Supreme Court Rejects Reliance Communications’ Telecom Asset Sale to Reliance Jio

Supreme Court Denies Reliance Communications From Selling Telecom to Reliance Jio

In a recent development, the Supreme Court of India has denied Reliance Communications (RCom) from selling its telecom assets to Reliance Jio. The verdict was passed by a bench of Justices A K Goel and U U Lalit, who heard the appeal filed by RCom against the order of Bombay High Court.

Background

RCom, which is headed by Anil Ambani, had entered into an agreement with Reliance Jio to sell its assets, including spectrum, fibre, and towers for approximately Rs. 18,000 crore. The deal was crucial for RCom, which is under a massive debt of over Rs. 46,000 crore and is facing bankruptcy proceedings in the National Company Law Tribunal.

However, the deal faced opposition from the minority shareholders of RCom, who argued that the company would not receive any proceeds from the sale as the entire amount would go towards payment of debt. They also alleged that RCom was trying to bypass the newly amended Insolvency and Bankruptcy Code (IBC) by selling off the assets.

RCom, on the other hand, argued that the sale of assets was necessary for the survival of the company and to pay off the creditors.

Supreme Court’s Observation

The bench observed that under the Section 238 of the IBC, the code would override any other existing laws. It noted that RCom’s attempt to sell its assets was an effort to “unlock the value of assets” and minimize the loss of creditors. However, the court held that any sale of assets cannot be completed without the permission of the National Company Law Appellate Tribunal (NCLAT) as per the IBC.

The court also rejected RCom’s argument that the sale of assets to Reliance Jio would create a level playing field in the telecom industry and dismissed the allegations of minority shareholders as “baseless”.

Impact

The verdict is significant for the telecom industry, as it sets a precedent for future insolvency proceedings under the IBC. It clarifies that the code would have primacy over any existing contracts and agreements, and any sale of assets by an insolvent company would require the approval of the NCLAT.

Moreover, the decision also highlights the importance of protecting the interests of minority shareholders, who often face the risk of losing their investments in the process of insolvency proceedings.

Conclusion

The Supreme Court’s decision in this case is a crucial step in streamlining the insolvency process in India. It highlights the need for strict adherence to the provisions of the IBC and reinforces the protection of the interests of all stakeholders involved. The ruling also serves as a reminder for companies to be cautious in entering into agreements, especially during insolvency proceedings, and to ensure that all necessary approvals are obtained before proceeding with any asset sale.