Spectrum under IBC cannot be used if govt dues not paid

Telcos cannot use or transfer the airwaves under the Insolvency and Bankruptcy Code (IBC) without the payment of requisite government duesPremium
Telcos cannot use or transfer the airwaves under the Insolvency and Bankruptcy Code (IBC) without the payment of requisite government dues
 3 min read . Updated: 13 Apr 2021, 10:59 PM IST Ishita Guha

The appellate tribunal clarified that spectrum, which is an intangible asset of a telecom company, can be subjected to insolvency proceedings or liquidation

Spectrum held by bankrupt telecom operators cannot be transferred to new buyers under insolvency proceedings if past government dues are not cleared, the National Company Law Appellate Tribunal (NCLAT) said on Tuesday, dealing a blow to lenders that are yet to recover from resolution of Reliance Communications Ltd (RCom), Aircel Group and Videocon Telecommunications Ltd.

The appellate tribunal clarified that spectrum, which is an intangible asset of a telecom company, can be subjected to insolvency proceedings or liquidation. However, telcos cannot use or transfer the airwaves under the Insolvency and Bankruptcy Code (IBC) without the payment of requisite government dues. It added past dues cannot not be wiped off under bankruptcy proceedings.

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“Triggering of Corporate Insolvency Resolution Proceedings (CIRP) under IBC by the corporate debtor with the object of wiping off of such dues, not being for insolvency resolution, but with malicious or fraudulent intention, would be impermissible," the tribunal said.

NCLAT’s judgment relates to the Supreme Court order of 1 September, 2020, where the apex court had directed the National Company Law Tribunal (NCLT) to consider all issues over sale of spectrum usage rights and adjusted gross revenue (AGR) dues of bankrupt telcos—RCom, Aircel and Videocon.

Though the top court had authorised NCLT to look into the matter, an application filed by Aircel on 9 September requested the Supreme Court to allow the NCLAT to take decisions related to its spectrum sale as nothing was pending before the NCLT. The apex court then authorised NCLAT.

However, a two-judge bench, headed by Justice S.Abdul Nazeer, said the decision was only for Aircel as the NCLT had already approved UV Asset Reconstruction Co. Ltd’s resolution bid for the bankrupt telco.

“The judgement removes regulatory uncertainties on the issue of status and trading of spectrum during insolvency proceedings. Rightly, it rejected the argument of the DoT that spectrum is not an intangible asset and not subject to insolvency proceedings. Spectrum is the core of telecom business of telecom operators, and this judgement will facilitate maximisation of the value of its assets in insolvency proceedings," said Asim Abbas, partner, L&L Partners.

The NCLAT also clarified that spectrum cannot be treated as a security interest by the lenders. The tribunal said the government is an operational creditor. This means that the Centre has little or no chance to recover its AGR dues as financial lenders get preference over the operational ones under IBC.

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On 1 September, the Supreme Court allowed telecom operators—Vodafone Idea Ltd, Bharti Airtel Ltd and Tata Teleservices Ltd—to pay their AGR dues in 10 years. However, the court did not decide on whether spectrum could be sold under the insolvency process of bankrupt telcos.

Prior to the judgment, while lenders argued that spectrum was an asset and an important part of the insolvency resolution process to recover dues, the department of telecommunications (DoT) countered that it could not be sold as it was national property.

In June, the Mumbai bench of NCLT approved a ₹6,630 crore bid by UV ARC that included transfer of spectrum, subject to the government's approval. Aircel owes ₹12,389 crore to the DoT in AGR dues.

RCom has to pay ₹25,199.27 crore in AGR dues and Videocon owes the government ₹1,376 crore.

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