India's Supreme Court threatened Airtel and Vodafone with 'contempt' proceedings⁠

• Supreme Court of India warned some of India's top billionaires of action for 'contempt for court'.
• Sunil Mittal, the Chairman of Bharti Airtel, and Kumar Mangalam Birla, the Chairman of Birla Group that owns Vodafone-Idea were in the firing line.
• The companies drew the top court's ire for not paying up the dues for unpaid licence fees and spectrum usage charge after a recent change in the interpretation of the law.
  

Bharti Airtel and Vodafone-Idea share prices tanked on Friday after the Supreme Court of India came down heavily on the two companies for complying with its order. The two companies have been asked to cough up huge sums of money towards unpaid licence fees and spectrum usage after a recent change in the interpretation on what part of their revenue can these duties be levied upon.

Weeks after the deadline for the spectrum dues payment has passed, Bharti Airtel and Vodafone-Idea have been chasing various legal routes, like review petitions and curative petitions. Today, the Supreme Court has made it clear that it will not entertain any more delay and threatened them with possible contempt of court proceedings if they do not pay up.



Not a single penny has been paid, said SC while hearing a modification plea on the time schedule to make the ₹1 lakh crore payments. It also asked the Managing Directors and directors of both the companies to be present at the next hearing.

In October last year, the SC gave a historic judgment backing the government's calculation of aggregate gross revenues (AGR) which is part of licensing agreement. The ruling which allows non-telecom revenues as well, landed Airtel and Vodafone Idea with a bill of ₹35,000 crore and ₹53,000 crore respectively – including interest and penalty.

Ever since, the telcos have been making various pleas to the government including asking them to do away with the penalty and interest of decade-long court case. It also sought a payment plan. Vodafone Idea which will have to bear the legacy burden of the two merged entities - has already posted ₹6,439 crore for the third quarter. Its financing costs rose by 30% to around ₹3,700 crore.

While Vodafone Idea stock fell 11.3% after SC’s comments, Airtel stock gained by 3.6%.



The fate of Vodafone hangs in balance

Most analysts believe that Vodafone might cease to exist and the company management has repeatedly said that its ability to carry on as a going concern is deteriorating. For the head of Aditya Birla Group, Kumar Mangalam Birla who said that there is no point in good money following bad money, the tremors will be felt at the group level.

Sandeep Parekh, a lawyer at Finsec Law Advisors, believes that the group’s credit rating will be affected if Vodafone is liquidated. “The group will have to make a strategic call on whether they will be able to raise corporate funding and pay up dues or let it collapse,” he told in a TV interview after the SC comments.

Even as the rumours of the ‘fall of Vodafone’ are strong, experts believe that it might not happen in a hurry. “I think the question is who will take Vodafone Idea to NCLT. If Vodafone can’t pay deferred spectrum liabilities, the government should take them and recoverability from it will now be pretty low. I don’t think they will be in a hurry,” Nitin Soni of Fitch Ratings told CNBC TV18.

Parallely, DoT has used the SC judgment to send notices to public sector companies like GAIL, Oil India, Power Grid and Gujarat Narmada Valley Fertilizers and Chemicals to recover as much as ₹4.3 lakh crore. They too have been taking the legal route against the demand, but any judgement on Vodafone and Airtel cases will have a bearing on them too.




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