By Himanshu V. Kishnadwala
Chartered Accountant
REPORTING AND DISCLOSURES IN QUARTERLY CONSOLIDATED
RESULTS FOR A MATERIAL EVENT OCCURRING AFTER THE END OF THE QUARTER (PERIOD AND
QUARTER ENDED 30th SEPTEMBER, 2019)
BHARTI AIRTEL LTD.
From: Notes below statement of audited consolidated
results
(A) Details of the specific
event and implications of these on these financial results
On October 24, 2019, the Honourable Supreme Court of India delivered a
judgment in relation to a long outstanding industry-wide case upholding the
view considered by Department of Telecommunications (‘DoT’) in respect of the
definition of Adjusted Gross Revenue (‘AGR’) (‘Court Judgment’). The Hon’ble
Supreme Court has allowed a period of three months to the affected parties to
pay the amounts due to DoT. This Court Judgment has significant financial
implications on the group.
The management is reviewing its options and remedies available,
including but not limited to filing petitions before the Supreme Court and
seeking other reliefs, with others affected in the industry, from the
government. As on the date, the management understands that the government has
formed a high-level Committee of Secretaries across Ministries to assess the
stress in the industry and recommend suitable measures.
In the absence of available reliefs, the group has, in these financial
results, provided for an additional amount of Rs. 168,150 million (comprising
of principal of Rs. 32,070 million, interest of Rs. 70,000 million, penalty of
Rs. 24,920 million, and interest on penalty of Rs. 41,160 million) as a charge
to the statement of profit and loss, with respect to the license fee payable as
estimated based on the Court Judgment. In addition, an amount of Rs. 116,350
million (comprising of principal of Rs. 29,570 million, interest of Rs. 52,190
million, penalty of Rs. 12,680 million, and interest on penalty of Rs. 21,910
million) with respect to spectrum usage charges (‘SUC’), based on the
definition of AGR, has further been provided as a charge to the statement of
profit and loss as estimated, albeit the group believes SUC is a charge
related to use of spectrum and should be levied only on the AGR earned from
wireless access subscribers / services. These provisions have been made without
prejudice to the group’s right to
contest DoT’s demands on facts as well as on rights available in law.
Accordingly, in the absence of available reliefs, with respect to the
operations of the group, the liabilities / provisions as at September 30, 2019
aggregate Rs. 342,600 million (comprising of principal of Rs. 87,470 million,
interest of Rs. 154,460 million, penalty of Rs. 37,600 million, and interest on
penalty of Rs. 63,070 million).
Management plan
to deal with this event and the material uncertainty related to the event
The group will require significant additional financing to discharge its
obligations under the Court Judgment… the management’s actions include, inter
alia, accessing diversified sources of finance. The group has an
established track record of accessing diversified sources of finance across
markets and currencies. However, there can be no assurance of the success of
management’s plans to access additional sources of finance to the extent
required, on terms acceptable to the group, and to raise these amounts in a
timely manner. This represents a material uncertainty whereby it may be unable
to realise its assets and discharge its liabilities in the normal course of
business, and accordingly may cast significant doubt on the group’s ability to
continue as a going concern.
From: Independent auditors’ report on audit of
interim consolidated financial results
Material
uncertainty related to going concern
The accompanying Consolidated Financial Results have been prepared
assuming that the group will continue as a going concern. As discussed in Note
3 to the Consolidated Financial Results, the company has referred to a judgment
delivered by the Honourable Supreme Court of India on October 24, 2019 in
relation to a long outstanding industry-wide case upholding the view considered
by the Department of Telecommunications in respect of definition of Adjusted
Gross Revenue which, along with other matters as stated in the said Note,
indicates that a material uncertainty exists that may cast significant doubt
about its ability to continue as a going concern. Management evaluation of the
events and conditions and management’s plans regarding these matters are also
described in Note 3.
Our opinion on the Statement is not modified in respect of this matter.
Emphasis of matter
(i) …………..
(ii) …………..
Our opinion on the Statement is not modified in respect of these
matters.
VODAFONE IDEA LTD.
From: Notes below statement of unaudited
consolidated results
(A) Subsequent to the quarter end, the Hon’ble Supreme
Court on 24th October, 2019 passed the judgment (SC AGR Judgment) on
cross appeals against the Hon’ble TDSAT judgment dated 23rd April, 2015
wherein it has held that the definition of Gross Revenue under Clause 19 of the
UASL is all-encompassing and comprehensive. The Hon’ble Supreme Court has
further held that the gross revenue definition shall prevail over the
accounting standards and is binding on the parties to the contract / license
agreement. The Hon’ble Supreme Court has then dealt with different heads of
revenue / inflow and has held that these will fall within the definition of
adjusted gross revenue. Further, the Hon’ble Supreme Court has upheld the levy
of interest, penalty and interest on penalty stating that the levy is as per
the terms and conditions of the license agreement.
