. (RTL), and Reliance Infratel Ltd. [“RITL”] for the recovery of the amount of INR 9.78 crores in exchange of the services provided.
  • 19.05.2017– A reply was issued to these notices by Reliance Companies stating the reason for the non-payment that the performance of Ericsson was not consistent. Discussion took place among the parties following which the parties were able to derive the amount of payment outstanding.
  • 07.09.2017–  Even this comprehension between the parties was insufficient and Ericsson put an end to the agreement and issued notices to the three companies requesting them for the payment of this overdue sum.
  • 08.09.2017– In accordance with Section 9 of the Insolvency and Bankruptcy Code [3], Ericsson submitted three new petitions, which the National Company Law Tribunal (NCLT) eventually accepted on May 15, 2018.
  • 18.05.2018- Three Interim Mediation Experts were assigned by the NCLT in order to smoothly carry on the process of corporate insolvency resolution.
  • A motion to appeal against the NCLT’s judgement was filed with the National Company Law Appellate Tribunal (NCLAT).
  • 30.05.2018- The NCLT order was put to stay by the NCLAT and during the proceedings, the Reliance Companies’ legal representative explained that the comprehension reached before included an agreement to pay Rs. 550 crores within 120 days.
  • 17.07.2018- In a writ petition submitted to the Supreme Court, the three Reliance Companies asserted that the parties had come to the court with a request for the SC to render orders according to Article 142 of the Indian Constitution [4], seeking for a cancellation of the corporate insolvency resolution process in light of the resolution of their respective legal disputes with Ericsson.
  • 03.08.2018- The supreme court ordered that the Reliance companies must adhere to the time extent of 120 days and make the due payment of the amount outstanding that is INR 550 crore within the deadline of 30.09.2018 and the companies must file an undertaking in pursuance of the same.
  • 09.08.2018- Undertakings were issued by the companies, which stated that the outstanding amount of INR 550 crores would only be paid when the Reliance companies would be capable of selling the assets of their own company.
  • 01.10.2018- The first contempt petition being Contempt Petition No. 1838 of 2018, was filed by Ericsson claims that the firms’ undertakings were not in accordance with the court’s ruling and at the same time Reliance had no intention of standing with the terms and paying the amount.
  • 27.09.2018- An extension application was filed by the Reliance Companies for completing the payment of amount for a period of 60 days, stating that the assets required to be sold for paying the amount was not yet sold and so the requisite outstanding amount could not be paid by the deadline.
  • 23.10.2018- The court passes an order giving the company one last opportunity for making the outstanding payments on or before 15.12.2018 and additionally charging the company 12% per annum to be paid for the period beyond 30.09.2018.
  • 13.12.2018- The court order against a second extension application filed by the company on 12.12.2018 stated that no further extension would be provided to the company on any grounds as stated in the application.
  • 02.01.2019- In response to the failure to pay the amount of INR 550 crore on or before the deadline of December 15, 2018, the second contempt petition, Contempt Petition No. 55 of 2019, was filed by Ericsson.
  • 21.01.2019- According to the appellant’s representative, 118 crore rupees have been placed overall in the bank accounts of this court’s Registry, with the remaining sum to be paid on a contingent schedule if the second contempt suit is dropped.
  • 01.02.2019- Ultimately, a third petition for the contempt of court was filed, that is the Contempt Petition No. 185 of 2019 for the non-payment, along with issuance of a legal notice against the Chairman of the State Bank of India [5].

ISSUES RAISED

  1. Whether the petitioners would be subjected to any legal action for the contempt petitions filled in this court?
  2. Whether the petitioner’s two separate undertakings before the NCLT and Supreme Court interfere with the administration of justice?

CONTENTIONS OF THE PETITIONERS

The Petitioners argued that a few Department of Telecommunications concerns hindered the sale of the company’s assets. They further argued that since the Petitioners had been incapable to sell their own assets in the market, the insolvency procedures are required to be restarted. At that point, the companies would be able to repay Ericsson what was owed, and Ericsson could then take back its debts by operating as a creditor. Additionally, the petitioner claimed that the businesses had already paid a portion of the total. They continued to state that the undertakings were not in violation and that they were in accordance with the Supreme Court’s and the NCLAT’s rulings. Furthermore, they claimed that Ericsson never complained about the undertakings despite the fact that they weren’t in compliance with the orders, thus that was immaterial.

Additionally, the petitioners claimed to have deposited with the Supreme Court Registrar a portion of the funds that were supposed to be sent to Ericsson. They received income tax refunds of INR 118 crore and as on 07.01.2019, and in accordance with this Court’s directions, this cash has been submitted with the Registry of this Court. The correspondence between the parties and the behaviour of the three Reliance Companies show that they made every effort to pay INR 550 crore.

CONTENTIONS OF THE RESPONDENTS

The respondents counsel stated that the Reliance Companies have allegedly attempted to obstruct the administration of justice in two distinct manners,  First and foremost, it is obvious from all the orders issued that the amount of INR 550 crore which is to be paid to Ericsson had not been subjected upon the sale of the assets of the company. As was evident through the undertakings which were put forward by their Directors in response to the NCLAT ruling of 30.05.2018. Mischievously, the undertakings submitted in response to the Supreme Court’s ruling of 03.08.2018 introduced the following requirement for the first time and were in blatant violation of that order. Therefore, it was claimed that the administration of justice had been attempted to be tampered therewith by both giving this Court misleading undertakings as well as deliberately breaking the aforementioned undertakings along with the Court’s orders.

