Future of Vodafone Idea post Supreme Court of India ruling
Experts seem to believe that the recent Indian Supreme Court judgment has sealed the fate of Vodafone. The telecom giant which was already struggling to keep its customers now has a whopping 54,754 crore rupees debt on its head. Soon after the judgment was passed, the stock price of the company steadily started falling. The company witnessed a 52-week low share price of Rs. 5.40.
The company started falling into the burrows of debt after the Supreme Court overturned the Telecom Disputes Settlement and Appellate Tribunal’s judgment order. In its judgment, the Tribunal had ruled in favour of the telecom companies who had filed an appeal against the adjusted gross revenue calculation done by the Department of Telecom.
The appeal was filed by the Association of Unified Telecom Service Providers of India against the expansive definition of AGR as defined under the ambit of section 4 of the Telegraph Act. The contention of the appellants was that the definition of the term “AGR” was so ambiguous that the Department of Technology demanded a share of the company’s revenue even from those activities which did not directly or indirectly relate to the aspect of licenses as defined by the aforementioned Act.
The Tribunal in its judgment held,
“A careful reading of the Section indicates that the consideration contemplated therein is only for the privilege the Government has i.e. to establishing, maintaining or working of a telegraph, and not beyond that. Therefore, if the Central Government thinks it fit to transfer this privilege for a fixed sum of money and the licensee accepts that demand, there can be no further dispute but if Government chooses to take a percentage share of the gross revenue of the licensee as its consideration then it is logical to conclude that such sharing can be only of gross revenue derived from the transferred privilege of establishing, maintaining and working of telecommunication. In our opinion, it would be doing violence to the Section if we are to accept the argument of the learned counsel for the 1st Respondent that the words “as it thinks fit” found in the proviso would allow the Government to demand and collect a share of revenue from all the activities of the licensee irrespective of the fact whether such revenue is traceable to the revenue realized from the activities under the license or not.”
When the same case was reopened for a second time, the Tribunal examined the definition of AGR as given in the License agreement which the Telecom companies had agreed to. In the light of this analysis, the Tribunal held the following.
“The definition of Gross Revenue is an inclusive definition and the items which are allowed to be deducted from the gross Revenue to arrive at the adjusted Gross Revenue
are already defined. It is also explicitly mentioned that any set-off of related items of expense is not allowed.”
Aggrieved by the judgment, the Department of Technology filed a case with the Supreme Court challenging the verdict given therein. They claimed that they were due payment of Rs. 1,43,271 crores. They challenged the jurisdiction of the Tribunal and asked the court to direct the respondents to state the amount so charged by the Department valid under the definition of AGR.
In the light of all this, the Telecom companies did a self-evaluation and came up with a joint amount that was far lower than the Government’s which the Supreme Court rejected. The respondents asked for a period of 20 years to pay the amount due but they were given 10.
In the light of all this, the woes of Vodafone deepened. As of August 6th, 2021, the Birla Group sold its share in the company to the Government in exchange for zero liability for repayment. The stepping down as the Non-Executive Directors and Non-Executive Chairman of the company further reduced the stock markets' faith in the company's future. The stock price has reached a present low of Rs. 6.65.
If the Company is to manage to repay all its debts without going bankrupt, it will have to increase operation rates without which it cannot do it. The problem with a fee hike is that it will be the only Telecom agency operating at that rate and consumers will prefer the lower tariff rates of other service providers instead. Thereby leading to the alienation of customers and losing them to the competition at a faster pace.
Although the company has filed a petition with the Supreme Court urging them to increase the time from 10 years to 15 years, they are still waiting to hear back. Meanwhile, the company which is rapidly losing stockholder faith is hoping for a government buyout to prevent bankruptcy.
In its statements, the company has demanded a uniform playing field where all the companies are given a chance to survive. With the way things are right now, it will be difficult for Vodafone to canary out functioning without a cash infusion from somewhere.
With executives unwilling to file for bankruptcy, the only thing which will help the company is government help. Will the government help revive this saying organization remains to be seen.
The article first published on Lexology.com and the same can be accessed here.