Bank guarantees: Trai keeps 20% telecom BG rule intact

Why bank guarantees are back in focus

India’s leading private telecom operators may take up the issue of abolishing bank guarantees with the Department of Telecommunications (DoT) after the sector regulator rejected their demand. The Telecom Regulatory Authority of India (Trai), in its recommendations on “Rationalization of Entry Fee and Bank Guarantees”, proposed continuing the practice of submitting bank guarantees (BGs) to secure statutory payments. The issue matters because BGs lock up banking lines and can affect funding costs for companies, while also serving as a security mechanism for government dues. Trai’s view keeps the existing compliance structure largely unchanged, even as operators seek lighter financial conditions. Separately, a series of disputes involving Reliance Communications (RCom) and guarantees in courts and tribunals has kept the wider debate on guarantees active.

What Trai recommended to the government

Trai proposed that the system of submitting BGs for securing statutory dues should continue. Under the current practice, telecom companies submit BGs to the DoT to secure statutory dues such as licence fee (LF) and spectrum usage charges (SUC). The recommendation comes after operators asked for the removal of BG requirements, but Trai did not accept that demand. The regulator’s recommendation is advisory, and the final call rests with the DoT and the government’s policy framework.

How telecom BGs work after reforms

After reforms, telecom companies submit BGs worth 20% of the LF and SUC for two quarters. These BGs act as a financial instrument to secure government payments. If statutory dues are not paid on time, the government has the option to encash the BGs to secure the payments. The structure is designed to reduce immediate risk to government collections while allowing operators a defined coverage framework rather than larger, open-ended guarantees.

A parallel guarantee story: NCLT action against Anil Ambani

In a separate development, the National Company Law Tribunal (NCLT) directed initiation of insolvency proceedings against Reliance Communications Chairman Anil Ambani to recover ₹1,200 crore under the personal guarantee clause of the bankruptcy law. State Bank of India is attempting to recover over ₹1,200 crore from Ambani under the personal guarantee clause at the NCLT. The dispute highlights how personal and corporate guarantees can become central in lender recovery actions when corporate borrowers face stress.

SBI and the Reliance group loans cited in the dispute

A lawsuit filed by State Bank of India seeking to invoke Ambani’s personal guarantees “does not relate to any personal borrowing” but arose from a guarantee for loans availed by Reliance Communications (RCom) and Reliance Infratel Ltd (RITL) in 2016. The context presented is that the loan was taken to repay debts of Chinese and certain other Indian banks. This framing is relevant because it distinguishes between personal borrowing and a personal guarantee supporting a corporate loan.

London High Court order and the Chinese banks’ claim

Ambani has also been fending off a London High Court order from May directing him to repay $116 million (around ₹5,000 crore) to three Chinese banks, an amount he raised for RCom through personal guarantees. Ambani told shareholders that the proceedings relate to a corporate loan availed by RCom in the normal course of business. He said the guarantee on which the claim was made was not signed by him, and that he had only signed a power of attorney limited to executing a non-binding letter of comfort to the Chinese banks. The three Chinese banks, however, said they provided a loan of $125.2 million to RCom in 2012 on the agreement that Ambani would provide a personal guarantee.

TDSAT directs DoT to release ₹2,000 crore BG to RCom

On the corporate side, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) directed the DoT to release a ₹2,000 crore bank guarantee provided by RCom. RCom had provided the BGs in 2016 to secure payment of spectrum-related charges. The company approached the tribunal contesting the demand for BGs for one-time spectrum charges (OTSC). TDSAT held that OTSCs levied by the DoT were invalid. The tribunal order was also seen as reducing non-funded exposure of banks by ₹2,000 crore and helping accelerate RCom’s asset monetisation programme of ₹25,000 crore that had been announced earlier.

Supreme Court proceedings and the spectrum sale to Reliance Jio

The Supreme Court refused, for the time being, to stay the telecom tribunal order directing the DoT to return BGs of about ₹2,000 crore to RCom, while admitting the DoT’s appeal and setting the next hearing for September 6. In a related strand, the centre approached the Supreme Court to reiterate its demand of ₹2,940 crore in bank guarantees from RCom before clearing the proposed asset sale to Reliance Jio Infocomm. The centre challenged a TDSAT order dated October 1 that rejected the DoT’s plea seeking bank guarantees before approving the RCom-Jio deal. The government also argued that guidelines mandate securing outstanding dues only through bank guarantees.

RCom’s interim relief on ₹2,900 crore BG demand

RCom said TDSAT, through an interim order dated October 1, 2018, stayed the DoT’s demand for a ₹2,900 crore bank guarantee. Reuters also reported that spectrum trading was to be completed without a bank guarantee of ₹2,900 crore demanded by the DoT. In that disclosure, RCom said it would receive ₹975 crore from the sale of spectrum and would pay ₹550 crore to Ericsson and ₹230 crore to RITL minority investors from the proceeds.

Corporate guarantee of ₹1,400 crore for NoC

Reliance Communications said its subsidiary Reliance Realty furnished a corporate guarantee of ₹1,400 crore to the DoT, as directed by the Supreme Court. The Supreme Court, on November 30, asked the DoT to give a no-objection certificate (NoC) for RCom to sell its spectrum to Reliance Jio, provided the corporate guarantee was furnished by its group firm. RCom stated that, as per the order, DoT was to approve the spectrum trading within the week.

Restoring BGs worth ₹774 crore to protect licences

RCom, along with its subsidiary Reliance Telecom, restored bank guarantees of ₹774 crore with the DoT to fend off the risk of licence and spectrum revocation. Separately, it was reported that RCom secured an initial instalment of approximately ₹800 crore through asset monetisation efforts. The reinstatement happened ahead of a September 10 deadline set by TDSAT. RCom said this action safeguarded its licence and spectrum valued at ₹11,300 crore and was aligned with guidelines referenced in NIA2013 and NIA2015.

Key figures at a glance

Market impact and why these disputes matter

Trai’s recommendation to retain BGs suggests that the regulatory system will continue to rely on financial instruments for securing government dues such as LF and SUC. For telecom operators, this keeps compliance and banking line usage as an ongoing operational requirement. The RCom litigation shows how BGs, corporate guarantees, and personal guarantees can materially affect transaction timelines and creditor recovery actions. Tribunal and court decisions have also had direct implications for bank exposure, spectrum trading processes, and the sequencing of payments to vendors and investors from monetisation proceeds.

Conclusion

Trai’s position supports continuity in telecom bank guarantee requirements, even as operators consider raising the issue with the DoT again. At the same time, disputes around RCom’s BGs and corporate guarantees, and personal guarantee claims involving Anil Ambani, underline how guarantee structures can shape outcomes in insolvency, recovery, and asset sale processes. The next steps in several strands are already procedural, including scheduled hearings and pending approvals tied to spectrum trading and guarantee submissions.