Page |1

RELIANCE COMMUNICATION LTD V/s STATE BANK

OF INDIA

 ABSTRACT

This research paper would cover facts, issues judgements and professional review related to this
case that is Reliance Communications. Vs State Bank of India1 . In this case, due to default in
payments Chairman of Rcom., Mr. Anil Dhirubai Ambani had been through a lot of challenges
and had to face court cases and heavy fines to be paid. This research paper would also cover
some findings and suggestions about how Reliance Communications could have avoided
Insolvency. The role of Insolvency and Bankruptcy Code, 2016 would be given too. Keywords:
Insolvency and Bankruptcy Code, Anil Ambani, Reliance Communications, State bank of India

 INTRODUCTION

As it is known to all, Reliance Telecommunications was one of the top “telecom service
provider” at its time. Just like Nokia, it did commit some mistakes in the beginning of the
business because of which it had to suffer such heavy depths. It became worse when it involved a
Swedish Company named Ericsson which eventually brought down all the saved goodwill which
Reliance Telecommunications had all these years2.

The devolution of RCom started from 2006, when GSM was a new thing providing good internet
connectivity and speed. It was used by most of the telecom companies, but Reliance chose to go
for CDMA because of its cheap cost. He kept the slogan as “Optimizing Telecom at Cheaper
Rate but with exclusive technology”.

CDMA was to some extend similar to GSM but not exactly like GSM, as it had some additional
features. As GSM started progressing and evolving, reliance communications was stubborn with

1
Reliance Communication Ltd. v. State Bank of India, 2019 SCC OnLine SC 240
2
Case Summary: Reliance Communication Limited & Ors. vs. State Bank of India & Ors| Mamta Kumari, June 25
2020. https://lawlex.org/lex-bulletin/case-summary-reliance-communication-limited-ors-vs-state-bank-of-
indiaors/23852
 Page |2

using CDMA because it was cheap, which eventually brought down RCom because stopped
progressing and people preferred to go for GSM devices. Its hardware was obsolete now, and the
companies’ services were not in any demand anymore. Company already was going through
heavy debts of Rs. 45000 Crore3 . That’s when Ericsson came into picture. The case of Ericsson,
then how SBI got involved, everything would be discussed in the case analysis section

 AIM OF THE PROJECT

The aim of the project is to have a relevant case study of a recent case related to non-payment of
outstanding amount. The name of the case is RELIANCE COM. v. STATE BANK OF INDIA.

 OBJECTIVES

 To understand how Rcom being such a successful company became bankrupt.

 To understand IBC’s role in this case.
 To understand the main issues in this case

 RESEARCH METHODOLOGY

The study here is made through secondary data, online journals and reliable websites for
academic purpose only. Therefore, the study has taken theoretical and empirical study into
consideration. It talks about its relevance in the modern world, how people is try to deceive and
how they are punished under some laws which are made for the same.

 STATEMENT OF PROBLEM

The purpose of this study is to understand and explore more about the topic which is the central
phenomenon that is tort of negligence- a case study, how it has impacted in the modern world
along with the start of it. All this research has been done for academic purpose. At this stage in
 Page |3

the research the impact, concept, development and importance of the terms will be highlighted
more.

 FACTS

As it is known, Parties involved were 3 reliance companies, State Bank of India and Ericsson Co.
Ericsson had filed a suit against all the 3 companies Rcom., Reliance Telecom., Reliance
Infratel. Rcom and Ericsson signed a contract in which, RCom gave Ericsson charge of
managing services of RCom. it was duly signed to manage wireline and wireless networks for
RCom, upto 1L km of mobile and fibre infrastructure. It was asked to manage areas including
Delhi and Mumbai and other areas of North and West India.

The contract was signed in the year 2013 (January). Relations between Ericsson and RCom were
going smooth until in the year 2016. Ericsson issued a notice to RCom of non-payment of the
outstanding amount to Ericsson company. Ericsson later approached to NCLT, Mumbai for
recovering the dues worth Rs. 1,100 Crore. After this, NCLT initiates Insolvency process against
Rcom, this was the time when RCom was trying to sell its fibre to Reliance Jio, company owned
by his older brother Mukesh Ambani to clear it 7 billion dollars debt out of $3.7B. Reliance
Communication also agreed in out of court settlement to pay Rs. 550Crore to Ericsson as a
settlement and Chairman Anil Ambani gave a personal guarantee of that. The matter reaches
Supreme court of India as the payment was due till September 2018.

Ericsson filed a case of contempt of court against Rcom for not paying Rs. 550 Crore. Supreme
Court of India gave sufficient time to Rcom Ltd. to pay the debts otherwise the chairman of the
company will be facing 3 months imprisonment. The case was transferred from NCLT to
NCLAT where the decision by NCLT was initially kept of hold but then Rcom was asked to pay
depths. SBI was the bank which was involved in RCom case for asset selling. Rcom had to pay
Rs. 1200 Crore to SBI which didn’t. The notice was filed by Rcom against SBI Chairman.
Ericsson has filed a case under Section 9 of Insolvency and Bankruptcy Code, 2016 for
Insolvency Resolution. Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) spells out
that “after 10 days have passed from the date of delivery of notice or invoice that demands
payment under section 8 of IBC, if the operational creditor does not receive payment from the
 Page |4

corporate debtor or notice of the dispute under Section 8(2), the operational creditor may file an
application before the Adjudicating Authority for initiating a corporate insolvency resolution
process”

 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
 Page |5

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.
 Page |6

 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

 ISSUES:

1. Will Rcom be able to pay the debts incurred?

2. Can his older brother step in and help Anil to pay off the depths?

3. Is insolvency code not clear?

4. was any company especially the petitioner was liable of contempt of court?