Consequent to the above, the company has estimated license fee of Rs.
276,100 million and Spectrum Usage Charges (SUC) of Rs. 165,400 million
(including interest, penalty and interest thereon of Rs. 330,050 million) (‘AGR
liability’) based on the DoT demands received till date and estimation for
periods for which demands have not been raised by DoT, together with interest
and penalty, all taken for periods up to 30th September, 2019 and
adjusted for certain computational errors. Whilst the company has provided for
SUC, considering that no spectrum is used for generating non-telecom income,
the company is evaluating the levy of SUC on such income. Accordingly, during
the quarter, the company has recognised a charge of Rs. 256,779 million as an
exceptional item after adjusting the available provisions and adjustments for
potential payments under a mechanism on satisfaction of contractual conditions
as per the implementation agreement dated 20th March, 2017 entered
on merger of erstwhile VInL and ICL in relation to the crystallisation of
certain contingent liabilities which existed at the time of merger. Also, the
company has informed the lenders and bond holders about the SC AGR judgment, as
required under the financing agreements entered with them and also notified the
stock exchanges.
The Hon’ble Supreme Court has directed the telecom operators to pay the
dues within 90 days from the date of the SC AGR Judgment. By its letter of 13th
November, 2019, the DoT has directed the company to make payment in
accordance with SC AGR judgment based on its own assessment with requisite
documents. The company would complete its assessment, reconcile / validate the
DoT demands and true up the estimates considered in accordance with SC AGR
judgment.
The company is in the process of filing a review petition with the
Hon’ble Supreme Court. Further, the company through Cellular Operators
Association of India (‘COAI’) has made representations to the government to
provide relief to the telecom sector, including but not limited to requesting
to not press for the AGR liability payment and grant waivers, not levy spectrum
usage charges on non-licensed revenue / income, reduction of licence fee and
SUC rates, use of GST credit for payment of government levies and allow payment
to be made in instalments after some moratorium and grant a moratorium of two
years for the payment of spectrum dues beyond 1st April, 2020 up to
31st March, 2022. The Government has taken cognisance of these
representations and has recently set up a Committee of Secretaries (‘COS’) to
evaluate the telecom operator’s plea and suggest measures to mitigate the financial
stress.
(B) During the year ended 31st
March, 2019, the company had classified Rs. 102,062 million from non-current
borrowings to current maturities of long-term debt for not meeting certain
covenant clauses under the financial agreements for specified financial ratios
as at 31st March, 2019. The company had exchanged correspondence /
been in discussions with these lenders for the next steps / waivers.
Based on the above waiver and / or grant of deferred payment terms for
the AGR liability by the government, reduction of license fee and / or SUC
rates and a moratorium on payment of DoT spectrum instalments are essential to
meet the funding requirement for the aforesaid payments. The above factors
indicate that material uncertainty exists that casts significant doubt on the
company’s ability to continue as a going concern and its ability to generate
the cash flow that it needs to settle, or refinance its liabilities and
guarantees as they fall due, including those relating to the SC AGR judgment. The
company’s ability to continue as going concern is dependent on obtaining the
reliefs from the government, as discussed in Note 5(A) above and positive
outcome of the proposed legal remedy. Pending the outcome of the above matters,
these financial results have been prepared on a going concern basis.
From: Independent auditors’ review report on
unaudited consolidated financial results
We draw attention to Note 5 to the financial results regarding the
Hon’ble Supreme Court judgment dated 24th October, 2019 on the
definition of gross revenue as per the UASL agreement and the liability on
licence fee and spectrum usage charges of Rs. 441,500 million payable within 90
days from the Supreme Court judgment and breach of debt covenants, its ability
to generate the cash flow that it needs to settle, or refinance its liabilities
and guarantees as they fall due resulting in a material uncertainty that casts
significant doubt on the holding company’s ability to make the payments
mentioned therein and continue as a going concern.
The said assumption of going concern is dependent upon the holding
company obtaining the reliefs from the government as discussed in Note 5,
positive outcome of the proposed legal remedy. Our conclusion is not modified
in respect of this matter. 
