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Spectrum can be transferred, but with caveats: what NCLAT order says

What are NCLAT's findings on various aspects on spectrum trading and ownership? What did the NCLAT say on aspect of spectrum trading and liability of buyers and sellers?

Written by Aashish Aryan , Edited by Explained Desk | New Delhi |
Updated: April 16, 2021 1:44:09 pm
NCLAT, Department of Telecommunication, spectrum explained, National Company Law Appellate Tribunal, caveats explained, indian express explainedAn important aspect on which the NCLAT ruled is that since spectrum is a scarce natural resource, it must be used optimally by all licencees.

The National Company Law Appellate Tribunal (NCLAT) on Tuesday ruled that though the spectrum held by telecom companies can be a part of insolvency process, it can only be sold or transferred from one telco to another only if the government’s dues with respect to the said asset are clear.

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What are NCLAT’s findings on various aspects on spectrum trading and ownership?

As per a September order of the Supreme Court, the NCLAT had to decide mainly on three aspects which included whether spectrum could be subjected to proceedings under the code, how would be the payment be made by the telco if there was spectrum trading and how would the liability of seller and buyer of the spectrum be decided.

On the first aspect of whether spectrum could be subject to insolvency, the NCLAT said that although spectrum was was an intangible asset of the telecom company and could be subjected to insolvency or even liquidation proceedings, the same could be done only if the buyer or the seller of the spectrum had cleared all the dues of the Department of Telecommunications (DoT).

This, experts said, is likely to create problems for the insolvency process of the three telcos that are undergoing insolvency, namely Reliance Communication, Videocon, and Aircel as the DoT is now likely to ask the bidders for these companies to first clear its dues in entirety before proceeding with the resolution plan.

Since the NCLAT has also held that the telecommunication companies only have the right to use the spectrum and that they do not own it, this also effectively blocks lenders to the companies from creating any charge or claim on the said spectrum. This means that despite the DoT being an operational creditor in scheme of things, it will get priority in payments from any prospective bidders since the statutory dues owed to it will have to be cleared either by the corporate debtor or the bidders.

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What did the NCLAT say on aspect of spectrum trading and liability of buyers and sellers?

An important aspect on which the NCLAT ruled is that since spectrum is a scarce natural resource, it must be used optimally by all licencees. The appellate tribunal, has, therefore held that spectrum should not be available for use for any of the telcos or licensees if the dues are not clear.

Further, the NCLAT has also said that telcos which try to trigger insolvency against themselves under Section 10 of the Insolvency and Bankruptcy Code with a “malicious intent” of avoiding payment of pending dues, would not be allowed to do so. 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 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)”.

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