HC says won't consider non-encashment of Reliance Communications' bank guarantees as default

New Delhi: The Delhi High Court said on Monday non-encashment of Reliance Communications' ₹800 crore bank guarantees by Yes Bank, State Bank of India, Punjab National Bank and Canara Bank would not be considered an "RBI default case" until September 3, when the matter would be heard next.

The direction came on petitions filed by the banks and others challenging the Department of Telecommunications' move to invoke the guarantees, in a case related to the insolvency proceedings of the effectively defunct telecom company that was part of Anil Ambani's Reliance Group. The bank guarantees are valid until 2027.

Justice Mini Pushkarna said until the matters were heard and the legality of DoT's move to invoke the guarantees and banks' opposition adjudicated, any action of non-encashment of the guarantees by the banks would not be considered a default.


RCom and related entities, also petitioners in the case and represented by their resolution professional (RP), submitted that while they were the allottees of licence for the use of spectrum by DoT on the basis of annual payments, they were now facing Corporate Insolvency Resolution Process proceedings. They said the government also made a claim before the RP as an operational creditor towards the dues accrued from the usage of the spectrum, but interpreted the Supreme Court's February 13 judgment differently and already invoked the guarantees and sought to encash them.

The lenders argued that the apex court's judgment on transfer of spectrum as an asset of the debt-laden company couldn't be the basis of invocation of the guarantees. The department's move was illegal, arbitrary, ultra vires and without jurisdiction and liable to be quashed, they argued.

The government told the court that it had not been recognised as an operational creditor of RCom, thus it had the independent right to proceed against the petitioners and also the banks themselves had stood as the sureties of the guarantees as these were issued by them.