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Anil Ambani pays up: Defaulting tycoons can no longer game the system or is it a one-off?

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Anil Ambani Tuesday escaped a three-month prison term after his elder brother Mukesh Ambani agreed to repay the remaining Rs 462 crore of the Rs 550 crore that the head of Reliance Communications owed to Swedish firm Ericsson’s local unit. Ericsson successfully moved the Supreme Court to clear its dues, which shows that the crackdown on delinquent businessmen is possible.

ThePrint asks: Anil Ambani pays up: Defaulting tycoons can no longer game the system or is it a one-off?

Anil Ambani’s case shows there’s no distinction between a small fish and a big fish

Sumant Batra
Head, Corporate Insolvency and Corporate Advisory, Kesar Dass B & Associates

It’s a trend that is here to stay. There are some clear messages from this case.

The first message is that there is zero tolerance for default. This is true particularly in cases involving big conglomerates where one has resources parked in other units but one unit has gone defunct. Also, in most of the cases, promoters have their own individual wealth. The message to such promoters is that you have to mobilise the resources and pay up.

Another clear message is that there is no distinction between a small fish and a big fish when it comes to defaulters. As far as the courts are concerned, a defaulter has to pay up irrespective of their stature or size of business.

Another key takeaway is that operational creditors will be given due regard for their dues. A situation will not arise where only the dues of banks and financial institutions are taken into consideration. While funding from banks is important to set up the initial business infrastructure, operational creditors like vendors play a crucial role in the day-to-day functioning of the business and their dues also have to be protected.

This seems to be one-off case and we will have to see how far Mukesh will go to bail out Anil Ambani

Manoj Kumar
Founder & Managing Partner, Hammurabi & Solomon

Anil Ambani acknowledged the bailout by elder brother Mukesh Ambani by saying that it demonstrated strong family values. Such a gesture could not have come without understanding the implications of it on both Reliance empires.

It is too early to see this as indicating any major change of equation between the two brothers and their business empires. Anil Ambani’s Reliance Communications still has substantial outstanding debt in the market including about Rs 300 crore to the government and the telecom department. In fact, the ongoing challenges faced by Reliance Communications foreign and Indian lenders led to mutual cancellation of asset sale agreement on account of the lenders giving their consent.

While the proceeds of the asset sale would have helped Reliance Communications to reduce its debts, it would also have helped in rolling out wireless fibre to home enterprise services significantly. Following their separation in 2005, Mukesh Ambani’s Reliance Jio has consistently dealt with business interest in sectors also operated in by Anil Ambani purely from arm’s length business perspective.Treating Reliance Communications as just one of the other smaller telecom players and exploring the acquisition of distressed is assets also required for Reliance Jio’s own expansion.

While it will have to be seen how far Mukesh Ambani would go to bailout Anil Ambani in times to come, the current case clearly appears to be a one-off incident and not indicative of a game changer.

The message is clear: Things are changing and it is important to follow rulebook

Ashvin Parekh
Banking expert and managing partner, APA Services

It is a good bailout. After all, blood does matter. This bailout deal will definitely have a huge repercussion on the overall business environment of the country. Besides, of course, giving much-needed respite to Anil Ambani. This will boost the confidence of the banking system as well.

The case definitely gives a clear message – that things are changing and that it is important to follow the rulebook. Although the threat of being jailed was, I would say, a little over the top.

Having said that, it is equally important to remember that this is just one aspect, the picture is not so simple and the real story lies beyond what we have seen. It would be important to assess the overall financial situation of the web of companies that the younger Ambani brother controlled. It is important to assess the total debt and that is not only crucial, but also worrying, because repayment would depend on this.

Also read: Anil Ambani thanks big brother Mukesh after paying Ericsson to avoid jail

Each default has a unique context and it is judiciary’s task to evaluate it as such

Rajesh Chakrabarti
Professor and Dean, Jindal Global Business school, Jindal Global University

This is certainly a positive development, but it may be premature to assume a pattern from one observation. Every case is genuinely unique with its own context and implications for all stakeholders.

Every default can be seen in multiple ways and it is indeed the task of the judiciary to evaluate every case on its own merit. The nature of the creditor is also an important factor.

Too much is perhaps being read into a single (doubtless important) case possibly because of the perception about the limited reach of the arms of the law.

If we think based on this one case that all defaulting promoters will be held accountable, that may not be a correct assumption.

The real question is frequently about hesitant legal action if not complete ignorance of facts in cases of public sector banks. This case is not directly related to that at all.

By Remya Nair and Mahua Venkatesh.

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