AGR case: Professional managers face bigger risk if telcos default

The order was silent on whether the promoters and the boards of respective companies would be held liable
The Supreme Court’s directive that managing directors (MDs)/chairmen or any authorised officer of telecom companies (telcos) must furnish an undertaking to pay the adjusted gross revenue (AGR) arrears within four weeks has put the onus of payment on professional managers. This has put professional managers at increased risk if any default takes place in future.

The Bench led by Justice Arun Misra observed that should telcos fail to pay up, it would lead to penalty, interest, and contempt of court.  The order was silent on whether the promoters and the boards of respective companies would be held liable.

“The order on an undertaking by MD/chairman is to ensure the company does not default in future. The top management must make sure all dues are paid in time,” said Akshat Jain, partner, J Sagar Associates.  

Other lawyers say this has increased the risk of professional managers. “The chief executive officers (CEOs) usually take instructions from the board and from the promoter, especially on big-ticket payments. By making MDs/CEOs accountable, it exposes them to further risk,” said a Mumbai-based lawyer.

A former CEO of a telecom company said the SC judgment will make it riskier for CEOs to give undertakings. “But at the same time, the order also says any other authorised person can give the undertaking, which can be any other top official,” he said.

Until now, it was the promoters who were asked to furnish guarantees by banks offering loans. Recently, the State Bank of India invoked the personal guarantees of Anil Ambani, chairman of Reliance Communications, and Atul Punj, chairman of Punj Lloyd, after they defaulted on loans.

Interestingly, in July this year, the SC had asked the finance ministry to respond to a representation seeking disciplinary action against public sector banks for not invoking personal guarantees of promoters and directors of firms defaulting on repayment of huge loans. When a personal guarantee is invoked, the personal assets of the guarantor are also auctioned.

In the case of undertaking given by CEOs in the AGR case, their personal assets will not be impacted.

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