In an order which will have adverse consequences for lenders of bankrupt telecom operators, the National Company Law Appellate Tribunal on Tuesday ruled that spectrum can be transferred as aspect of insolvency resolution program but only right after clearing all government dues. Though NCLAT maintained that the DoT in this case is an operational creditor, nevertheless the clauses relating to spectrum trading recommendations and licence agreement stipulate that government dues need to have to be cleared in complete prior to spectrum is transferred and can be additional made use of.
“The defaulting licensees/telcos cannot be permitted to wriggle out of their liabilities by resorting to triggering of CIRP by seeking initiation of CIRP under Section 10 of I&B Code, not for purposes of resolution but fraudulently and with malicious intent of withholding the huge arrears payable to government, obtaining moratorium to abort the government’s move to suspend, revoke or terminate the licences and in the event of a resolution plan being approved, subjecting the Central government to be contended with the peanuts offered to it as ‘Operational Creditor’ within the ambit of distribution mechanism contemplated under Section 53 of IBC,” acting chairperson of NCLAT, Justice Bhat stated in the 107-web page order.
The order was pronounced in the matter of Aircel, exactly where the Mumbai bench of the National Company Law Tribunal had in June, 2020 authorized a Rs 6,630 crore resolution program of UV Asset Reconstruction Company (UAVRCL). The DoT had challenged this in NCLAT final year in September on the ground that spectrum does not belong to telecom operators but is provided to them on lease and upon non-payment it has the correct to seize it back.
Though the NCLAT order relates to Aircel’s insolvency, it would have implications on equivalent proceedings of an additional corporation, Reliance Communications. There also the committee of creditors have authorized UVARCL’s resolution program.
Both Aircel and RCom owe adjusted gross income dues to the DoT. While the dues of Aircel stands at Rs 12,389 crore, the dues of RCom is of Rs 25,199.27 crore.
While settling the matter of payment of AGR dues of telecom operators like Bharti Airtel, Vodafone Idea, and Tata Teleservices final year in September, the Supreme Court had left the matter of Aircel and Rcom as they had been becoming adjudicated in the NCLT/NCLAT at that stage. The apex court had stated that given that the two corporations had been undergoing insolvency it would not be suitable for it to interfere in the matter at that stage. However, for the duration of the course of the hearing it had observed that government dues need to have to be cleared and duty as to who pays them requirements to be fixed. Now the NCLAT order would be place prior to the SC.
If the NCLAT order prevails the genuine losers would be banks as they would not be in a position to recover something of their terrible loans with respect to telecom corporations. In the occasion of the purchaser of spectrum refusing to spend in complete the government dues, the spectrum would go back to DoT which might place it up for auction in future. “Prima face, there appears to be some glaring inconsistencies where the judgment on the one hand holds that the right to use spectrum is an asset of the corporate debtor and that the DoT is an operational creditor, while on the other, it holds that the spectrum cannot be utilised without payment of the requisite dues of DoT which cannot be wiped off under the IBC. Thus, in effect, the judgment appears to be contrary to the IBC where crown debts do not have priority over claims of other creditors,” a senior lawyer for lenders told FE.
Though a aspect of spectrum of Aircel was acquired by Bharti Airtel by way of trading and that of Rcom by Reliance Jio, they can not be produced to spend for the AGR dues as the SC had ruled that purchasers can only be asked to spend the arrears if they obtain the complete spectrum, not some portion of the complete.
In the matter of Aircel the total dues of a consortium of lenders led by the State Bank of India stood at Rs 58,670 crore. Of this UVARCL had proposed to spend Rs 19,600 crore. UVARCL had proposed to spend Rs 6,630 crore by way of zero-coupon optionally convertible debentures. It had proposed converting the balance quantity into 24% equity to be issued at premium to the economic creditors. The proposal was that initially UVARCL would hold 76% equity and economic creditors 24% but right after a 5 year period the economic creditors would get 74% equity against outstanding debentures if their dues could not be paid back by UVARCL by way of asset monetisation.