NCLT Mumbai Rejects RP's Plea To Recover ₹325 Crore Paid To Ericsson During RCom Insolvency

The National Company Law Tribunal (NCLT) at Mumbai has recently refused to order Swedish Equipment Manufacturer Ericsson India Private Limited to return nearly Rs 325 crore that was paid to it during the insolvency proceedings of Reliance Telecom Ltd and Reliance Communications Ltd, two Anil Ambani led companies undergoing corporate insolvency resolution. The payments were made not as part of the insolvency process but to comply with Supreme Court directions issued in contempt proceedings arising from an earlier dispute. A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar held that these payments were neither preferential transactions under Section 43 of the Insolvency and Bankruptcy Code nor transfers made in breach of moratorium because they were paid after the insolvency began and did not come from the assets of the debtors. The tribunal said, “Accordingly, we are of considered view, that section 43 of IBC is not applicable to the present case, as the impugned payments, indubitably, were made after commencement of CIRP on 15.05.2018.” The dispute began when Ericsson filed an insolvency petition after several Reliance group companies defaulted on around Rs 978 crore owed under a 2013 Managed Services Agreement. The NCLT admitted Reliance Communications, Reliance Telecom and related entities into CIRP on 15 May 2018. Shortly after admission, the NCLAT on May 30, 2018 stayed the CIRP and recorded a settlement framework under which the Reliance group agreed to pay Ericsson Rs 550 crore within 120 days, subject to the outcome of pending appeals. The appellate tribunal also noted that Ericsson would have to refund the amount if the appeals were dismissed. When the Reliance group did not pay, Ericsson initiated contempt proceedings before the Supreme Court. On February 20, 2019, the court directed the companies to “purge the contempt” by paying Rs 453 crore in addition to Rs 118 crore already deposited. To comply with that contempt order, a payment of Rs 461.71 crore was made on 18 March 2019. Notably, this amount was not paid from the assets of the insolvent companies but by other Reliance group entities, including Reliance Realty Ltd, Reliance Communication Infrastructure Ltd and Reliance Tech Services Ltd. When the resolution professional later demanded a refund on August 22, 2019, Ericsson declined, stating it had received the amount strictly under Supreme Court directions and not under the NCLAT's settlement terms. It also argued that because the payment came from third-party companies rather than the debtors, there was no depletion of the debtors' estate and therefore no preferential transfer or violation of moratorium. The tribunal agreed that Section 43 did not apply because the payments were made after the commencement of CIRP and did not involve any transfer of the debtors' assets. It recorded that the money flowed from third party group companies and added, “Nonetheless, it is admitted fact that no amount was paid from the assets or properties of the Corporate Debtor, hence, there can not a question of contravention of any moratorium under section 14 of IBC necessitating refund these amounts on account of contravention of moratorium” The tribunal further held that the RP's reliance on the principle of restitution and on the NCLAT's stay order was misplaced. It found that Ericsson received the money solely to give effect to the Supreme Court's contempt order. It noted that the NCLAT's refund mechanism did not apply because the appeals were “withdrawn” rather than dismissed. The tribunal added that restitution would “benefit the other creditor as it would add to the assets/properties of the Corporate Debtor as were available as on CIRP commencement, which is not in line with the principle of restitution.” Finding that the payment was made only to comply with the Supreme Court's directions and not pursuant to any settlement overseen by the NCLAT, the tribunal dismissed the refund applications. Case Title: Ashish Nanavaty vs Ericsson India Private LimitedCase Number: MA No. 3286/2019 in CP (IB)/1386/2017 and MA No. 3369/2019 in CP (IB)/1387/2017For Applicant: Advocates Rishab Jaiswani, Kriti Kalyani, Richa Bharti i/b Shardul Amarchand Mangaldas & Co.For Respondent in MA No. 3286/2019 in CP (IB)/1386/2017: Senior Advocate Pessy Mody, Advocate Rohan KapadiaFor Respondent in MA No. 3369/2019 in CP (IB)/1387/2017: Senior Advocate Anil Kher, Advocates Ashwin Ankhad, Atishay SureshClick Here To Read/Download Order

NCLT Mumbai Rejects RP's Plea To Recover ₹325 Crore Paid To Ericsson During RCom Insolvency

Kirit Singhania

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