Failure of duty

The Supreme Court’s ultimatum to Anil Ambani ordering him to either pay up dues his company owes Swedish telecom equipment maker Ericsson or face jail exposes the inability of the country’s financial and regulatory systems to discharge their fiduciary responsibilities when it comes to large influential corporates. While Ambani and his ventures have been caught in one controversy after the other, there has been no action either by the lenders or the regulators who have been silently watching the massive erosion of value for investors over the last few years. Almost all the infrastructure businesses owned by the younger Ambani are in financial trouble. The telecom business, for example, has been bleeding since two years as the company has been reeling under climbing losses and mounting debt. Reliance Communications, with debts of over ₹40,000 crore, had first missed a non-convertible debenture instalment of ₹375 crore that was due on February 7, 2017. RCom eventually did make the payment, but the delayed payment came to light only when the company announced its March quarter results in May. Then the company announced that it will be repaying ₹25,000 crore to the lenders by September, 2017. This was subject to the fructification of two deals — sale of RCom’s tower business and the merger with Aircel. The lenders were quick to agree on a standstill of payments without any counter guarantees in the event of a failure to close the deals. Eighteen months later, even though the two deals never took off, the majority of lenders have recently agreed to another standstill, this time on account of Ambani’s other ventures — Reliance Power and Reliance Infrastructure. Edelweiss group and L&T Finance, which did not want to wait any longer to get their money back and offloaded the pledged shares in the open market, were threatened with regulatory and legal action.

Thankfully, the courts have seen through the game, with the Bombay High Court even observing that Reliance Communications’ stand on the Edelweiss matter “smacks of deceit.” In the case related to Ericsson, the Supreme Court has held Anil Ambani Group entities guilty of contempt and wilful disobedience of its orders. The biggest losers in all this are the shareholders as stock price of most Anil Ambani Group companies have been on a free fall over the past few months.

This raises questions on the failure of fiduciary responsibility on part of banks, SEBI and the company’s board of directors. It’s not clear why the banks haven’t made any move on RCom despite the company failing to seal a deal to sell its assets. It’s also not clear why the lenders agreed to another standstill when a similar agreement earlier failed to get their money back. The independent directors on the boards of the group companies have also not flagged any corporate governance issues. The market regulator has also left all stakeholders to fend for themselves.

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