The Supreme Court (SC) needs to be commended for bringing closure on the telecom and Essar Steel cases. Having said that, the implications of some of these orders require wider public debate.
First, the SC upheld the government’s definition of adjusted gross revenue (AGR). The estimated liability of companies, including those having gone out of business, is Rs 1.33 lakh crore, of which Vodafone Idea’s is Rs 39,313 crore, Bharti Airtel’s Rs 41,507 crore, and RCom’s about Rs 16,000 crore, etc.
What surprised me was that the SC asked the parties to pay this sum within three months of its order dated October 24, 2019. In normal times, paying such a large sum in three months is tough even for India’s highest rated corporate, but in today’s challenging times even tougher.
What was the pray? According to Para 1 of the SC order, the matter to be decided was the definition of gross revenue, i.e. “In the appeals, the question involved is with respect to the definition of gross revenue as defined in clause 19.1 of the license agreement granted by the Government of India to the Telecom Service Providers.”
Was not the dispute about the definition of AGR? Having decided that, should the honourable court have also decided a payment schedule? Is that not a decision to be taken by the government of India, whose claim was upheld, or and the Association of Unified Telecom Service Providers of India, etc?
Is the executive not best suited to decide on the payment schedule? Its decision could be based on the ability of telecom companies to pay, their existence as a going-concern, possible NPAs, promotion of digital India and government’s revenue needs, which has a bearing on the fiscal deficit, etc.
The payment of such large sums, within three months, has increased the gloom in the telecom and banking sectors, both of which are under severe stress. For the record, the net debt as on September 30, 2019, of Bharti Airtel was Rs 1.18 lakh crore, and Vodafone Idea Rs 1.02 lakh crore.
Now, the SC has to agree on payment terms for which it needs to understand the pros and cons of each parameter referred to above. The point is, these decisions are commercial in nature and do not involve interpretation of law, so do they not lie within the domain of the executive?
I recall the words of eminent lawyer Harish Salve who recently said that “The Supreme Court is to be squarely blamed for the current economic slowdown.” In an interview to a news website, Salve has said that the slowdown began with the top court’s judgment in the 2G spectrum case in 2012. In the interview, Salve also said that the Supreme Court has been “inconsistent” in dealing with commercial cases, causing “grave concern in the minds of investors.”
Do we want a repeat? Telecom companies must realise that the government does not have the fiscal space to repeatedly bail them out because of their errors of judgement (revenue-sharing) or interpretation of AGR.
Whilst the author has the highest regards for the judiciary, here is another matter worth reflecting upon.
Essar Steel’s journey under the Insolvency and Bankruptcy Code (IBC) started on August 2, 2017, when its cause was admitted in the National Company Law Tribunal (NCLT), and ended on November 15, 2019, when the SC passed its order. The process took 834 days.
In between the matter kept moving from one court to another. It seemed petitions were being filed to prevent the inevitable. Bankers were frustrated with these delays, since the company owed its financial creditors Rs 49,473 crore. Eventually, the government amended the IBC in July 2019, revising the time limit to 330 days including litigation period, from the earlier 270 days.
This was done to put a sense of urgency into the process so that the resolution professional and adjudicating authority took timely steps to complete the process.
In the Essar Steel case, the National Company Law Appellate Tribunal (NCLAT) order was passed on July 4, 2019, and decided by the SC on November 15, i.e. a good 133 days later.
Those involved in the IBC process need to understand the concept of ‘time value of money’. If the Essar Steel matter was resolved a year ago, can you visualise the impact on India’s banking sector and the economy?
In its November 15 order, the SC “relaxed the revised 330-day timeline for resolving stressed assets by diluting its mandatory nature and leaving a window open for the adjudicating authority/appellate tribunal to extend the time under certain circumstances.” (Business Standard).
“The SC called the amendment an excessive and unreasonable restriction on the litigant’s right to carry business under Article 19(1)(g) of the Constitution. The amendment goes against Article 14 of the Constitution, which says that the state cannot deny to any person equality before the law or equal protection of the laws within the territory of India.” (Business Standard).
Given the delays that continue to plague the judicial system, was doing away with the mandatory clause warranted? While constitutional experts can debate this, here are some observations.
It is an example of courts’ unwillingness to work within the deadlines laid down by the executive. Bahram Vakil, founding partner at AZB & Partners, said it simply in a November 15 interview on CNBC TV18, “As I say, my profession is not known to be very keen on timelines.”
Striking down the word ‘mandatory’ must also be seen in the context of courts getting involved in governance issues, huge backlog of cases across courts, and its approach that the judiciary is accountable to none but itself.
If the former Chief Justice of India Ranjan Gogoi could, along with four fellow judges, burn midnight oil, first tell the petitioners in the Ayodhya case to finish their arguments before a predetermined date and then pass an order a week before he retired, what is there to prevent the resolution professional, adjudicating authority/tribunal and courts from following a similar approach.
A faster IBC resolution will benefit all, especially India’s banking sector reeling under NPAs, and improve India’s ranking in the ease of doing business and the business climate in the country.
Coming to Articles 19(1)(g) and 14.
Article 19(1)(g) reads, “All citizens shall have the right to practice any profession, or to carry on any occupation, trade or business.”
The SC held the 330-day deadline (mandatory) to be an excessive and unreasonable restriction on the litigant’s right to carry business. Since this article applies only to the citizens and the 330-day deadline to the corporates, it would be interesting to know why Article 19(1)(g) was applied in this case.
Even if this Article applied to the corporates, it seems difficult to fathom how did the word ‘mandatory’ 330-day deadline infringe upon the right of a company to carry on any occupation, trade and business? It is by exercising such a right that the business was carried on. The inability of the corporate to repay bank loans started the bankruptcy process, thus all rights ceased.
Now coming to Article 14. It reads, “The State shall not deny to any person equality before the law or the equal protection of laws within the territory of India.”
Concept one, i.e. equality before law, ensures that there is no special privilege in favour of any one. This concept of equality is a misnomer. If it were true, Hindus would, like Muslims and Christians, have the privilege of managing their places of worship.
Unless every organ of our democracy focuses on its own sphere only and outcomes, a constitutional crisis is not too far away.
(The purpose of raising these issues is to provoke thought and not cast aspersions on the judiciary, individually or collectively. The author does not claim to be a constitutional expert.)
The author, a chartered accountant, is the founder of http://www.eSamskriti.com Twitter @NayyarSanjeev