Supreme Court orders payment of AGR dues over a period of 10 years

NEW DELHI| MUMBAI: The Supreme Court on Tuesday gave telcos a 10-year window to pay their balance adjusted gross revenue (AGR) dues of over Rs 1.4 lakh crore, beginning with an upfront 10% payment by March 31, 2021, and the rest in 10 annual instalments ending March 2031.
The court directed the telecom department to raise AGR demands within six weeks from telcos for traded spectrum, and asked the National Company Law Tribunal to decide within two months if spectrum could be sold during the insolvency resolution process to settle the dues of creditors of bankrupt telcos.

The Cabinet had proposed a 20-year period for payment of AGR dues, but the three-judge bench led by outgoing Justice Arun Mishra agreed to only 10 years.

Shares of Vodafone Idea, the telco most impacted by the order, fell 25% after the verdict before closing down 13% at Rs 8.89 on the BSE.

While the company declined to comment, its counsel Mukul Rohatgi welcomed the payment time table and told ET that the telco would survive.

“From first look of the order, we have been given 10 years to repay, which is welcome, although we would have liked a little more time. Vodafone Idea will survive,” Rohatgi said

The Supreme Court bench said AGR dues cannot be disputed by the telcos again, and any default would attract interest, penalty and interest on penalty, as well as contempt of court proceedings. The court asked the various companies through their MDs and chairmen, or other authorised officers, to furnish an undertaking within four weeks that they will make payment of arrears as per the order.

“… the demand raised by the Department of Telecom in respect of the AGR dues based on the judgment of this court, there shall not be any dispute raised by any of the telecom operators and that there shall not be any reassessment,” the court said.

Tuesday’s ruling brings a measure of closure to the turmoil in the sector triggered by the October 2019 ruling of the Supreme Court, which widened the definition of AGR to include non-core items, backing the telecom department’s view.

The order left some 15 telcos facing around Rs 1.6 lakh crore in additional AGR dues, of which some has been paid. Vodafone Idea, with dues of Rs 58,254 crore, and Bharti Airtel, with dues of Rs 43,980 crore, were the most affected among the surviving telcos.

YEARLY INSTALMENTS
Telcos have to make the balance payment in yearly instalments commencing April 1, 2021, up to March 31, 2031, payable by March 31 of every succeeding financial year, the court said.

The court backed a Cabinet decision that made a provision to protect, in case of any lapse, the net present value of the dues up to the date of judgment and the dues thereafter, to be realised using the discounted rate of 8%.

The interest, penalty, and interest on penalty on the arrears as per agreement, will not to be levied beyond the date of judgment, and the NPV will be protected.

Analysts estimate Vodafone Idea’s annual AGR dues at around Rs 7,500 crore and Bharti Airtel’s at around Rs 3,900 crore.

The existing bank guarantees shall be kept alive until the payments are made, said the bench, which also comprised Justices S Abdul Nazeer and MR Shah. Telcos and the DoT will submit compliance reports by April 7 of each year, it said.

SPECTRUM SHARING
The bench said no operator will be saddled with payment of past dues after sharing of spectrum as it is not provided for in the rules. But the sharers are required to pay spectrum usage charge on their respective AGRs.

In a case where the entire spectrum is under sale, the past dues of the seller shall be the liability of the buyer except the amount/dues, if any, found recoverable after the effective date of the trade. In such a situation, the liability of such dues of the buyer and seller would be jointly or severally and the government at its discretion is entitled to recover such amount.

Justice Mishra refused to adjudicate on the government plea to disallow ailing telcos from selling spectrum during the insolvency process. He, instead, sent the issue back to the NCLT for its consideration within two months.