India: RCOM Insolvency Proceedings: Situations Galore

Last Updated: 8 August 2018
Article by Manoj K. Singh, Daizy Chawla, Vineet Arora, Himanshu Chawla and Shashwat Singh

Most Read Contributor in India, July 2018

The Reliance Communication-Ericsson legal battle, which led the Anil Ambani controlled company to the insolvency court, has been a watershed moment not just for reflecting the state of the telecom sector, but also for the effectiveness of the Insolvency and Bankruptcy Code ("the Code").

For a person tracking the development of Insolvency Law, this particular case has evoked a lot of interest as it continues to pose new situations and prod the lawmakers to evaluate the practicality and effectiveness of an otherwise wonderful regime. To start with, it was a unique case where the Corporate Debtor was taken to the insolvency court by a disgruntled operational creditor despite the financial creditors of the Corporate Debtor rallying in support behind it. The Financial Creditors, despite the risk to their investment and classification of account as NPA, were opposed to insolvency proceedings being initiated and were trying to work out a settlement which in their assessment would have fetched them a better recovery on their exposures. That is where the (over) simplification of the process played a villain.

Over the last 2 years, the Legislature, Government, the Insolvency and Bankruptcy Board (IBBI} and the Hon'ble Adjudicating Authorities have all worked towards making the provisions of the Code simpler and efficacious to deliver on the stated purpose. Towards this end the process has been streamlined and frivolous objections, raised solely to delay the process, have been done away with. By the time the Ericsson application landed before the Hon'ble Adjudicating Authority, Mumbai it had repeatedly held that if the insolvency application meets the 3fold test as prescribed in the Code i.e. the application being complete, there being default, and there being no disciplinary proceedings against the nominated Insolvency Resolution Professional (IRP), the application ought to be admitted. Any extra consideration, whether positive or negative, related or unrelated, has to be ignored to ensure the object of the Code of time bound resolution.

This is where RCOM faltered. It for sure didn't not have the ability to honour its debts both to operational and financial creditors. However, it was working out an arrangement whereby major assets were being sold to elder brother's Jio lnfocom and proceeds were to go for payment of creditors. All the financial creditors were onboard this plan as it gave them a view of expected realisation than what they would have had realised following the CIRP. But just when everything was going as per plan, Ericsson put a spanner in the wheels and derailed the entire plan.

The admission of insolvency petition against RCOM by the Hon'ble Adjudicating Authority also raised a pertinent question regarding the eligibility of Mukesh Ambani's Jio infocomm to participate in the Insolvency proceedings of the RCOM. The amendment brought in January 2018, the Code prevented promoters and their relatives to come in as resolution applicants and regain control of Corporate Debtor. While this was done to encourage fiscal discipline and to keep unscrupulous people away, the way the disqualification was defined even prevented the richest person in India to take control of estranged brothers RCOM. Given the bitter acrimony at onetime and the fact that both manage separate businesses, such a restriction by virtue of their blood relation was grossly absurd. Moreover, given the situation of the telecom industry it was unlikely that any other bidder would have the intention or the might to take over RCOM thus leaving the assets to rot and reducing any chances of recovery that the banks otherwise had.

Another strange development that has taken place in the matter is the intervention of Hon'ble National Company Law Appellate Tribunal (NCLAT) to stay the insolvency proceedings1 in view of the settlement taking place between RCOM and Ericsson. The Hon'ble Adjudicating Authority as well as Appellate Tribunal i.e both NCLT and NCLAT have refrained from using their inherent powers and restricted themselves to powers expressly bestowed under the Code and rules and regulations contained therein. Insolvency being a time bound process, a stay application suspending the CIRP is usually not allowed. On the contrary extensions of IRP, RP, resolution plan timelines, etc. are generally extended to as to ensure that the object of the code is met. In fact, in the matter of Lokhandwala Kataria Construction Private Limited vs. Nisus Finance and Investment Manager LLP2, the Hon'ble Appellate Tribunal, specifically held that it does not have power to allow withdrawal of application after it has been admitted as there is nothing on record to suggest that it can use its inherent power under Rule 11 of the NCLAT rules to decide upon Insolvency Petitions. Though the Supreme Court also concurred with the view of the NCLAT, it did nudge the government and the board to make suitable amendments from preventing such petitions from coming directly before the Supreme Court invoking extraordinary jurisdiction under Article 142.

