Vodafone Idea tries to save itself from bankruptcy: report

Vodafone Idea (Vi), the third largest telecom company in India, is in dire financial straits. The company tries to reimburse the financial institutions first before doing anything else, as it tries to avoid bankruptcy. The phone company had recently paid Rs 2700 crore to the State Bank of India (SBI) even before the due date of said payment. Due to financial difficulties, Vi may find it difficult to expand network services, introduce new products to the market, and at the same time be able to repay financial creditors. Vodafone Idea must give priority to repaying financial creditors, and this is what the company does. If you’re wondering how this saves Vi from bankruptcy, let us explain.

Why Vodafone Idea could be dragged into bankruptcy court

According to Indian laws, if a company fails to pay its financial creditors, the latter have the power and the right to take the company directly to the National Company Law Tribunal (NCLT). For the ignorant, NCLT is the dedicated bankruptcy court in India. To do this, financial institutions do not even require advance notice.

The same cannot be done by vendors who provided company equipment, technology and services on credit. According to a report by ET Telecom, the sellers are considered the operational creditors. The process for operating creditors to bring a business into the NCLT is much longer.

Amounts owed by Vodafone Idea to financial lenders or creditors have been reduced to Rs 15,080 crore in the quarter ending September 2022 from Rs 23,400 crore in the June quarter of FY22, added the report. While there have been no concerns that the company will be dragged into bankruptcy court just yet, ET’s report suggests that Vi’s decision to repay financial creditors is first to saving himself from the position of being put in front of NCLT.

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