An appellate tribunal has agreed to hear the plea that a group of small creditors should be able to block the scheme of arrangement for the merger of Reliance Communications’ (RCom) wireless business with rival Aircel Ltd, according to the tribunal documents.
The appeal is against an order from the lower National Company Law Tribunal (NCLT) on 14 August stating that recognition would be granted only to the objections of a creditor or a consortium of creditors with at least 5% of the overall claims against either of the companies, not a group of 12 small financial and operational claimants, including appellant Thomas Cook (India) Ltd, who combined have less than that threshold. The objectors are a mix of creditors to one or both of the companies.
In arriving at its decision, the NCLT cited in the order Section 230 of India’s Companies Act 2013, which specifies that blocking a scheme requires the objection of a creditor or creditors with at least 5% of the claims against a debtor.
However, during the lower court hearing on the matter, the senior counsel for one of 14 objectors, Aircel creditor Chennai Network Infrastructure Ltd (CNIL), noted that Section 230 covers the procedures for a scheme meeting for shareholders and creditors, and thus the 5% threshold should not apply to creditors objecting at a NCLT hearing, the 14 August NCLT order shows.
But the two-member lower bench decided that since it chose not to order a scheme meeting for the creditors – considering that shareholders of the two companies have already approved the merger — the 5% threshold would be applied to the hearing.
The NCLAT will hear travel operator Thomas Cook’s appeal on 3 October, though the appellate court said the lower court can proceed with its case “in accordance with the law”, the NCLAT order granting leave for appeal states.
Appeals against rulings made by the quasi-judicial NCLT can be made to the NCLAT, which can further be appealed at the Supreme Court.
The appellate tribunal’s decision will be key not just for the RCom deleveraging, but also other business reorganization schemes, because “things can turn messy” if creditors of any size are permitted to object, said a lawyer who works on NCLT matters, but is not involved in this case.
The tycoon Anil-Ambani controlled RCom is seeking NCLT sanctioning for schemes effectuating the merger of its wireless division with Malaysia’s Maxis Communication Berhad-controlled Aircel and the sale a 51% stake in telecom tower unit Reliance Infratel Ltd (RITL) to Canadian asset manager Brookfield. RCom on 2 June announced that the two deals would reduce its debts by 60%, to INR 20bn (USD 3.11bn).
Under the original order, RCom only needs to win over large objecting creditors China Development Bank and Standard Chartered Bank, as well HSBC Daisy, a private equity investor in Infratel. The NCLT adjourned to 11 October a scheme sanctioning hearing scheduled for 13 September because the large objector trio has not consented to the two transactions. If they do consent, the only remaining stated objectors would be the small claimants. Aircel doesn’t appear to have any large objecting creditors.
After being frustrated by the original order, one of the other 14 objecting small creditors, Ericsson India, filed on 13 September to put RCom into bankruptcy. The India unit of the Swedish telecom equipment maker is a creditor to both RCom and Aircel. The hearing on that filing was adjourned to 6 October from 26 September because earlier hearings that day overran, as reported.
Apart from Ericsson, RCom has been hit by bankruptcy petitions from at least six other trade creditors since April this year, as reported. None of the petitions have led RCOM being entered into a NCLT-supervised bankruptcy process, and at least two of the claims were settled, as reported.
For the moment, RCom seems to be more focused on dealing with the Ericsson bankruptcy petition than smoothing the way for the two transactions to be sanctioned, said a source with knowledge of the matter.
Even before the NCLT was scheduled to begin the sanctioning hearing for RCom’s proposed demerger and asset-sale on 14 September, discussions with Brookefield had run into difficulties over the number of tenancies post the transaction, the Economic Times reported on 13 September.
With pressure building on RCom from its creditors, Brookfield has also been renegotiating for lower valuations on the towers and might even set a deadline for the telecom company to settle with its creditors, said the source with knowledge.
Brookfield is also in the race to buy Vodafone India and Idea Cellular’s total 53.15% shareholding in another tower company, Indus Towers, as per the Economic Times report.
RCom would not comment on the matter.