2019 (2) TMI 1254 - SC - Insolvency and Bankruptcy

Reliance Companies Guilty of Contempt for Failing to Pay Ericsson, Face Fines and Imprisonment Threat

RELIANCE COMMUNICATION LIMITED & ORS. Versus STATE BANK OF INDIA & ORS.

RELIANCE COMMUNICATION LIMITED & ORS. Versus STATE BANK OF INDIA & ORS. - TMI Issues Involved:1. Contempt of Court by Reliance Companies for non-payment to Ericsson.2. Validity and interpretation of undertakings given by Reliance Companies.3. Compliance with NCLAT and Supreme Court orders.4. Arguments regarding impossibility of payment due to third-party actions.5. Role of Joint Lenders’ Forum and SBI in the contempt proceedings.6. Determination of wilful default and appropriate punishment.Detailed Analysis:1. Contempt of Court by Reliance Companies for Non-Payment to Ericsson:Ericsson filed three contempt petitions against Reliance Communications Ltd. (RCom), Reliance Telecom Ltd. (RTL), and Reliance Infratel Ltd. (RITL) for failing to pay INR 550 crore as agreed. The Supreme Court noted that the undertakings given by the Reliance Companies were not honored, leading to the contempt petitions.2. Validity and Interpretation of Undertakings Given by Reliance Companies:The undertakings given by the Directors of Reliance Companies pursuant to the NCLAT order dated 30.05.2018 were unconditional. However, the undertakings given on 09.08.2018 by the Chairmen of the Reliance Companies were conditional upon the sale of assets, which was contrary to the Supreme Court's order dated 03.08.2018. The Court held that these conditional undertakings were not in line with the Court's understanding and were therefore invalid.3. Compliance with NCLAT and Supreme Court Orders:The NCLAT order dated 30.05.2018 and the Supreme Court orders dated 03.08.2018, 23.10.2018, and 13.12.2018 clearly mandated the payment of INR 550 crore by 30.09.2018, without any linkage to the sale of assets. The Court found that the Reliance Companies failed to comply with these orders, leading to the finding of contempt.4. Arguments Regarding Impossibility of Payment Due to Third-Party Actions:Reliance Companies argued that the payment was contingent upon the sale of spectrum, which required a No-Objection Certificate (NOC) from the Department of Telecommunications (DoT). The Court found that the prospective buyer, Reliance Jio, refused to give the undertaking to pay the erstwhile debts, which led to the failure of the spectrum sale. The Court held that this argument did not absolve the Reliance Companies from their obligation to pay.5. Role of Joint Lenders’ Forum and SBI in the Contempt Proceedings:The Court dismissed the contempt petition against the Chairman of SBI, stating that the Ericsson transaction and the sale of assets by the Joint Lenders’ Forum were independent of each other. The Court found no basis for holding the Chairman of SBI in contempt.6. Determination of Wilful Default and Appropriate Punishment:The Court found that the Reliance Companies wilfully defaulted on their payment obligations and breached their undertakings. The letter dated 21.01.2019 from the advocates of the Reliance Companies indicated that the payment could be made, contradicting their claims of inability to pay. The Court held the Reliance Companies and their Chairmen guilty of contempt and ordered them to pay INR 550 crore plus interest. The Court also imposed a fine of INR 1 crore on each Company, with imprisonment for the Chairmen in case of default.Conclusion:The Supreme Court held the Reliance Companies in contempt for failing to honor their payment obligations to Ericsson. The Court directed the payment of INR 550 crore plus interest, with fines and imprisonment for the Chairmen in case of default. The undertakings given by the Reliance Companies were found to be contrary to the Court's orders, and the arguments regarding the impossibility of payment were rejected. The contempt petition against the Chairman of SBI was dismissed.