Reliance Communications settles dues with Ericsson

Reliance Communications settles dues with Ericsson

On 18th March 2019, the day before the deadline by Supreme court Mukesh Ambani led Reliance Industries made a striking intervention and saved his younger brother Anil Ambani from going to prison for 3 months. The bailout by the richest tycoon in India came late on March 18 by helping Anil Amani to pay off Rs. 550 crores due to Swedish equipment maker Ericsson. By paying its dues it ended an eighteen month long battle with Ericsson.

Although, the embattled billionaire’s RCom was saved at the eleventh hour by his elder brother and was warded off the possible jail term. But this was just a diminutive fraction of money paid by debt-laden Anil Ambani led Reliance Group. The company has an overall debt of Rs. 46,000 crores.

There is still a long way to go, RCom has yet to pay other creditors which include 40 domestic, public relation firms and foreign banks. Further, in the following month, the cash-strapped RCom has to pay Rs. 281 crores to the Government of India. Rcom has already defaulted on Rs. 21 crores that had to be paid to the Department of Telecommunications (DOT) of India. The resolution on the default has not yet emerged on the horizon.

The silver lining deal:


Anil Ambani in December 2018 was on the verge of selling its tower, airwaves asset and fibre to Reliance Jio his elder brother Mukesh Ambani’s telecom business. But the deal failed to come through as DOT objected citing the debt RCom was yet to pay. Mukesh Ambani led Reliance Jio declined to take over the debt. This deal would have given a little borrowed time to RCom to stay afloat.

Soon after the payment of Rs. 550 crores were duly paid by RCom, they terminated the spectrum sale and RCom towers to Jio on mutual consent.

Ericsson’s Battle with Rcom- Timeline:


RCom owed Rs. 571 crores to Ericsson which includes Rs. 21 crores interest due on payments and Rs. 550 crores one-time settlement charges. RCom has already deposited Rs. 118 crores to Supreme court in February 2019. The Supreme court ordered RCom and directors of its 2 subsidiaries i.e. Reliance Infratel Ltd and Reliance Telecom Ltd. to pay off its debt within 4 weeks or face 3-months Jail term. In addition to this, both the National Company Law Appellate Tribunal (NCLT) and Supreme Court directed RComm to pay Rs. 550 crores to Ericsson.

January 2013:


In January 2013 RCom entered into a Managed Service Agreement (MSA) with Ericsson. Where Ericsson had to manage the services of wireless and wireline network for RCom covering more than 100,000 km of mobile Infrastructure and fibre. It covered 11 telecom circles across Northern and Western regions of India which includes preeminent metropolitan cities i.e. Mumbai and Delhi.



The agreement went on placidly for over 3 years. But later, in 2016 RCom struggled to pay its dues to the Ericsson. Despite several assurances by RCom, they defaulted on their payments to Ericsson.


In September 2017 Ericsson annulled the MSA deal with Rcom alleging that the company failed to pay its dues. Further like other Indian telecom companies, Rcom was also hit by fierce pricing pressure after the entry of Mukesh Ambani led Reliance-Jio. Later in September itself Ericsson approached NCLT for the recovery of the payments due from RCom of Rs. 1,100 crores in late 2017.


On 15th May 2018, NCLT accepted Ericson’s on RCom and its 2 subsidiaries and proceed with the debt resolution under insolvency proceedings.
On 3rd August 2018, The Ericsson case reached Supreme court (SC) where the court orders RCom and its both the subsidiaries to pay a sum of Rs. 550 crores to Ericsson by the end of September 2018.
In September 2018, RCom failed to pay the dues to the Swedish firm Ericsson on 30th September (The deadline by SC). Further RCom approached SC for an extension of 60 days to pay Ericsson its dues. but SC refuses the plea of RCom.


Furthermore, on 7th January 2019, the Supreme Court issued a notice to RCom on a plea by Ericsson to initiate proceeding against RCom’s Chairman Anil Ambani for not complying with the orders of the court to pay of Rs. 550 crores on the basis of completion of the asset sale to Reliance Jio Infocomm Ltd. Ericsson also sought to the SC that Anil Ambani must be detained in Civil prison until the payments are done.

21st February 2019, Supreme court bench headed by Justice R.F. Nariman declared that RCom Chairman Anil Ambani is guilty of contempt on failing to pay its dues to the Swedish telecommunication firm Ericsson. The Supreme Court ordered RCom and its both the subsidiaries to pay Rs 453 crores within 4 weeks (19th March 2019) or 3 months jail term will be followed if the company fails to comply with the payments. It is in addition to Rs. 118 crores that were already deposited by RCom to the Supreme Court’s registry. The chairman of Reliance Infratel Ltd and Reliance Telecom Ltd. will have one-month jail term on default of payment. RCom and its subsidiaries will be fined Rs. 1 crore each on not adhering the deadline.

Moreover, on 16th March 2019, NCLT refused the State Bank of India (SBI) to release the income tax refund of Rs. 259 crores to RCom stating that the refund cannot be used to pay the dues to Ericsson.

Meanwhile, the unsecured creditor Ericsson recovered its 48% debt owed to RCom the secured creditors i.e. banks wait patiently for Anil Ambani to sell its spectrum and tower and pay them some amount. Furthermore, the secured creditors were brainstorming from 2017 different out-of-the-court ways plans to restructure the on the verge of a failing company. Where secured creditors were trying the company to stay afloat the Swedish company won contempt-of-court order to put Anil Ambani in prison on defaulting its dues.

Stock Moment:

The Reliance Communication surged 10% at Rs. 4.40 and hit an upper circuit limit on BSE. It jumped up by 10% and closed at Rs. 4.40 on NSE.



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