The insolvent Reliance Communications (RCom) has alleged that Swedish Telecom company Ericsson has been using India’s Insolvency and Bankruptcy Code (IBC), 2016 as a tool for coercion and debt recovery, and to seek ‘preference’ in repayments over other creditors.

Gaurav Joshi, senior counsel appearing for RCom, argued before the National Company Law Tribunal (NCLT),“IBC is not to be used as a tool for coercion and debt recovery by individual creditors. [This is] exactly what Ericsson was doing – improperly using IBC to include insolvency as a substitute for debt enforcement or attempting to obtain preferential payments by coercing the debtor using insolvency proceedings.”

RCom seeking ₹550-crore refund

A bench led by Justices Prabhat Kumar and Sushil M Kochey of the Mumbai NCLT was hearing RCom’s petition seeking a refund of ₹550 crore of dues paid to Ericsson plus interest.

At the heart of the matter is a condition imposed by the National Company Law Appellate Tribunal (NCLAT) in its order of 2018, which said the amount paid under the settlement could be refunded if RCom’s insolvency appeals were dismissed. Ericsson had later challenged this condition before the Supreme Court, but the Swedish company withdrew its petition, Joshi told the bench.

“You cannot take the benefit of an order and then not comply with it,” Joshi argued, pointing out that Ericsson had accepted the conditional settlement and given undertakings, but later attempted to challenge the very conditions. “Having withdrawn the petition, they cannot now agitate this issue before NCLT. Their understanding was clear—they would have to bring back the money if the appeals failed.”

After a thorough hearing, the bench posted the matter for 18 September. Senior advocates PS Modi and Anil Kher represented Ericsson.

‘Abuse of process’

At an earlier hearing, senior advocate Anil Kher, representing Ericsson, maintained that the demand for a refund was an “abuse of process”, stressing that the Supreme Court had directed the settlement under Article 142 of the Constitution, which empowers the apex court to pass orders to secure complete justice.

In September 2017, Ericsson initiated insolvency proceedings against RCom and its subsidiaries Reliance Infratel and Reliance Telecom over unpaid dues exceeding ₹1,500 crore. The NCLT admitted Ericsson’s plea in May 2018. Rcom, along with certain financial creditors under the joint lenders’ forum, then approached the NCLAT, seeking a stay on the insolvency proceedings on the grounds that they could hamper the firm’s recovery.

On 30 May 2018, the NCLAT halted the insolvency proceedings until 30 September 2018 to allow RCom to pay Ericsson ₹550 crore (of the ₹1,150 crore due) and settle the matter. However, it imposed a condition. If insolvency proceedings against RCom were dismissed, Ericsson would have to refund the money.

In 2019, a bench led by Justice SJ Mukhopadhaya vacated the stay and send the matter back to NCLT, directing lenders to restart insolvency proceedings against the bankrupt firm.

Byju’s precedent

Joshi argued, “The 2018 NCLAT order had explicitly recorded the payment ( ₹550 crore) as ‘subject to the outcome of appeals’, and mandated that Ericsson would refund the amount if the appeals were dismissed. This was not an unconditional payment; it was akin to securing Ericsson’s dues pending the appeal. With the appeals dismissed and insolvency revived, the money must revert to the debtor.”

Joshi added that in the Byju’s insolvency case, the Supreme Court of India had clarified that once insolvency proceedings were admitted, they became ‘in rem’ proceedings, impacting all stakeholders and requiring a structured process for any withdrawal or settlement, not just a private agreement between the initial parties.