NCLAT Refuses To Direct SBI To Release Rs.260 Crores To Reliance To Enable It To Settle Ericsson Dues [Read Order]

In a major set back to Anil Ambani, the National Company Law Appellate Tribunal(NCLAT) on Friday refused to direct the State Bank of India to release the amount of Rs.260 crores of income tax refund held by it in trust on behalf of all creditors of Reliance Communications(RCom) to enable the telecom company to pay Rs.450 crores to Ericsson India Private Ltd as per direction of the Supreme Court.On February 20, the Supreme Court had held Rcom Chairman Anil Ambani and three Reliance companies guilty of contempt of court for not complying with the undertaking to settle the Rs.550 crores dues of Ericsson. The bench of Justices R F Nariman and Vineet Saran had granted an opportunity to Ambani to purge contempt by paying Rs.453 crores( Rs.118 crores was deposited in SC earlier) to Ericcson within four weeks, failing which he will face three months imprisonment."The RCom group is directed to purge the contempt of this Court by payment to Ericsson of the sum of INR 453 crore within a period of four weeks from today. In default of such payment, the Chairmen who have given undertakings to this Court will suffer three months' imprisonment", the SC had ordered. In this backdrop, the application was moved before NCLAT seeking release of the income tax refunds of Rs.260 Crores.The NCLAT on May 30, 2018 had stayed the insolvency process initiated against RCom at the instance of Ericson, an operational creditor. The stay was granted on the basis of submissions by the financial creditors that they will not stand to gain from insolvency process; instead, they sought permission to sell off the mortgaged assets of Reliance companies. A Joint Lenders Forum was formed comprising all financial creditors, with SBI as the lead bank. Reliance agreed that it will settle the accounts of Ericsson by paying it Rs.550 crores within 120 days. Accordingly, the NCLAT on May 30, 2018, stayed the insolvency process, permitted the lenders to sell off the mortgaged assets and deposit the proceeds in an escrow account maintained with SBI, and directed Reliance to pay Rs.550 crores to Ericson within 120 days. The payment to Ericsson was defaulted, and the matter went up to Supreme Court, ultimately resulting in the contempt order of February 20.Senior Advocate Kapil Sibal, who had appeared for Reliance in SC as well, submitted before NCLAT that to comply with the direction of the SC, payment can be made only from the bank accounts of Reliance, the corporate debtor. The stand of the lenders for not releasing the amount is contrary to the decision of the SC, submitted Sibal.The Joint Lenders Forum opposed the request for release of Rs.260 crores lying in the Trust and Retention Account(TRA) of SBI to settle the dues of Ericsson. They stressed the need for resuming insolvency process, as the attempts to liquidate the secured assets did not materialise. After hearing the matter for three days, the Tribunal had reserved orders on Thursday. In the judgment pronounced on Friday, it is noted that that the payment of dues of Rs. 550 Crores to Ericsson by three Reliance Companies is not linked with the assets of the SBI or any other Bank, who are third parties to the settlement between the three Reliance and Ericsson. In the May 30 order, the Tribunal had recorded two strings of settlements : one between Reliance and Ericsson and another between Reliance and lender-banks. Taking note of these circumstances, the NCLAT bench headed by former SC judge Justice S J Mukhopadhyaya said that SBI cannot be directed to release the amount to enable Reliance to settle its account with Ericcson. "...no direction can be given to any party to the settlement (particularly the third party) to perform certain duties to ensure settlement between other parties", observed the bench.It further said that since the Supreme Court is seized of the matter, the Tribunal was not passing any orders."...as the Hon'ble Supreme Court is in seisin of the matter, we are not vacating the interim order dated 30th May, 2018 nor passing any direction to refund any amount to any one or other party, till some order is passed by the Hon'ble Supreme Court".The Tribunal added that that its order will not come in the way of appellants approaching the Supreme Court for appropriate orders.In effect, Reliance will have to seek orders from Supreme Court for getting release of the refund amount lying with SBI. However, the SC has closed for Holi vacations, and will resume business only on March 25. Since the deadline for settling the dues of Ericsson is March 19, it remains to be seen whether Reliance will rush to vacation court of SC seeking urgent intervention.Read Order(Image sourced from here)

NCLAT Refuses To Direct SBI To Release Rs.260 Crores To Reliance To Enable It To Settle Ericsson Dues [Read Order]

Manu Sebastian

In effect, Reliance will have to seek orders from SC for getting release of the refund amount lying with SBI. However, the SC has closed for Holi vacations, and will resume business only on March 25.

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