2G revenue-share dues: Reliance Jio must meet the liabilities of RCom

It is axiomatic that the successor not only gets to savour the fruits of succession but also is responsible for the legitimate liabilities run up by his predecessor. This salutary principle applies both to children inheriting the property of their parents as well as to the amalgamated company. The Companies Act, 2013 reiterates this principle in so many words. Indeed it is the fear of being foisted with liabilities that are not apparent from records that due diligence is carried out by a person or entity taking over another. Against this backdrop, the Supreme Court rightly wondered why Reliance Jio is not paying up the controversial 2G revenue share dues of Reliance Communications.

It may be noted that RCom hasn’t merged with Jio. In fact, its bankruptcy petition filed in 2019 is pending before NCLT. Yet the apex court is seeking to fasten on Jio the liabilities of RCom apparently pursuant to a clause in the spectrum allotment agreement between the DoT and RCom. Apparently, the argument of Jio that it had negotiated a separate agreement with RCom for spectrum usage is not cutting any ice with the apex court. Spectrum, while being transferable, vests the transferee with a package — both the upsides and downsides. You can’t pick up the spectrum without being answerable for the liabilities attached to it.

In 2019, Anil was heard praising his elder brother Mukesh for paying up ₹462 crore to Ericsson. The Supreme Court had read out the riot act to RCom now facing bankruptcy proceedings and threatened to send Anil to jail for non-compliance. If family honour and natural love can propel a sibling into action, one wonders why not a legal requirement. The reason perhaps is Jio also fancies its chances along with other wistful telcos embroiled in the 2G revenue share controversy — that the Supreme Court would relent and ask the DoT to be more reasonable and give up its revenue-share claim on non-telecom operations like interest, dividend and rent.

The Supreme Court is also making it clear that it is the amalgamated company or the new owners of an existing company who must be proceeded against for recovering the 2G revenue-share dues. This means Airtel is responsible for the dues if any from Tata Teleservices and Vodafone for Idea’s. One wonders why this basic principle of liabilities devolving on successors did not dawn on the DoT earlier. One, however, hopes that investors, including Facebook, which are falling over themselves to clamber onto the RJio bandwagon, have done their homework properly and assessed Jio after considering the possible devolution of liabilities from the baggage inherited from RCom.

The Supreme Court is in no mood to relent. It is making telcos pay for what they had committed, whether off-handedly or after understanding the fine-print. A staggering ₹1.33-lakh crore is outstanding, and telcos are clearing them in driblets apparently counting on a relook into the definition of AGR (adjusted gross revenue). Telcos rightly contend that AGR should include only telecom revenues, whereas the apex court, while agreeing with this contention in principle, is asking: Why did you sign on the dotted line?

One, however, cannot help wonder why the apex court has not castigated the DoT for its overreach, seeking a share of non-telecom revenues especially in the light of its order asking it to back off from its demand on oil PSUs like Oil India and GAIL to pay a sliver of their oil and gas revenues just because they dabbled in telecom by bagging 2G licences in 1999.

The writer is a Chennai-based chartered accountant

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