SC rejects Vodafone, Airtel curative petition hearing; ₹1.47 trillion AGR demand stands

The Supreme Court declined to hear curative petitions filed by Vodafone Idea and other telecom companies seeking relief in the apex court’s 2019 ruling that added their non-telecom revenue to the adjusted gross revenue (AGR) for calculating licence fees and spectrum usage charges payable to the government.

“Application for listing the curative petitions in open court is rejected,” a three-judge bench headed by Chief Justice of India DY Chandrachud said in its order dated August 30, which was issued on Thursday. “The curative petitions are dismissed in terms of the signed order. Pending application, if any, stands disposed of.”

The order is a blow for Vodafone Idea and Airtel, which had hoped to reduce their burden of ₹1.47 trillion in AGR dues to the government. Lower payments could have helped loss-making Vodafone Idea reduce its debt burden, but with the rejection of its curative petition, its financial troubles may continue to mount.

Also Read: Call waiting: How Vodafone Idea can claw its way back

Brokerages expected a reduction of ₹35,000 crore in the AGR dues in the event of a positive outcome from the curative petitions.

Vodafone Idea shares fell 19.6% to ₹10.38 at the close on the BSE on Thursday. Bharti Airtel shares gained 0.75% to ₹1,665.05, off the day's high of ₹1,711.

The pleas sought corrections of clerical and arithmetic errors in calculations of AGR by the telecom department. The telcos also wanted the penalty to be limited to 50% of the pending dues instead of the full amount and that the interest rate on the penalty be lowered. The companies claimed the telecom department had imposed ‘arbitrary’ penalty amounts that should be lowered.

For Bharti Airtel, relief would have strengthened it financially and enabled it to improve the return on capital employed and returns to shareholders. However, the SC’s order will negatively impact Vodafone Idea’s ability to pay existing dues and increase pressure on cash flows.

Financial crisis

To be sure, the Aditya Birla Group-backed Vodafone Idea raised ₹18,000 crore from the country’s largest follow-on public offer in April and is in discussions with banks to raise debt and bank guarantees totaling ₹35,000 crore. The No. 3 telco has a five-year ₹55,000 crore capex plan to rebuild its services and become competitive.

Also Read: Keen to tap banks for ₹35,000 crore, now that evaluation’s done: Vodafone Idea

The court’s decision will also adversely impact Indus Towers, which fell 8.9% to ₹389.65 on the BSE. Vodafone Idea is one of its largest tenants and owes it ₹7,000- ₹10,000 crore.

As per the 2019 order of the SC, against which the curative petitions were filed, Vodafone Idea and Bharti Airtel were supposed to have paid ₹1.47 trillion in AGR dues to the government. The government was to get ₹92,461 crore as licence fees, which is 5% of AGR, and ₹55,000 crore in spectrum usage charges, which were at 3% of AGR.

The 2019 order was a body blow to the telcos and severely affected their balance sheets and profitability. Vodafone Idea had raised concerns about the dues in the backdrop of its own financial crisis, stating that the AGR demanded exceeded the principal amount.

The court subsequently allowed the telcos to pay up the AGR dues over a 10-year period, in response to a plea in September 2020. In 2021, the court dismissed a plea seeking corrections in the demands raised by the telecom department on the grounds of computation errors.

The telcos subsequently paid up about ₹12,500 crore, or 10% of the dues, upfront to the government that year. Lawyers aware of the details said the telcos had been paying the annual obligations to the government as per the 2020 ruling, and the curative petitions could have lowered the total amount and subsequent annual instalments.

Also Read: Vodafone Idea narrows losses to ₹6,434 crore, revenues down, Arpu flat

The telecom department estimated Airtel’s AGR dues at ₹43,980 crore as opposed to the company’s own estimate of ₹13,004 crore. For Vodafone Idea, the DoT’s demand was ₹58,254 crore versus ₹21,533 assessed by the company.

Tata Teleservices, also a party to the case, faced a demand of ₹16,798 crore compared with its own estimate of ₹2,197 crore.

"Vodafone Idea and Bharti Airtel can still approach the Indian government for relief despite the legal challenges," said Ankit Rajgarhia, principal associate at Karanjawala & Co. He explained that the Department of Telecommunications and the finance ministry have the authority to provide policy-related assistance or restructure the dues through regulatory adjustments.

Experts said Vodafone Idea, in particular, could benefit from an extension of payment deadlines, alleviating its immediate cash flow issues. In the past, the government has also offered the option of converting a portion of dues into equity, which, while diluting existing shareholders' stakes, could ease financial pressure.

Long-term reforms

The possibility of reducing penalties and interest on AGR dues could also be explored, though this would be a policy decision rather than a legal one.

Additionally, experts said there is potential for long-term reforms, such as adjustments to spectrum pricing, taxes, and licensing fees, which could make the telecom sector more sustainable. While the courts may have closed certain legal avenues, the government remains a key player in providing relief.

Macquarie said in a note on Thursday, following the judgment, that while the tariff outlook has been improving, without any AGR concessions it would take at least 25-30 years for Vodafone Idea to organically pay back its obligations, and therefore further repayment timeline extensions are required.

Vodafone Idea has paid ₹7,900 crore ($1 billion) of its AGR dues. In Q1 of FY25, the telco's debt included ₹70,300 crore towards AGR, besides Rs1.39 trillion for spectrum.

Brokerage CLSA said in a note that relief is crucial for Vodafone Idea and in its absence, the company could face a financial crisis in the second half of next year when annual spectrum and AGR payments of $4-5 billion become due every year.

It noted that of the AGR liability of $8.5 billion, 20% was the principal amount and the rest represented interest and penalties. Compared to this, Bharti Airtel has already paid $ 2.2 billion of its AGR dues of about $5.3 billion.

Both Vodafone Idea and Bharti Airtel had opted for a four-year moratorium on AGR and spectrum dues as part of the government's relief package in September 2021.