In this matter, the Hon’ble SC inter-alia discussed the question that whether the spectrum can be subjected to proceedings under the IBC?
#Facts/Submissions
A) M.A. filed by the Union of India for extension of time to make the payment, it was pointed out that several telecom service providers were under insolvency proceedings under The Insolvency and Bankruptcy Code,
2016 (for short “the Code”).
B) This Court wanted to examine the bona fides of the telecom service providers who have resorted to the process of insolvency, hence, invited them to file their response.
C) The Union of India, Department of Telecommunications’ stand is that the spectrum cannot be the subjectmatter of the IBC proceedings in view of the provisions in sections 14 and 18. The dues under the licence towards the spectrum’s use cannot be put in the category of operational dues. In contrast, the Department of Commerce holds the opinion that the dues under the licence are operational dues, and the provisions of the IBC are applicable.
#Arguments by Shri Tushar Mehta learned Solicitor General of India on behalf of the Government of India
1) As per Regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the spectrum agreement cannot be held to be essential goods or services under Section 14(2) of the Code. Similarly, it cannot be subjected to proceedings under Section 18 of the Code. In the resolution plan, selling the right to use the spectrum to some other company could not have been made. A corporate debtor cannot create any third party right in any manner whatsoever.
#Arguments by Shri Shyam Divan and Shri Ravi Kadam, learned senior counsel on behalf of Committee of Creditors of RCOM, Aircel Limited, and Dishnet Wireless Limited
2) The spectrum and telecom licences are assets of the telecom company. Section 18(f) of the Code mandates that resolution professional would take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor. Section18(f)(iv) includes intangible assets. The telecom licence and right to use the spectrum form a part of the intangible assets. The right to use is a valuable right. In the financial statement, telecom licence and the right to use the spectrum had been shown as an intangible asset. Without telecom licences and spectrum, there would be no hope of reviving Aircel entities.
3) He further argued that the licence and spectrum of Aircel Entities are held in security by the lenders in terms of the TPAs to which the DoT is also a party. In the resolution plans, DoT acted as an operational creditor. The NCLT asked to take the approval of the DoT for the transacting spectrum. Thus, it is for the DoT to give permission. Dot has to approve the implementation of the resolution plan
4) Section 5(20) defines ‘operational creditor’. Section 5(21) defines ‘operational debt’ to include dues payable to the Government. Thus, claims of DoT for unpaid dues are operational debts, and DoT is an operational creditor.
5) The proceedings under the Code cannot be nullified to realise AGR and other dues of DoT.
#Arguments by Shri Ranjit Kumar, learned senior counsel, on behalf of Committee of Creditors of Aircel Limited, Aircel Cellular Limited and Dishnet Wireless Limited
6) Under the Code, UV Asset Reconstruction Company Limited has submitted a resolution plan, which has been approved by the NCLT on 9.6.2020. Aircel Entities are holders of telecom licences. The licences issued by DoT contain the format for the execution of the Tripartite Agreement between the licensor, licensee, and the lenders.
7) Aircel Entities have offered lenders spectrum as a security against the loans advanced by the lenders to Aircel Entities. Thus, the DoT claim over the spectrum will be subservient to the claims of the lenders as per the Code, and DoT has to be treated as an operational creditor.
8) The provisions of the Code have to prevail. The Government has entered into a pure business transaction by granting a licence and taking fees against the grant. The spectrum is a raw material for telecom companies. If the spectrum’s licence is terminated, the resolution professional will find it difficult to run the company as a going concern. DoT is an operational creditor. AGR dues are contractual dues and cannot have precedence over the dues of secured creditors.
9) Section 238 of the Code contains a nonobstante clause to the effect that anything inconsistent therewith contained in any other law for the time being in force, the Code shall prevail. As such, the Code overrides the provisions of the Indian Telegraph Act, 1885, Indian Wireless Telegraphy Act, 1933, and Telecom Regulatory Authority of India Act, 1997.
The Hon’ble SC in the said order mentioned that the NCLT to decide on the following questions:
a) Whether the licence/spectrum can be transferred and be a part of the resolution process initiated under the provisions of the Code?
b) Whether spectrum/licence can be subjected to the resolution process as an asset belonging to the telecom service providers?
c) Whether the AGR dues are operational dues and have to be dealt with under the provisions of the IBC?
d) Whether TSPs can be said to be the owner based on the right to use the spectrum under licence granted to them?
e) Whether a licence is a contractual arrangement?
f) Whether ownership belongs to the Government of India?
g) Whether spectrum being under contract can be subjected to proceedings under Section 18 of the Code?
h) Whether the spectrum can be said to be in possession, which arises from ownership. What is the distinction between possession and occupation? Whether possession correlates with the ownership right?
i) Whether a licence can be transferred under the insolvency proceedings, particularly when the trading is subjected to clearance of dues by seller or buyer, as the case may be, as provided in Guideline Nos.10 and 11; whereas in insolvency proceedings dues are wiped off?
j) Whether obtaining the DoT’s permission and its approval to the resolution plan would be a substitute for Trading Guideline Nos.10, 11, and 12?
k) Whether spectrum licence subjected to proceedings under the Code, and it overrides the provisions contained in the Indian Telegraph Act, 1885, Indian Wireless Telegraphy Act, 1933, and Telecom Regulatory Authority of India Act, 1997?
l) The licence contained an agreement between the licensor, licensee, and the lenders, whether on the basis of that, spectrum can be treated as a Security interest and what is the mode of its enforcement?
m) Whether the Banks can enforce it in the proceedings under the Code or by the procedure as per the law of enforcement of security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) or under any other law?
n) Whether the spectrum is a natural resource, the Government is holding the same as cestui que trust?
o) Whether dues under the licence can be said to be operational dues? It is also to be examined whether deferred/default payment instalment/s of spectrum acquisition cost can be termed to be operational dues besides AGR dues.
p) Whether as per the revenue sharing regime and the provisions of the Indian Telegraph Act, 1885, the dues can be said to be operational dues?
q) Whether natural resource would be available to use without payment of requisite dues, whether such dues can be wiped off by resorting to the proceedings under the Code and comparative dues of Government, and secured creditors and bona fides of proceedings are also the questions to be considered.
On this, the Hon’ble SC made a mention that the aforesaid various questions should first be considered by the NCLT. Let the NCLT consider the aforesaid aspects and pass a reasoned order after hearing all the parties. We make it clear that it being a jurisdictional question, it requires to be gone into at this stage itself. Let the question be decided within the outer limits of two months. We also make it clear that we have not observed on the merits of the case, and we have kept all the questions open to be examined by the NCLT.