Reliance Communications Held in Contempt: Supreme Court Orders Payment to Ericsson

The case of Reliance Communications Limited & Ors. vs. State Bank of India & Ors. is a landmark judgment concerning the violation of financial commitments made to creditors and the enforcement of undertakings given to the Supreme Court. The Court had to decide whether Reliance Communications (RCom) and its group companies were in contempt for failing to pay a settlement amount to Ericsson India Pvt. Ltd.

Background of the Case

Reliance Communications (RCom) had entered into a Managed Service Agreement with Ericsson India Pvt. Ltd. in 2013, under which Ericsson was to provide operational and maintenance services for RCom’s network. Over time, RCom defaulted on payments to Ericsson, leading to multiple legal disputes.

In 2017, Ericsson initiated insolvency proceedings against RCom and its group companies—Reliance Telecom Ltd. (RTL) and Reliance Infratel Ltd. (RITL)—under the Insolvency and Bankruptcy Code, 2016 (IBC). The National Company Law Tribunal (NCLT) admitted the petitions, but the matter was later stayed by the National Company Law Appellate Tribunal (NCLAT) after both parties reached a settlement.

As per the settlement recorded by the NCLAT on May 30, 2018, RCom agreed to pay INR 550 crore to Ericsson within 120 days, i.e., by September 30, 2018. Undertakings to this effect were filed before the Supreme Court. However, RCom failed to make the payment, leading Ericsson to file contempt petitions before the Court.

Key Legal Issues

The Supreme Court had to determine:

Whether RCom and its directors were in contempt of court for failing to abide by their undertaking to pay Ericsson.
Whether the default in payment justified legal action, including imprisonment of the responsible persons.
Whether the court could order alternative remedies, such as attachment of assets, to ensure compliance.

Petitioner’s Arguments (Ericsson)

Ericsson contended:

RCom and its directors had deliberately misled the court by filing false undertakings stating they would make the payment.
The company had ample resources and was able to pay but willfully defaulted.
Despite receiving multiple extensions, RCom continued to evade payment, showing a clear intention to disobey court orders.
The contempt was deliberate and calculated to frustrate the administration of justice.

Respondent’s Arguments (Reliance Communications)

RCom defended its position by arguing:

The payment of INR 550 crore was subject to the sale of assets, which did not materialize due to regulatory approvals.
The Department of Telecommunications (DoT) had delayed issuing the No-Objection Certificate (NOC) required for the asset sale.
The company was undergoing severe financial distress and had filed for insolvency, making it impossible to fulfill its commitment.
They had deposited INR 118 crore in the Supreme Court’s registry and were still willing to make payments from other receivables.

Supreme Court’s Observations

The Supreme Court found RCom’s explanations unsatisfactory. The Court noted:

“The undertakings given to the Court were unequivocal and unconditional. The subsequent attempt to introduce conditions such as asset sales was a deliberate misrepresentation.”

The Court highlighted that:

RCom had agreed to pay within 120 days without any preconditions.
The company’s letter dated January 21, 2019, showed it was capable of making the payment but chose not to do so.
The failure to honor the commitment constituted a clear and willful breach of undertakings given to the Court.

Final Judgment

The Supreme Court held RCom and its directors guilty of contempt and issued the following directives:

RCom must pay the balance amount of INR 453 crore (after adjusting INR 118 crore already deposited) to Ericsson within four weeks.
The Supreme Court Registry was directed to transfer the deposited INR 118 crore to Ericsson.
Each of the three companies—RCom, RTL, and RITL—was fined INR 1 crore, payable to the Supreme Court Legal Services Committee.
In the event of non-payment, the Chairmen of the three companies would face three months of imprisonment.

Conclusion

This judgment reinforces the principle that undertakings given to the court must be honored without exception. The ruling underscores the judiciary’s commitment to holding corporate entities accountable and preventing misuse of legal procedures to evade financial liabilities. By directing immediate payment and imposing penalties, the Court has sent a strong message about the importance of compliance with judicial orders.

Petitioner Name: Reliance Communication Limited & Ors..
Respondent Name: State Bank of India & Ors..
Judgment By: Justice R.F. Nariman, Justice Vineet Saran.
Place Of Incident: New Delhi.
Judgment Date: 20-02-2019.

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