Since financial creditors get preference over operational creditors under the Insolvency and Bankruptcy Code of 2016, and Ericsson being an operational creditor, it will be expected to return the money it got in dues.
Anil Ambani’s Reliance Communications, which recently had to pay Ericsson dues worth Rs 580 crore, saving its chairman from going to jail, may get the money back if it moves to insolvency proceedings, the NCLAT (National Company Law Appellate Tribunal) had said earlier last week. Since financial creditors get preference over operational creditors under the Insolvency and Bankruptcy Code of 2016, and Ericsson being an operational creditor, it will be expected to return the money it got in dues.
This is because the insolvency proceeding that Ericsson had initiated against RCom was put on stay by the tribunal, and the settlement between the two happened outside the insolvency provisions when the stay was in effect, said Daizy Chawla, a lawyer. Now, if the stay were to be vacated to allow the insolvency proceedings to resume, the settlement money paid in the interim would have to be returned, Daizy Chawla, Senior Partner, Singh and Associates, told Financial Express Online.
The NCLAT is expected to hear RCom’s application for vacating the stay on 30 April 2019.
What next for Ericsson?
When Mumbai NCLT had asked for insolvency proceedings against RCom, Ericsson should have gone ahead with it, Daizy Chawla told Financial Express Online. “Justice Mukhopdhyay agreed for RCom’s proposal of settlement, which was never in the provision,” she said. Now that RCom seems to have no other option, it wants to go ahead with insolvency proceedings, she added.
On the other hand, there was no application for withdrawal of insolvency petition. In RCom’s case, there is no Committee of Creditors formed yet, hence there is nobody to authorise the withdrawal. “Even if there was a committee, Ericsson would not have got the payment before financial creditors, nobody would have accepted that,” Daizy Chawla said citing the provisions of IBC.
Daizy Chawla’s firm represents one of the other operational creditors with dues pending from RCom.
Now, Ericsson needs to file an application for withdrawal of insolvency petition with NCLT. Meanwhile, RCom would be looking for the court to vacate the stay on the insolvency proceedings. Much would depend on whether the NCLAT allows RCom’s application for withdrawal of stay on insolvency, or Ericsson’s application for withdrawal of the proceedings. Daizy Chawla says that there can’t be a decision on withdrawal of the insolvency proceedings before the Committee of Creditors (CoC) is formed.
Meanwhile, Ericsson refused to comment on the reports that it may have to return Rs 580 crore in dues that it recently recovered from Reliance Communications, should the insolvency proceedings on the Anil Ambani-led company resume. When asked what would be Ericsson’s next step regarding the RCom case, Ericsson India head Nitin Bansal refused to comment stating that the matter is sub judice.
Ericsson-RCom case: Soured relations
RCom and Ericsson had begun their business transactions in 2013 to provide services for RCom’s networks. When RCom failed to pay Ericsson on time in 2016 and after several months of waiting and assurances, Ericsson was the first creditor to move NCLT in September 2017. NCLT allowed the initiation of insolvency proceedings for RCom, which was put on stay, with RCom promising to pay Ericsson about Rs 550 crore as settlement fees to avoid insolvency.
On 19 March 2019, RCom paid around Rs 580 crore to evade its chairman from going to jail after the matter had escalated to the Supreme Court.