Vodafone Idea clearing dues to banks first to avoid a visit to bankruptcy court: Experts

Loss-making Vodafone Idea (Vi) is prioritising clearing its dues to banks and financial institutions over vendor payments to possibly avoid getting dragged to the bankruptcy court, if the telco was to face such a situation in the future, industry executives and legal experts said.

Vi, they said, would be aware that banks, in their capacity as financial creditors, could directly take a company that had defaulted on a payment to the NCLT, without any prior notice under the IBC. Vendors, who are operational creditors, however, will have to follow a lengthier process. Over the past year, Vi's dues to banks and other lenders had fallen by more than a third - from ₹23,400 crore in Q1 of last fiscal year to ₹15,080 crore in September quarter of FY23. But its trade payables increased 10% to almost ₹15,030 crore from ₹13,658.6 crore in Q1 of FY22. There though has been no talk so far of the telco being dragged to the NCLT.

"...it would make sense for Vi to ensure its bank dues are paid on time, in precedence to vendor debt, to avoid being potentially dragged to NCLT by financial creditors in future," Sanjeev Kumar, partner, Luthra and Luthra Law Offices India, told ET.

This is since in the case of financial debt, the NCLT only needs to be convinced of a default on debt over ₹1 crore, irrespective of disputes, which leaves a narrow scope for debtors who default on a financial debt, as compared to operational debt, he said. This is not the case with operational creditors, Kumar said. "In the event of an alleged payment default, (vendors) would have to first serve a statutory demand notice to the telco under Section 8 of the Code, following which, a debtor is given 10 days to respond, and only thereafter, can an operational creditor approach the NCLT."

Vi did not respond to ET's queries till press time on Tuesday.