SC asks Vodafone to pay Rs2,000 cr for merger of its entities

The Supreme Court on Monday asked Vodafone Mobile Services Ltd (VMSL) to pay Rs2,000 crore to the union government in pursuance of a proposed merger of four entities into itself. The move would bring Vodafone India Ltd, India's second largest communications services provider, a step closer to listing on the stock exchanges.

Vodafone India wants to merge Vodafone East, Vodafone Cellular, Vodafone South and Vodafone Digilink into VMSL as a precursor to what is expected to be one of the larger initial public offerings in India.

VMSL is an arm of Vodafone India, which in turn, is a unit of Vodafone Group plc.

The government approached the apex court after the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) on 19 October allowed provisional merger of the permits of these four entities. A Vodafone spokesperson declined comment as the matter is in court.

A bench comprising justices J S Khehar and R Banumathi said the government would approve the merger orders ''as soon as the amount is paid''.

Vodafone, in a letter dated 4 March, had agreed to pay Rs1,773 crore to the government, provided its merger was approved by 10 March.

Additional solicitor general P S Narasimha, the government's counsel, told the court that laws required Vodafone to pay all dues and demands before the merger took place. This was done to ensure that no company indirectly acquired spectrum without participating in the auctions, he said.

Vodafone needed to pay Rs6,678 crore to the government under various heads for the merger to go through, Narasimha said.

These heads include payment of a one-time spectrum charge, the spectrum usage charge and computation of the adjusted gross revenue (AGR).

Vodafone's lawyer K K Venugopal said there was no movement of spectrum in these mergers. He said most of the amounts due claimed by the government were disputed and stayed by tribunals or courts.

Narasimha told the court that the government was willing to exclude the disputed amounts and quoted a sum of Rs4,064 crore that the telco would have to pay. The court also asked the concerned courts and tribunals, dealing with the various disputes of one-time spectrum charge, the spectrum usage charge and computation of the adjusted gross revenue to dispose of the cases as early as possible as a ''huge amount of money was involved'' in them.

It further said that if eventually VMSL succeeded in the other cases, it would be entitled to refund and interest on the Rs2,000 crore, which would be set by TDSAT.

Vodafone can only go ahead with the merger and inform the Registrar of Companies after it receives approval from the government in the form of a no objection certificate.

The proposed merger was first sought three years ago when the Indian subsidiary of UK-based Vodafone Group was considering a share sale. The telco later dropped the proposal citing weak market conditions, regulatory uncertainty and the ongoing Rs20,000-crore tax case being fought between its parent company and the Indian government.

It has revived the idea after the Indian entity became a wholly-owned unit of the UK entity, market conditions improved, and the ruling National Democratic Alliance made all the right noises about the tax case.

A corporate partner at a leading law firm said the court's move has opened the doors for the merger and helps Vodafone move further with its IPO plans.