State-run MTNL has insufficient funds to pay interest for 7.78 per cent MTNL Bond Serie VII-C which was raised against Sovereign Guaranteed Bonds and is due on August 10, the company said in a regulatory filing on Thursday.

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As per the structured payment mechanism of the tripartite agreement signed among MTNL, Department of Telecommunications and Beacon Trusteeship, the state-run telecom firm has to fund the semi-annual interest into the escrow account with adequate amount 10 days before the due date.

"...It is informed that due to insufficient funds, MTNL could not fund the ESCROW account with the adequate amount," MTNL filing said.

According to the filing, the sovereign guarantee will be invoked by the debenture trustee in case of any default made by MTNL in payment of principal and interest on the bonds and the government of India is obliged to make the payment to MTNL for the same.

A government source said that the Department of Telecom has cleared payment of Rs 64 crore for the interest of the bond due on August 1.

Minister of State for Communications, Pemmasani Chandra Sekhar has informed Rajya Sabha that MTNL has sought Rs 1,151.65 crore for payment of interest arising out of sovereign guarantee bonds in the current fiscal.

Separately, the government in the Budget has proposed to allocate Rs 3,668.97 crore for the payment of the principal amount of MTNL bonds.