AGR Case: Supreme Court Gives Telecom Operators 10 Years To Pay Pending Dues

Shares of Bharti Airtel rose as much as 6.6% while those of Vodafone Idea pared gains to fall as much as 15% after the verdict.

A man sits talking on his mobile phone at a shopping mall in Amritsar, India. (Photographer Brent Lewin/Bloomberg)
A man sits talking on his mobile phone at a shopping mall in Amritsar, India. (Photographer Brent Lewin/Bloomberg)

The Supreme Court has granted telecom operators 10 years to pay thousands of crores in statutory dues stemming from the top court’s October 2019 verdict that upheld the government’s calculations on adjusted gross revenue.

The carriers, however, will have to pay 10% of the total dues by March 31, 2021, according to an order of a three-judge bench headed by Justice Arun Mishra. This indicates those telecom firms that have already paid 10% or more of total dues, such as Bharti Airtel Ltd and Vodafone Idea Ltd., will have to make the next payment in 2022. There will also be an 8% interest on the pending dues during the extension that’s been granted by the top court.

The chairmen of the telecom companies will have to give undertakings for payments, the order said, adding that a default on payment installments will invite interest, penalty and contempt of court.

Reacting to the development, shares of Bharti Airtel Ltd. rose as much as 6.6%, while Vodafone Idea Ltd. pared gains to fall as much as 15%—the most since March. In comparison, the Nifty 50 Index is up 0.64%.

In October last year, the Supreme Court had ruled that non-core revenue must be included while calculating statutory levies, ending a 14-year-old legal battle between mobile operators and the government on the definition of AGR. That had increased the liabilities of Bharti Airtel and Vodafone Idea to more than Rs 90,000 crore.

As on March 6, Bharti Airtel had another Rs 25,976 crore to pay in order to clear itself of AGR dues while Vodafone-Idea had to pay Rs 54,754 crore. The pending dues for Tata group of companies stood at Rs 12,601 crore while Reliance Communications, which is currently under insolvency proceedings, had another Rs 25,194 crore to pay towards AGR dues.

No Reassessment Of Dues, Says Supreme Court

Telecom operators had sought more time to repay the dues citing financial stress and the impact on the economy, with Solicitor General Tushar Mehta requesting that they be granted 20 years to pay back the dues.

In its order on Tuesday, the apex court noted that the decision of the Union cabinet to grant time to telecom operators for clearing AGR dues was taken after extensive deliberations and consultation. And so, the decision has taken into account the government’s concerns. That said, the apex court said, staggering payments over a period of 20 years is excessive in its opinion.

In saying so, the Supreme Court issued the following directions in its order:

  • Telecom operators shall not raise any dispute regarding the quantum of AGR dues arrived at by the Department of Telecommunications based on its October order.
  • The operators shall pay 10% of the total dues as demanded by the department by March 31, 2021.
  • Thereafter, the companies must make payments by way of annual installments starting from April 1, 2021 up to March 31, 2031, payable by March 31 of every succeeding financial year.
  • The managing director, chairman or any other authorised officer of the telecom companies must furnish an undertaking within four weeks saying that installments towards AGR dues will be paid as per the court’s order.
  • The existing bank guarantees that have been submitted regarding the spectrum shall be kept alive by the telecom companies until their AGR dues are paid in full.
  • In the event of any default in making payments of annual installments, interest would become payable as per the license agreement along with penalty and interest on penalty automatically without reference to court. Besides, any default would be punishable for contempt of court.
  • Telecom operators will have to report compliance of the apex court’s order to the telecom department every year by April 7.

Recovery Of Dues From Insolvent Carriers

The apex court in its Aug. 14 hearing had inquired if companies that are using the spectrum of insolvent telecom firms, such as Aircel, Videocon Telecommunications Ltd. and Reliance Communications Ltd., can be asked to pay the pending dues on their behalf. The question as to whether or not spectrum can be sold as part of insolvency proceedings was also raised by the bench.

The apex court also clarified that the liability of the telecom operators who are sharing another operators’ spectrum will only be to the extent they have used the said spectrum. “Shared operator TSPs [telecom service providers] cannot be saddled with the liability to pay the past dues of AGR of licensee, that have shared the spectrum with the original licensees,” the judgment said.

But the court refrained from answering whether spectrum allotted to insolvent companies can be sold.

The National Company Law Tribunal will decide whether spectrum can be sold during insolvency proceedings, the Supreme Court said. This issue must first be decided by the NCLT within two months by way of a reasoned order, the court held.

On the liabilities of dues where sale of right to use spectrum (spectrum trading) has taken place, the top court noted that if there’s a sale of the entire spectrum of a company then the buyer will be liable to past dues, which were known at the time of the sale, according to spectrum guidelines.