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Spectrum govt property, can’t be held as ‘security’: NCLAT

All telecom service providers, the NCLAT said, are granted only the right to “use the spectrum” and, therefore, cannot be said to be the “owners” of the spectrum.

Written by Aashish Aryan | New Delhi |
Updated: April 14, 2021 4:04:25 am
The order by the NCLAT came after the Supreme Court had, in September last year, asked the appellate tribunal to decide on the issue of whether lenders had the rights to sell the spectrum of Aircel, which is undergoing CIRP.

The National Company Law Appellate Tribunal (NCLAT) has said the wireless spectrum held by a telecom company undergoing insolvency cannot be treated as a ‘security interest’ by the lenders to the company, as the said spectrum is the property of the government and not the corporate debtor.

In a detailed order, a three-judge Bench, headed by acting NCLAT chairperson Justice Bansi Lal Bhat, held that though the spectrum, which is an intangible asset of the telecom company, can be subjected to insolvency or liquidation proceedings under the Insolvency and Bankruptcy Code (IBC), the telcos will not be considered the owner of the spectrum.

All telecom service providers, the NCLAT said, are granted only the right to “use the spectrum” and, therefore, cannot be said to be the “owners” of the spectrum. The licence fee as well as deferred spectrum charges payable by telcos, therefore, will fall under the category of operational dues and the Department of Telecommunications (DoT) will be considered an operational creditor, the appellate tribunal said.

Explained

Can be part of process

With the National Company Law Appellate Tribunal ruling that spectrum can be subject to IBC proceedings, but only if all the dues payable by the spectrum licence holder to the DoT are cleared, the CIRP for telcos undergoing bankruptcy could become extremely difficult.

Therefore, a telecom company cannot seek to initiate insolvency against itself under Section 10 of the IBC with a “malicious intent” of avoiding payment of license or spectrum usage charges to the DoT.

Such an insolvency process, if triggered, would lead to a moratorium on licence fee and deferred spectrum payments as per the rules of IBC, thereby allowing the licensee to escape the said dues. This, in turn, would mean that the DoT, being an operational creditor, would gain very less value for the asset as operational creditors are placed below financial creditors under the IBC, the three-member Bench said in its order.

The defaulting telcos, therefore, cannot be “permitted to wriggle out of their liabilities by resorting to triggering of Corporate Insolvency Resolution Process (CIRP)”.

Further, while in normal circumstances, the telecom license of a corporate debtor can be transferred, the same cannot be allowed during insolvency resolution process, as trading of license is subject to either the buyer or the seller clearing the dues of the DoT. Since the insolvency against any company is initiated only after it defaults on its payments, the trading cannot be permitted.

The order by the NCLAT came after the Supreme Court had, in September last year, asked the appellate tribunal to decide on the issue of whether lenders had the rights to sell the spectrum of Aircel, which is undergoing CIRP.

Apart from this, the apex court had also asked the NCLAT to decide on other questions of law such as whether the telcos can be said to be owners of the spectrum and licences granted to them and whether a licence could be transferred under the insolvency proceedings.

The government had during the hearings of the case told the NCLAT that since spectrum was a valuable and scarce natural resource, and the state legally owns it, the telcos are given only a “right to use” the spectrum subject to various terms and conditions. Therefore, the licence, could not be traded during insolvency proceedings.

The lenders to Aircel, meanwhile, had argued before the NCLAT that spectrum was an asset of the company and could be part of the insolvency process. Aircel and its subsidiaries, Aircel Cellular and Dishnet Wireless, together owe around Rs 50,000 crore to creditors.

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