The respondent argued that neither the Supreme Court nor the NCLAT in their rulings had ever stated that payment of the sum of Rs. 550 would be contingent upon the sale of any property or the range of petitioners and since the undertakings provided were against the Supreme Court’s and the NCLAT’s rulings, the petitioners were in contempt of court. Furthermore, it was argued that the petitioners would be deemed in violation of the NCLAT and Supreme Court orders if their undertakings were not in compliance and that there had been no genuine attempts to pay the requested amount.

RATIONALE

The petitioner was found guilty of being in contempt of court and to have obstructed the administration of justice via presenting two separate undertakings to both the NCLAT and the Supreme Court of India. It was determined that the contingent provision was intentionally included by the petitioners to absolve them from being obligated to pay their debt. Since the Petitioners had violated their undertakings notwithstanding the Supreme Court’s extension of the deadline, the court took severe notice of their malicious behaviour and deemed them to be in contempt of court orders [6].

The court ordered the petitioners to pay Ericsson INR 118 crore that was previously paid to the court registry within one week and ordered the Registry of the court to disburse the INR 118 crore that the petitioners had deposited with Ericsson.  It subsequently ordered the Petitioners to make payments to Ericsson the remaining balance of Rs. 453 Crore (with interest) within a week[7]. Additionally, the court mandated that each company to pay INR 1 crore penalty to the Registry of the court in four weeks and instructed them to deliver the money to the Supreme Court Legal Services Committee (SCLSC) as punishment for their disobedience. The Supreme Court further made it understood that if the Petitioners failed to make payments to Ericsson as agreed, the chairman or the individual who provided the undertaking would be sentenced for a period of three months in prison, and if the Petitioners failed to pay the SCLSC as agreed, they would be sentenced to one month in prison.

DEFECTS OF LAW AND INFERENCE

The aforementioned case analysis demonstrates how significantly harsher the 2016 Insolvency and Bankruptcy Code is [8]. It is impossible to escape it. The Reliance companies have suffered significant losses as a result of defying the NCLAT’s ruling. Since Ericsson isn’t an Indian company, the reputation of such Indian businesses has undoubtedly suffered[9]. In a short period of time, an empire that had been established but on the contrary a lot of money and labour collapsed. Making wise judgements is essential. In a company organisation, moving to less expensive items is acceptable, however the businessman ought to be able to assess its productivity and long-term significance. RCom also shouldn’t have made a guarantee because it knew it wouldn’t be able to carry out some tasks. Too many promises led to higher costs since RCom accepted a lot of money but couldn’t deliver the services. Since RCom is currently insolvent, the stockholders are going to encounter some hardships. Although the process of liquidation of the company would inevitably begin, once it did, the funds would be dispersed to banks[10]. The money would be given to the company’s shareholders if anything were to stay with the banks. That work would be very dangerous and unpredictable.

CONCLUSION

Through this case study, it is clear that Reliance Companies had to endure significant losses. In addition to paying the court’s increased penalty after being found in contempt, the corporations also had to pay Ericsson the balance that was unpaid. All of this was brought on by the reality that they provided two distinct undertakings to several courts. This entire string of setbacks caused the reliant firms to lose out monetarily as well as in terms of their goodwill in the market due to a loss of reputation. An empire that had been built with a lot of money and labour fell within a few years. State Bank of India and Ericsson received a boost in the verdict as a result.

  • Vvanshika Singhal

National Law University Odisha

[1] Reliance Communications Ltd. v. SBI, (2020) 17 SCC 528

[2] India code: Insolvency and bankruptcy code, 2016., https://www.indiacode.nic.in/handle/123456789/2154?sam_handle=123456789/1362 (last visited Jun 20, 2023)

[3] Limited, M.T.P. (no date) Understanding section 9 of IBC, 2016, MyAdvo.in. Available at: https://www.myadvo.in/blog/understanding-section-9-of-ibc-2016 (Accessed: 20 June 2023).

[4] Article 142 of Indian Constitution, Indian Constitution, IPC (2023), https://indianconstitution.guru/constitution-of-india/part-5/article-142/ (last visited Jun 20, 2023).

[5] Reliance Communications Limited & Ors. vs. State Bank of India & Ors – Supreme Court IBC Laws, https://ibclaw.in/reliance-communications-limited-ors-vs-state-bank-of-india-ors-supreme-court/ (last visited Jun 20, 2023)

[6] Editor, I.L. (2022) Supreme Court in the matter of Reliance Communication Limited vs. State Bank of India & Ors – SC, IBC Laws. Available at: https://ibclaw.in/supreme-court-in-the-matter-of-reliance-communication-limited-ors-state-bank-of-india-ors-sc/ (Accessed: 20 June 2023).

[7] Bhardwaj, P. et al. (2019) Anil Ambani and others guilty of contempt of court for wilfully not paying dues to Ericsson [full report], SCC Blog. Available at: https://www.scconline.com/blog/post/2019/02/20/anil-ambani-and-others-guilty-of-of-contempt-of-court-for-wilfully-not-paying-dues-to-ericsson/ (Accessed: 20 June 2023).

[8] madhuram modani, Insolvency and bankruptcy code 2016, SSRN Electronic Journal (2021)

[9] The International Engineering Company – Ericsson, https://www.ericsson.com/en/about-us/history/company/the-consequences-of-expansion/the-international-engineering-company (last visited Jun 20, 2023)

[10] S. R. Vishwanath & Vijaya Narapareddy, Reliance Communications Ltd.: A House of Cards?, 21 Asian Case Research Journal , 119–147 (2017)