5. was there any sort of hampering with the judicial proceedings by giving two understanding
even after NCLT and Supreme court?

 ARGUMENTS:

Petitioners contended that due to the objection of the Department of Telecommunication, the
assets of the company could not be sold. Further it was stated by the petitioner that there was no
breach of undertaking as the undertakings were in consonance with the order of Supreme Court
and NCLT. Further stated that the petitioners were not able to sell three assets, so the insolvency
process should be start again after which the companies would be able to pay the outstanding
amount to Ericsson.

Petitioner also stated that the companies had already paid some percentage of amount . Later,
Respondent argued that it was never said by the Supreme Court and NCLT that the amount of
Rs. 550 would be paid upon the condition of sale of assets or spectrum of petitioners. Further
contended that the petitioners would be liable for contempt as no bona-fide attempts were made
for the payment of money and the undertakings by the petitioners were in contravention of order
of Supreme Court and NCLT.
 Page |7

 JUDGEMENT:

The supreme court of India clearly made the decision that the petitioner should be held for
contempt of court and it also hampered with the justice process by sending two undertakings
before the two institutions which was not right. The court also directed to make the payment of
Rs.118 crore to Ericsson company which was earlier made to registry of the court within the time
span of one week. The court also directed Reliance companies to play Rs.453 crore to Ericsson
Company within 4week to purge the contempt of court order.

Also, it was held that Chairman of the company will suffer 3 months of imprisonment if the
outstanding payment is not done on time (Chairman – Anil Ambani). The court further stated
that fine of Rs. 1crore to Registry of Court for each company with 4 weeks. If it fails to pay the
fine, then the Chairman of the company would be imprisoned for one month for default payment.

 SUGGESTION & FINDINGS

The topic of the discussion is, could Anil Ambani avoid Insolvency? Was it in anyway possible
for him? Answer is yes. He could have avoided if he had taken some steps at the initials. CDMA
was cheap and for all intents and purposes, at that particular time, it was a good and logical idea
to stick with the technology. However, it seems like this was the extent to which RCom 3 allowed
themselves to go with the tech. With time, CDMA practically became obsolete. If Anil Ambani
could have grown with the technology around him, there could’ve been a chance for RCom.
Also, he knew he was incapable of performing some actions, he shouldn’t have promised to do
so either. Too many promises costed him more, as RCom took a lot of money but wasn’t able to
fulfil the services.

At the point when the Ambani Brothers were parted in 2002, Anil Ambani got the reins of
Reliance Infocom, Reliance Energy and Reliance Capital. Then again, Mukesh Ambani had
Reliance Industries and IPCL under his influence. As of now, Mukesh Ambani has two enrolled

3
Ericsson teaches Anil Ambani and India's nascent bankruptcy system a lesson| Andy Mukherjee, march 19 2019.
https://www.business-standard.com/article/companies/ericsson-teaches-anil-ambani-and-india-s-
nascentbankruptcy-system-a-lesson-1190319003
 Page |8

firms: Reliance Industries and Reliance businesses Infrastructure. Then again, Anil Ambani has 7
recorded firms, specifically: Reliance Infra, Reliance Communications, Reliance Capital,
Reliance Power, Reliance Naval, Reliance Home Finance, and Reliance Nippon Asset
Management. Nonetheless, on the off chance that you pass by the exhibition depiction, there is a
9.4% increment in Profits for Reliance Industries when contrasted with the 12.4 % decline for
Anil Ambani's ADA gathering of organizations. Presently, on the off chance that you take a
gander at it, a portion of the undertakings have level out fizzled. Absence of centre can be
ascribed to the reason for misfortune.

Accordingly, we can say that if Anil Ambani could have defragmented his organizations or
made a stride back from some undertakings, he would not have petitioned for indebtedness at the
NCLT. By analyzing this case, research has understood one mere fact that, if Anil Ambani could
have avoided at least 1/4th events which had happened over the years, his company wouldn’t
have collapsed. Defragmentation of industries and broken promises are other aspects. Going
against NCLT’s decision also costed them hefty amount. Ericsson is not an Indian Company, and
because of this goodwill of RCom has surely came down.

An empire which was built with ample amount of money and hard-work, came down within
some years. Taking proper decisions is important. In a business organisation, switching to
cheaper products isn’t wrong, but the businessman should be wise enough about analysing its
productivity and relevance in long term. What would happen with the shareholder? Will they be
receiving their dividend? What will be the procedure? As RCom has now become insolvent the
shareholders would have to go through some rough patches too. The liquidation process would
be obviously inevitable but after the liquidation process starts, the money would be distributed to
banks. If something remains with the banks, then that money would be provided to the
shareholders of the company. That would be a very risk and uncertain job. One cannot say
whether it would happen or not.
 Page |9

 CONCLUSION

It can be seen from this case that Insolvency and Bankruptcy code, 2016 is way much strict. One
cannot run from it. Also, debts of Anil Ambani was paid by Mukesh Ambani day before the due
date. Rcom lost its goodwill and Ericsson Companies’ fate. In effect, while deviating from
ordinary practices, the Hon'ble NCLAT actually took a pragmatic decision in uspending 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. The decision was therefore held on the favour of State Bank of India and
Ericsson.
 P a g e | 10

 BIBLIOGRAPHY

 https://indiankanoon.org/doc/180851423/
 https://legalthirst.com/supreme-court-directed-reliance-
communication-see-here/
 https://www.lawnn.com/reliance-communication-limited/