Vodafone Idea on the verge of collapse, SC refuses to give more time to pay dues

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The Supreme Court has rejected Vodafone’s plea seeking more time to settle billions of dollars in back fees. This decision is threatening to push Vodafone Group Plc’s local venture, Vodafone Idea, to the ends just weeks after the company warned about a potential collapse.

A three-judge panel at SC, headed by Arun Mishra, said on Friday that all operators, including Bharti Airtel and Vodafone Idea, must deposit all dues by March 17. Telecom operators owe a total of $13 billion in dues for spectrum and licenses.

Following SC’s rejection, Vodafone Ideas’ shares have plummeted.

These dues follow last year’s ruling that came at the end of a 14-year-long legal battle that required telecom companies to pay the government Rs 92,000 crore. The SC had set a January 24 deadline for the companies to clear the outstanding dues.

In its October 2019 verdict, SC had upheld the way the government had calculated fees using a formula that was disputed by the companies. In January this year, SC rejected their petition to reconsider the order. Telecom companies including Airtel and Vodafone Idea had approached the SC on Friday asking the bench to modify this direction.

The top court has also initiated contempt proceedings against the firms for “failing to comply with its order to pay the dues by January 24”.

This setback leaves Vodafone Idea with very few options. The company needs to pay $4 billion, the highest among all other telcos, while it tries to control a debt that has grown to $14 billion.

Highlighting its dire finances, Vodafone Idea chairman Kumar Mangalam Birla said in December that the firm “may be headed toward insolvency in the absence of any relief”.

UK-based Vodafone has already signaled that it isn’t going to put any more money into the venture of which it holds 45%. Therefore it falls on Indian partner, Birla, to figure out a future for Vodafone Idea.

“It doesn’t make sense to put good money after bad,” Birla said on December 6 last year.

“There’s zero hope for Vodafone idea. Some relaxation by the Supreme Court would’ve got them some breathing space. They’re definitely not in a position to pay,” said Neerav Dalal, an analyst at Kim Eng Securities Pvt. in Mumbai.

The Supreme Court verdict has not only hit telecom firms hard but also made non-telecom firms holding licences for internal communications and signalling liable to pay licence fee on their entire revenue, even if they do not offer telecom services.

The telecom department had sought Rs 1.72 trillion from GAIL (India) Ltd, Rs 48,000 crore from Oil India Ltd, Rs 22,168 crore from Power Grid Corporation of India Ltd, Rs 15,019 crore from Gujarat Narmada Valley Fertilisers and Chemicals Ltd and Rs 5,841 crore plus interest from Delhi Metro Rail Corp. Ltd (DMRC).