Vodafone has to wrap up ₹22,100 crore tax case before it can think of liquidating India business

Vodafone has to wrap up ₹22,100 crore tax case before it can think of liquidating India business
  • In 2007, Indian IT department slapped a demand notice seeking ₹8,000 crore in capital gains tax.
  • With penalty and interest included, the tax claim now amounts to ₹22,100 crore.
  • Resolution professionals say that all pending litigation have to be wrapped up before liquidating a company.
The world’s largest telecom company Vodafone is on its backfoot in the world’s largest telecom market – India. And it is nothing new. Many troubles have dented the company ever it purchased the 67% stake in Hutchison Essar twelve years back. And it's been a nightmare for small investors who have bet on the stock.

A year before the price wars started eating into the investment, Indian Income Tax department slapped a demand notice seeking ₹8,000 crore in capital gains tax over the deal. Now this ghost which is a ₹22,100 crore liability with interest and penalty included – might haunt the British parent even as it considers liquidation.

“All pending litigations have to be cleared before it goes in for liquidation,” Mamta Binani, a resolution professional informed Business Insider India. The case in currently in international arbitration after many dramatic twists. The former UPA government retrospectively amended a law to tax Vodafone, after the Supreme Court said that Vodafone is not liable as per ‘existing tax laws’. In the last six years, the arbitration has been dragging on at a snail’s pace.

In the meanwhile, yet another Supreme Court decision has made Vodafone question the logic of continuing in India, amongst many hurdles. A few days back, its CEO Nick Read said that if Indian government does not provide a relief in the aggregate gross revenue (AGR) case--- it might consider liquidation.

Indian government is in no mood to relent and has given three months to Bharti Airtel and Vodafone Idea to clear its dues. Vodafone was asked to pay up ₹44,150 crore to the department in piled up AGR dues after it lost a case in the Supreme Court last month. This hit has made Vodafone Idea posted the highest-ever quarterly loss by Indian company at ₹50,000 crore.

Should the company fall, it could set yet another dubious record as largest-ever non-performing asset or a dud loan. As per an Economic Times report, banks have an exposure of as much as ₹1,00,000 crore to Vodafone. These loans are in trouble as most of them lack securities and guarantees. Neither of the two promoters – Vodafone and Kumar Mangalam-led Aditya Birla Group— are keen on infusing equity. In fact, their stock is being sold at the price of hot cross buns -- ₹3 per share with a face value of ₹10.

If Vodafone Idea is unable to pay up its lenders, it has assets to fall back on, say experts. “I think the assets, including the network and spectrum are definitely very valuable, so it would not come to a situation where surrendering should be required,” Kunal Bajaj, an independent telecom analyst told Business Insider India.

Whether the asset will be able to offset the loans, deferred spectrum payment (not including AGR dues) it owes to the government and the tax claims if at all – is yet to be seen.

Vodafone-Idea is now a ₹3 stock after a shocking quarterly loss