Sangeetha Prathap

The National Company Law Tribunal (NCLT) at Mumbai has refused to direct Ericsson India Private Limited to refund nearly ₹325 crore that was paid to it during the insolvency proceedings of Reliance Communications Ltd. (RCom) and Reliance Telecom Ltd. (RTL). The Tribunal held that the payments were made solely to comply with directions issued by the Supreme Court in contempt proceedings and not pursuant to the Corporate Insolvency Resolution Process (CIRP), thereby ruling out any violation of the Insolvency and Bankruptcy Code, 2016.

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A Bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar delivered the judgment while dismissing the applications filed by the Resolution Professional (RP) seeking recovery of the funds on the ground that they constituted preferential transactions or transfers made in contravention of the moratorium.

The dispute stemmed from a 2013 Managed Services Agreement under which Ericsson was owed approximately ₹978 crore by several Reliance group companies. When the debt remained unpaid, Ericsson initiated insolvency proceedings, leading to the admission of RCom, RTL and related entities into CIRP on 15 May 2018. Shortly thereafter, on 30 May 2018, the National Company Law Appellate Tribunal (NCLAT) stayed the CIRP and recorded a settlement framework whereby the Reliance group agreed to pay ₹550 crore within 120 days, subject to the outcome of pending appeals.

When the payment was not made, Ericsson initiated contempt proceedings before the Supreme Court. On 20 February 2019, the Supreme Court directed the companies to “purge the contempt” by paying ₹453 crore, in addition to ₹118 crore already deposited. To comply with this order, a payment of ₹461.71 crore was made on 18 March 2019. Importantly, the Tribunal noted that the money was not paid from the assets of RCom or RTL but from third-party Reliance group entities, including Reliance Realty Ltd., Reliance Communication Infrastructure Ltd. and Reliance Tech Services Ltd.

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The RP later issued a demand notice on 22 August 2019 seeking refund of the amount, asserting that the payment violated the moratorium and amounted to a preferential transfer under Section 43 of the IBC. Ericsson declined the demand, contending that it received the amount strictly pursuant to the Supreme Court’s contempt directions and that no part of the payment came from the corporate debtors’ assets.

Accepting Ericsson’s stand, the Tribunal held that Section 43 of the IBC was inapplicable since the payments were made after the commencement of the CIRP and did not constitute a transfer of the corporate debtors’ property. It observed that “the impugned payments, indubitably, were made after commencement of CIRP on 15.05.2018,” and therefore could not be treated as preferential.

The NCLT also rejected the allegation of moratorium breach under Section 14, noting that the corporate debtors’ assets were never depleted. It stated that no contravention existed because “no amount was paid from the assets or properties of the Corporate Debtor,” eliminating any basis to order restitution or refund.

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The Tribunal further held that the RP’s reliance on the NCLAT’s earlier stay order and its provision for refund was misplaced. The appellate proceedings were “withdrawn” and not dismissed, and the refund mechanism contemplated under the NCLAT order therefore did not come into play. The Tribunal also found no merit in the plea based on the principle of restitution, noting that the funds did not belong to the corporate debtors and were not part of the assets available on the CIRP commencement date. Ultimately concluding that the payment was made only to comply with the Supreme Court’s contempt judgment and had no connection to any preferential transaction or moratorium violation, the NCLT dismissed all refund applications filed by the Resolution Professional.

Appearance

For Applicant: Advocates Rishab Jaiswani, Kriti Kalyani, Richa Bharti i/b Shardul Amarchand Mangaldas & Co.

For Respondent in MA No. 3286/2019 in CP (IB)/1386/2017: Senior Advocate Pessy Mody, Advocate Rohan Kapadia

For Respondent in MA No. 3369/2019 in CP (IB)/1387/2017: Senior Advocate Anil Kher, Advocates Ashwin Ankhad, Atishay Suresh

Cause Title: Ashish Nanavaty vs Ericsson India Private Limited

Case No: MA No. 3286/2019 in CP (IB)/1386/2017 and MA No. 3369/2019 in CP (IB)/1387/201

Coram: Judicial Member Sushil Mahadeorao Kochey, Technical Member Prabhat Kumar