The ‘Spectrum’ Debate & Applicability of IBC on Telecom Spectrum – An Analysis of Union of India v Association of Unified Telecom Service Providers of India

By Aditya Anand

The author is a student of NLU Delhi

The Supreme Court of India, while deciding upon the issue of the pending ‘Adjusted Gross Revenue’ on behalf of the telecom companies, in the judgment Union of India v Association of Unified Telecom Service Providers of India[1] had to broaden its ambit and scope of the ruling to not only include the various telecommunications laws like the Indian Telegraph Act & the National Telecom Policies but also to incorporate specific key points on the IBC as well.

The Hon’ble Supreme Court of India, in the judgment, dealt with the definition of ‘AGR’ and dues to be paid under it and, alongside the same, also went into the discussion as to whether spectrum can be subjected to the proceedings under the IBC.

The reason behind the same was that many telecom providers, while the matter was being heard, were under insolvency proceedings under the code. The telecom providers under insolvency proceedings had asked the Department of Telecommunications for permission to trade the license, which the Central Government declined. There were two major reasons given by the Government – firstly that the licenses were taken on a deferred payment basis, and they still were not paid up fully. Secondly, the spectrum cannot be made the subject matter of IBC proceedings. The telecom providers contended that NCLT should decide on the same as to whether the license can be transferred as a part of the resolution process.

The Solicitor General submitted that the spectrum is a granted license in the form of contractual agreements, and on the failure of payment, the license can be revoked or terminated. The spectrum was considered a scarce natural resource that could not be subjected to IBC proceedings. It was a right to use, which was granted and not the ownership. The spectrum was also not considered as an essential good or service as per Section 14(2) of the Code.

The court looked into the definition of spectrum and licenses as per Section 4 of the Indian Telegraph Act and whether the license is a contractual arrangement that can be made a subject under the IBC or whether the banks can enforce the same as a security interest under the SARFEASI[2]. The court held that even though spectrum can be considered as a natural resource, the Government is holding the same as a cestui que trust, andit can be subjected to insolvency and liquidation proceedings.

Observations of the Court

The Court also observed that NCLT should consider the same questions, and then an order should be passed in this regard after hearing all the parties. This resulted in a sigh of relief for the telecom companies like Reliance Communications, Videocon and Aircel. Earlier, appearing for Reliance Communications, senior advocate Harish Salve told the three judges-bench that Reliance Communications would go into liquidation if the spectrum sale is not permitted[3]. The tripartite agreement between the lessor (DoT), the lessee (telecom companies) and banks made the spectrum a perfect security fit for the banks.[4]

A missed opportunity?

This can be stated as a good starting point, but the Supreme Court should have elaborated on the same in a detailed manner to set a strong precedent. It is clear that the spectrum and telecom licenses are assets of the company, and Section 18(f)(iv)[5] includes intangible assets too for being taken under the control and custody of the resolution professional. The financial statements show the same as intangible assets as well. Section 14 of the Code[6] also prohibits revoking licenses and permissions based on past dues after the moratorium starts. The spectrum is a raw material for the telecom companies, and if the same is terminated, the company will not be able to function as a going concern.[7] The Department of Telecommunication is thereby an operational creditor under the code.

The IBC is a self-contained code.[8] It is guided by its principles and has certain approaches, and there should not be any mischief allowed for subverting the aims of any legislation[9]. The most important concept underlying this process is the concept of going concern, which should be given priority at all the possible conjectures.

Natural resources like spectrum are like any other asset that has been paid for by the user, i.e., the telecom companies in the present case have paid for the same. If the spectrum is not sold under the insolvency resolution process, then the Government will not be able to recover the AGR dues at all. The spectrum would be returned to the Department of Telecommunication, and it won’t lead to any revenue generation against the pending payment.

There may be an instance wherein an arrangement exists between the lenders, the telecom service providers, and the Centre to create a security license over the spectrum license to secure a loan from any lending institution.[10] In that event, the financial institution should be accorded a special primacy under legislation like the IBC. And if the Supreme Court had settled the same position, the same would have been binding on the NCLT by Article 141[11]. There might be an issue if the different NCLTs take a conflicting viewpoint, and this would further clog the National Company Law Tribunals, and the appeals would again reach the Supreme Court.

Conclusion

Further, the judgment also caused a significant blow to the already financially delicate telecom sector. While some amount of relief was extended to the telecom service providers by waiving off the past liabilities in case the spectrum is shared, the jurisdictional issue raised by the Supreme Court caused nothing but judicial delays. And as the saying goes, ‘justice delayed is justice denied, what really can be hoped is that this delayed justice does not end up hampering the ailing telecom industry further.


[1] [2020] M.A. (D) No. 9887 in Civil Appeal Nos. 6328-6399 of 2015.

[2] Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002

[3] ‘NCLT To Rule If Spectrum Can Be Sold Under IBC: Supreme Court’ (The Economic Times, 2021) <https://economictimes.indiatimes.com/industry/telecom/telecom-news/nclat-to-rule-if-spectrum-can-be-sold-under-ibc-supreme-court/articleshow/77866631.cms?from=mdr&gt; Last Accessed 25 January 2021

[4] ‘NCLT To Rule If Spectrum Can Be Sold Under IBC: Supreme Court’ (The Economic Times, 2021) <https://economictimes.indiatimes.com/industry/telecom/telecom-news/nclat-to-rule-if-spectrum-can-be-sold-under-ibc-supreme-court/articleshow/77866631.cms?from=mdr&gt; Last accessed 25 January 2021.

[5] Insolvency and Bankruptcy Code, s 18.

[6] Insolvency and Bankruptcy Code, s14.

[7] Sahoo MS, ‘Balancing the Interests of Stakeholders’Insolvency and Bankruptcy News 3 [2017].

[8] Innoventive Industries vs. State of Maharashtra, [2018] 1 SCC 407.

[9] District Mining Officer vs. Tata Iron & Steel Company, [2001] 7 SCC 358.

[10] Pavani, M., 2021. A Missed Connection: The Supreme Court’s AGR Judgment. [online] Bar and Bench – Indian Legal news. Available at: <https://www.barandbench.com/columns/a-missed-connection-the-supreme-courts-agr-judgment&gt; [Last Accessed 25 January 2021].

[11] Constitution of India 1949, Article 141.

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