Is ‘Zero’ Net Worth Anil Ambani Liable To Pay His Dues?
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This Blog is written by Sanjana Dwivedi from University of Petroleum and Energy Studies, Dehradun. Edited by Ujjawal Vaibhav Agrahari.
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INTRODUCTION
Anil Ambani was once counted in the list of millionaires. Now the big question here is how he turned his riches to rotten. Everyone is quite aware of his famous name but not with the downfall of his wealth. This article will be talking about the back story behind the downfall.
Background
Anil Ambani was the sixth richest person in Asia as of the data report of Forbes [1] in 2008. Certain chain of events lead to the downfall of his worth which was $42 billion. The current situation is that Mr. Anil Ambani is struggling in the court of London since 12 years. Pleading that after paying Ericsson’s dues of Rs. 458.7 Crore with the help of his brother Mukesh Ambani, avoiding three-month term of jail, now his net worth is ‘Zero’ and it is not liable to pay anything to anyone.
The death of Dhirubhai Ambani in 2002 created the biggest chaos in the life of Ambani brothers. Their father died without any will which resulted into the split of brothers. Anil Ambani became the managing director and Mukesh Ambani became the Chairman of Reliance industry which was at that time has a total worth of Rs. 28,000 crore.
The split happened between the brothers was of the industries Mr. Mukesh decided to take the oil and petroleum industry, whereas, Mr. Anil Ambani was greedy and clever enough to take the telecom business which was the profitable industry at that time.
Reliance communication, which is also known as RCom, had the most reliable network at that time. But it has disadvantages as well because Firstly, it was a CDMA, as it supported only 2G & 3G networks only in the 20th century where without a 4G network no one can use internet properly. This was the main reason why the company went into losses. Secondly, after going time companies started to enter in telecom business and gave services at lower price and Reliance’s monopoly market fall. Lastly, Mr. Mukesh Ambani joined the telecom industry and introduced Jio network which was not only for RCom but for all the networking market acted as a wave of losses. Anil started investing in other business which also failed. Then as a last resort in 2017, Anil offered Mukesh to buy RCom, but Mukesh rejected the deal as it mentioned that Mukesh should pay all the dues of RCom. The company was also in 2017 forced to shut down its wireless operations due to debts.
Then in 2018, the case was filled by Ericsson, mentioning three petition to NCLT (National Company Law Tribunal). The company stated that RCom owed Rs. 1100 crore. The Apex court, declared that in unable to pay Anil Ambani will be imprisoned than Mukesh, stepped in and fulfilled the dues of Rs. 5.5 Billion.
Present Scenario
RCom as of now that is 2020, has due over Rs. 50,000 crore. Its shares are now ready for sale. Jio had already put the highest bid for reliance Inratel and many other companies are now in line to buy other assets. According to CNBC TV18 the UV asset reconstruction company, is the highest bidder till now for RCom and telecom.[2]
Side by side, Industrial & Commercial Bank of China Ltd (ICBC), import-export business of China, China Development Bank have as per the reports in London sued Anil for its dues of $708 million. The court of UK has now issued the guidelines to Anil that his failure of not paying the dues will lead to his conviction & asked to pay $100 million as of now. [3]
IMPACT OF FALL OF RCOM OF INDIAN MARKET
Unemployment
The shutdown of RCom, resulted in a drastic manner in terms of employment rates. The data given by Ashok Nagraj, a district General Manager says that 2500-3000 employees have lost their jobs and livelihood. The point is that losing a job is not a big deal but there was no proper arrangements for the employees which is giving Mr. Nagraj other employees giving stressful days. There was a petition made on social media which have over 2500+ signatures with a #SaveRComemployees. The employees are now in a way to lodge a serious complaint against the company. [4]
The unemployment of these employees is not very much of a problem. The most worried part was that RCom started to ignore the redressal system and grievance of the employees and also failed to pay the employees their PF( Provincial Fund). The data also says that not only failed to pay PF but they kept it for themselves. The confusion started to rise and now in future there will be another petition on RCom for this unjust behavior.
Telecom Market
After the decline of RCom, Jio entered into the telecom industry. The reports tell that there will be a massive growth in the telecom market form 2019-2022. The reason behind this is other telecom companies are ready to give services same or better than RCom on lower prices. The entry of Jio, and in the beginning of giving free internet crashed the records of telecom industry and gave a shock to not only RCom, but other companies as well. This hampered and forced to the fall of RCom to another level. The impact on telecom industry was not of a bad one. Instead the industry had grown to a better position. The downfall of a 3G network and arrival of 4G have increased the telecom industry. As of now India’s mobile market dominates local sector with high number of subscribers and revenue. Indian markets have seen massive growth in last 6 years.
STATUTORY PROVISIONS
Under the statutory provisions the question is on what basis the Chinese Development Bank sued Anil Ambani in the court of London as he is citizen of India. UNCITRAL (United Nation Commission on Trade Law) it was passes in 1997 by UNGA. So, there is a dispute going between Chinese banks and Anil Ambani. Basically, if we say there was a jurisdictional issue that would have occurred but as Anil have his assets in London as well the proceedings continued. UNCITAL, Cross Border insolvency code, allows that if person have assets in more than of country than suits against him or by him can be filled anywhere in those countries.
