$6 billion telecom bankruptcies left hanging in India as ministries argue

Bickering among Indian government ministries and a deferred top court decision on the sale of bankrupt telecom companies’ rights to use mobile phone spectrum has derailed the resolution of the industry’s biggest bankruptcies, leaving banks waiting for $5.7 billion in payments.

India’s Supreme Court in a verdict on telecom dues earlier this month asked a lower court to first rule on the dispute raised by the telecommunications ministry against a group of government-owned banks led by State Bank of India over the legality of the sale of airwave licenses of collapsed mobile phone operators.

The case is yet another example of how government branches are delaying bankruptcy settlements in a country whose banks suffer the world’s worst bad debt ratios. Any uncertainty about lenders’ rights over the key assets of operators could also discourage lending or bank guarantees to Bharti Airtel Ltd. and Vodafone Idea Ltd.

In an interim step, the Supreme Court decided Friday that the bankruptcy appellate tribunal will decide whether banks can sell bankrupt telecom companies’ right to mobile phone spectrum in the insolvency proceedings. That’s a change from the previous order, which empowered the lower bankruptcy court. Friday’s ruling removes one layer of appeals, which could expedite a final decision on the issue.

Any ruling by a lower court, followed by possible appeals up to the top court, may take from six months to more than a year, Shally Bhasin, a partner at Delhi-based law firm Agarwal Law Associates, said before Friday’s hearing. “Neither the banks nor the telecom sector can afford such delays. It frustrates the spirit of the bankruptcy law that mandates a time-bound resolution of insolvencies,” she said.

Bad loan mess

The bankruptcy tribunal had approved a plan to sell the assets of Aircel Ltd. group companies to help banks recover about 190 billion rupees ($2.6 billion) of debt. Another proposal to sell the assets of Reliance Communications Ltd. to reclaim about 230 billion rupees is pending.

The banks were seeking larger amounts. A group of mostly state-owned lenders claimed about 587 billion rupees from Aircel firms -- formerly controlled by Malaysian billionaire T. Ananda Krishnan -- and some 1.2 trillion from collapsed Reliance companies, which used to be controlled by tycoon Anil Ambani. The telecom department claimed another 120 billion rupees from Aircel and 250 billion from RCom in fees for airwave permits.

The telecom department challenged any sale before its dues are cleared, a view opposed by the corporate affairs ministry. Lenders contested the telecom ministry’s petition in court, saying without sale of airwaves rights the bankruptcy resolution would fail.

“Ministries of telecommunications and corporate affairs must sort the issues at their levels so that the sanctity of bankruptcy resolution process remains intact,” Agarwal Law’s Bhasin said.

(With assistance from Bhuma Shrivastava.)