However, in the RCOM matter, when faced with the situation that all the creditors including Ericsson, on whose application the insolvency petition was admitted, were willing for a settlement, the Hon'ble Appellate Tribunal (maybe due to vacation) stayed the insolvency proceedings in the pendency of the appeal and directed RCOM to sett le the matter with Ericsson. The ex-management was again handed over the reins of the company and RCOM was even allowed to conclude asset sale during the period of stay. A careful perusal of the order of the Hon'ble Appellate Tribunal reveals that it raises more questions than it answers.

Vide the order dated 30.05.2018, the Hon'ble Appellate Tribunal have directed the IRP, who also has been allowed to continue to attend office of RCOM, to allow the ex-management to function. Such directions are quite interesting as though the insolvency proceedings are stayed, the IRP continues to function.

Also, it is not RCOM but its lenders who have been allowed to sell the assets and appropriate the proceeds thereof. Furthermore a sum of Rs.550 crore is directed to be paid to Ericsson within 120 days failing which the appeals will be dismissed. Again quite interestingly, it is only the interests of Financial Creditors and a single operational creditor which is being addressed by the intervention of the Hon'ble Appellate Tribunal and the interests of all other stakeholders have been ignored. Should the insolvency proceed or is set aside, all the other creditors would also stand a chance to file their claims. However, in the present situation it is only Ericsson who gets it money and the lenders, who gets to sell the assets and appropriate the proceeds. The Insolvency proceedings were initiated on 15.05.2018 and stayed on 30.05.2018 and during this time a lot of claims would be have been received by the IRP following the public announcement. The fate of such claims and the one's being received after the proceedings are stayed is uncertain and open to speculation.

Furthermore, should the Appeals be dismissed eventually, the insolvency will proceed and the amount paid to Ericsson or the amount realised by sale of assets will stand credited back to the account of RCOM. Such a situation is also bound to create confusion as it may lead to a situation wherein the accounts of the Corporate Debtor are flush with funds and yet cannot be appropriated by its lenders against their dues. Also, it will be against the object of the Code as there might be nothing left in RCOM for any potential resolution applicant and the only option that might be left would be to liquidate.

Even procedurally, the order of the Hon'ble Appellate Tribunal, though welcomed by all stakeholders and unlikely to be challenged, drifted away from the position held thus far. Till the RCOM interim order by Hon'ble NCLAT, any settlement post admission of insolvency were either effected by the Hon'ble Supreme Court or accommodated by Hon'ble NCLAT while setting aside the Hon'ble Adjudicating Authority orders in view of some flaw and not remitting it back in view of the settlement.

In retrospect, the Hon'ble NCLAT decision finds itself on stable ground in view of the recent amendment to the Code vide the ordinance dated 06.06.2018. The ordinance stipulated that even post admission, insolvency proceedings can be withdrawn upon the same being approved by a vote of 90% of COC. Considering the fact that the COC only consists of Financial Creditors, their consent to withdraw is what is required. In the case of RCOM, all the financial creditors appearing in the matter were amenable to settlement and wanted the Insolvency proceedings to be set aside.

In effect, while deviating from ordinary practices, the Hon'ble NCLAT actually took a pragmatic decision in suspending the insolvency proceedings in which no party was really interested in. The same now even has backing in law in view of the amendments brought in by the recent ordinance. Given the fact that the Code is a new enactment and jurisprudence is still evolving, there will be umpteen number of unforeseen situations that will have to be addressed on a day to day basis and cannot wait for an amendment to be promulgated. Ergo, it is the need of the day that the inherent powers of the tribunals be extended to the proceedings under the Code to tackle such unforeseen situations and ensure that the Code remains fit for purpose and any absurdity due to absence of specific provision is avoided.

Footnotes

1. 0rder dated 30.05.2015 in Company Appeal (AT) (Insolvency) Nos. 255-256 of 2018

2. Company Appeal (AT)(Insolvency) No. 95 of 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions