SC makes CEOs liable if telecom companies fail to pay AGR dues

A passenger standing in a Mumbai local train use his cellphone. | Photo: Bloomberg
The Supreme Court (SC) on Tuesday made it incumbent on managing directors/chairmen or any authorised officers of telecom companies to furnish an undertaking to make payment of AGR arrears within four weeks.

If the companies fail to pay the dues then it would lead to penalty, interest and contempt of court, said a bench led by Arun Mishra. The order didn’t say if promoters and boards of companies will be held liable.

“The CEOs usually take instructions from the board and from the promoter--especially about such big-ticket payments. By making them responsible, it has increased risk for the CEOs,” said a Mumbai-based lawyer.

A former telecom company CEO said the Court judgement passes on the risk of personal guarantees to professional managers. Banks usually asks promoters to give personal guarantees for loans. The State Bank of India invoked personal guarantees given by Anil Ambani, chairman of Reliance Communications, and Atul Punj, chairman of Punj Lloyd, when they defaulted on loans.

“By making the MD/CEOs give an undertaking, the SC has passed on the risk to the salaried professional managers,” said a lawyer.

The Supreme Court, in July, asked the Finance Ministry to respond to a representation seeking disciplinary action against public sector banks (PSBs) for not invoking personal guarantees of promoters and directors of firms defaulting in repayment of huge loans. After the court’s order, the finance ministry asked State Bank of India to collect data and give it an action-taken report.

Naresh Goyal, former promoter of Jet Airways; Arvind Dham, former promoter of Amtek Auto, and Sanjay Singal, former promoter of Bhushan Power and Steel, are among business leaders who gave personal guarantees to avail loans for their businesses. Fugitive businessman Vijay Mallya, too, gavve his personal guarantee for his now-collapsed Kingfisher Airlines. Promoters of Jaypee, Alok Industries, Lanco and Bhushan Steel had also given personal guarantees.
When a personal guarantee is invoked, the personal assets of the guarantor are auctioned to pay for loan default.

The Insolvency and Bankruptcy Code (IBC) was amended last November to include personal guarantees of promoters to quicken the recovery process. On an average, banks are recovering only 45 per cent of their dues from the bankrupt companies.

Analysts said banks, after the Supreme Court’s prodding, were forced to take action against borrowers, especially in cases which have been referred to the National Company Law Tribunal (NCLT) before the corona pandemic led to a nationwide lockdown.

"After today's SC order, it has just added more confusion in the industry," said a lawyer.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel