Aircel & RCom steering towards liquidation, resulting in Rs 60,000 crore NPA for Indian, foreign banks

The National Company Law Appellate Tribunal (NCLAT) ruling of last week in the Aircel Vs. Department of Telecommunications (DOT) case has cast a shadow on the resolution plans of Aircel and Reliance Communication Ltd. (RCom).

According to experts, based on the NCLAT Judgement, the Resolution Plan of UV Asset Reconstruction Company Ltd. (UVARCL) for Aircel, which was approved in June 2020, will be unworkable and the company will be heading for liquidation, resulting in zero recovery for Rs 18,000 crore owed to the lenders.

The biggest loss will be State Bank of India of Rs 5,000 crore followed by Bank of Baroda, Canara Bank, Punjab National Bank and China Development Bank.

UVARCL is also the successful bidder for the assets of RCom and RTL, which primarily include spectrum and real estate.

NCLAT in its last week’s judgment has stated that spectrum can be sold under the insolvency process only after the government dues are cleared. It has also held that Spectrum cannot be treated as a ‘security interest’ by the lenders. However, the Tribunal held that the Government is an operational creditor.

In the matter of Ghanashyam Mishra and Sons Private Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd, the Supreme Court has held that operational creditors can not claim any amount over and above the Resolution Plan as approved by Committee of Creditors (COC).

It is clear that DoT as operational creditor can not recover any AGR dues ahead of financial creditors. Aircel and RCom owe Rs 12,389 crore and Rs 26,000 crore respectively to the DOT as AGR dues.

The NCLAT judgement will also have an impact on the debt resolution of Reliance Communication Ltd (RCom) and Reliance Telecom Ltd (RTL) as well. The Resolution Plan of Rcom and RTL was duly approved by 100 per cent of lenders and is awaiting approval of NCLT, Mumbai since March 2020.

Liquidation of RCom and RTL will result in loss of Rs 40,000 crore to 38 Lenders, Chinese Banks led by China Development Bank will lose Rs 9,000 crore, SBI – Rs 3,000 crore, and LIC – Rs 3,700 crore.

According to sources, the Committee of Creditors for Aircel and RCom is going to appeal before the Apex court and vigorously fight for favourable judgement of the apex court.