In Indian framework, Section 234 & 235 of Insolvency and bankruptcy Code, 2016 talks about power of central government to come into bi-lateral agreement with other countries so that cross-border insolvency issues can be resolved and 235 talks about power of adjudication authorities to send a letter of request to the court of the country where the agreement u/s 234 is made and to co-operate with country where the company’s assets lies.
What is the problem behind these Sections which can lead to the adoption of Model Law (UNICTRAL) in India?
The cross-border provision in India are Section 234 & 235 of Insolvency and Bankruptcy Code, 2016 are long, time taking and deficient due to which the government is of the views to adopt model law that will strengthen the system of resolution. Justice Eradi Committee Report of 2000 mentioned that model law should be implemented by amending Part VII of Companies Act, 1956, Recognition, co-ordination and participation of creditors in foreign proceedings. The N.L. Mitra Committee Report, 2001 specified that cross-border laws of India are out-of-date and there is a need of a code. Insolvency Law Committee stated in its Report in 2018 suggested to adopt the UNICTRAL Model Law. The main purpose behind this adoption was that the interest of persons and banks involved, and the creditor are safeguarded in regards cross-border insolvency matters. With the introduction of these laws there will be impact the growth in mergers and acquisitions which would thereby enhance the economy of the country.
According to our country’s laws we have adopted the system of reciprocal arrangements rather than adopting UNICTRAL Model Law which is mentioned under section 234 and 235.
Under IBC, 2016 can a person file insolvency against an individual?
Earlier the Insolvency and Bankruptcy Code, 2016 had provisions related to individual insolvency but they were not ratified and came into force and the cases related to dues/debts against individuals and partnership firms lied outside the ambit of IBC, 2016. But this situation is now changed as the first ever case against an individual was filled in Amravati (Omkaram Venkata Ramana Vs. Nitin Grains And Mills Pvt. Ltd. [5]) after IBC notified the amended guidelines that allows the creditor and the personal guarantors to approach the NCLT (National Company Law Tribunal) to start the proceedings against personal guarantors.
Is Anil Ambani liable to pay the dues/debts that he owes to Chinese development Bank?
In the very recent judgment given the High Court of Wales saying that Anil Ambani is liable to pay the dues which was personally guaranteed by him. The court ordered Anil Ambani to pay to three Chinese banks nearly $717 million, within 21 days. The banks made the loan agreement in 2012 and they have been since then asking of recovery of funds.
The Commercial Division of the High Court of England ruled out that “It is declared that the Guarantee is binding on the Defendant,” Furthermore, “It is declared that the sum payable by the Defendant to the Claimant (banks) pursuant to the Guarantee is $716,917,681.51.” Justice Teare’s ordered.
Although, spokesperson of Ambani stated that no personal guarantee was provided by Ambani, said further that the judgment on United Kingdom is not binding on him.
The Industrial and Commercial Bank of China (Mumbai branch), the China Development Bank and the Exim Bank of China are the three banks which are parties of the case. The case pertains to a lawsuit filed by the three Chinese banks over an alleged breach of a personal guarantee on a debt refinancing loan to Ambani’s Reliance Communications in in February 2012 with the condition that he personally guarantee the loan. However, Ambani denied this, and claimed he never gave a guarantee tied to his personal assets. RCom, filed for bankruptcy last year. In February, the United Kingdom High Court directed conditional order for Ambani to pay deposit of $100 million into court within six weeks, having a pending case to next year. The court rejected Ambani’s argument that he cannot pay to the Chinese banks and his net worth is zero.
Spokesperson of Ambani said that the amount which is ordered by the court will automatically deduct the “imminent” resolution of RCom’ debts in accordance with the Insolvency & Bankruptcy Code, 2016. “The order of the UK court will have no bearing on the operations of Reliance Infrastructure Limited, Reliance Power Limited and Reliance Capital Limited,” the spokesperson said. Anil Ambani will be liable to pay dues until he proves that his net worth is actually zero. Even if his net worth will become zero then also he is liable to pay with his assets. But the companies should wait until the sale of these assets under UK insolvency law.
CONCLUSION
UK Court of Appeal while rejecting the Application of appeal by Anil Ambani quoted ‘notwithstanding the length and ingenuity of Ambani’s arguments, his appeal has no real prospect of success and is totally without merit. It was contended that there was no ground for the stay of judge’s order which application was also refused.
Further the court added that Ambani had not satisfied the court that he had little or no money and had no access to assets which could be used to make a payment into court. Judge Flaux clarified the above statement “The judge was entitled to conclude that the defendant had not satisfied him that his brother and other family would not be willing to help him, specifically in light of financial assistance they had provided in the past by paying the sufficient funds.
The UK court of Appeal has completely relied upon the wealth of Brother Mukesh ambani for fulfilling the debt of Anil ambani not taking consideration the liquidation process of Rcom in NCLT Delhi. The UK Courts have provided vague judgment for paying the debt to three Chinese banks without even mentioning about liquidation process of Rcom whose stakes are equivalent to 46000 crores. Anil ambani awaits the Insolvency proceedings to end to provide him enough funds to pay for his debts.
REFERENCE
(1) https://www.forbes.com/forbes/2008/0324/080.html#5b02588510f2
(2) https://www.cnbctv18.com/telecom/rcom-lenders-to-declare-highest-bidder-soon-5032891.htm
(4) https://www.thepetitionsite.com/851/944/097/savercomemployee/
(5) Omkaram Venkata Ramana Nitin Grains And Mills Pvt. Ltd 2020 SCC Online NCLT 107.