Aircel Limited : CD In Vijaykumar V. Iyer : Applicant/RP V/s Union of India - Telecom Spectrum License during moratorium.

NCLT Mumbai (27.11.2019) in Aircel Limited : CD In Vijaykumar V. Iyer : Applicant/ RP V/s Union of India [MA-337/2018 in C.P. (IB)-298/(MB)/2018 and MA-336/2018 in C.P. (IB)-302/(MB)/2018] held that; “We hereby direct that the clauses of "Moratorium" are squarely applicable on this Corporate Insolvency Resolution Process Proceedings, hence need not be interrupted or hampered by any authority. . . . . . hereby instruct the concerned DoT authority not to make any attempt to cancel the impugned license issued in favour of the debtor company. Both the applications are disposed of and Ordered accordingly.”

 

Excerpts of the order;

# 1. These two Applications are submitted on 10.04.2018 by the Resolution Professional of Aircel Limited and Dishnet Wireless seeking following reliefs :-

• A. That this Hon'ble Tribunal be pleased to declare that the moratorium under Section 14 of the Code, applies to all the licenses including the Telecom Licenses granted by Respondent; and Spectrum purchased by the Petitioner Company, as well as the Petitioner Company's unpaid dues, if any, to the Respondent;

• B. Pending hearing and final disposal of this Application, direct the Respondent to refrain from suspending/terminating and/or taking any other action against the Petitioner Company in relation to the Telecom Licenses and Spectrum allocation;

• C. Pending hearing and final disposal of this Application, direct the Respondent from taking any action/steps against the Petitioner Company in relation to any unpaid dues;

# 2. FACTS IN BRIEF :- Facts of the case are that an Application/Petition was moved by Aircel Limited, Corporate Debtor/Petitioner U/s 10 of I&B Code, 2016 to declare itself insolvent. The said Petition under section 10 of I&B Code, 2016 was 'Admitted' vide an Order dated 12.03.2018 by declaring Moratorium and appointing Interim Resolution Professional. This is a case where the Corporate Debtor is under heavy debt i.e. operational debt of about Rs. 19,889 Crores and financial debt of about Rs. 7,378 Crores. On appointment, the Resolution Professional has taken charge over the debtor company so as to commence the Corporate Insolvency Resolution Process proceedings ( CIRP ).

# 3. The present application is revolving around the fundamental question of Telecom License granted by Department of Telecommunication/ DoT (Licensor) to the Petitioner /Aircel ( Licensee ) under the provisions of Section 4 of Indian Telegraph Act, 1885. The Petitioner Company also holds spectrum of 900 MHz, 1800 MHz and 2100 MHz frequency across various circles in India ("Spectrum"), which has been allotted to it by the Department of Telecommunication (DoT). The Petitioner Company along with group entities i.e. Dishnet Wireless Limited and Aircel Cellular Limited operated under the brand name "AIRCEL" offering 2G and 3G Services across India.

# 4. The most important feature of holding the Spectrum and the license is that the Telecom Licenses and Spectrum are required for operation of the Petitioner Company as a going concern. The Telecom License is a valuable asset for the Telecom Company; as vehemently pleaded by the Resolution Professional. Furthermore, Petitioner Company also holds "Spectrum" across various circles in India, that too, is a valuable asset of the Petitioner Company.

# 4.1 ARGUMENTS OF APPLICANT/ RP : The apprehension is that "Telecom Licenses" and grant of "Spectrum" may be terminated during the ‘Moratorium’ Period because the Debtor Company had defaulted in payment of annual installments. The apprehension is that DoT may take steps against the Company. However, at this juncture Learned Counsel of the Resolution Professional has informed that up till the commencement of the Corporate Insolvency Resolution Process the Company had paid the license fees.

# 5. It is vehemently pleaded that during "Moratorium" in operation the Telecom License and Spectrum cannot be terminated as prescribed U/s 14 of I&B Code. So the prayer is that the DoT be directed not to take any action against the Company such as termination of Telecom License and Spectrum Allocation. Learned Counsel has raised a serious concern that in case of termination the value of the Petitioner should get severely eroded. A great prejudice shall be caused if any action is taken by the said department.

# 5.1 Further it is informed that the Company had made a huge investment of Rs. 6249.27 Crores for procuring the license. It is further pleaded that the terms and conditions of "License Agreement for Provision of Unified Access Services" do not permit for revocation of license when the period has not expired. In support placed reliance on the following Clauses of the Agreement:-

“NOW THIS AGREEMENT WITNESSETH AS FOLLOWS :-

• 1. In consideration of the payment of Licence fee, and due performance of all the terms and conditions mentioned in this Licence Agreement on the part of the LICENSEE, the LICENSOR does, hereby grant under Section 4 of the Indian Telegraph Act, 1885 on a non-exclusive basis, this Licence to set up and operate the Unified Access Services in the licensed service area described in SCHEDULE appended hereto.

• 2. The LICENSE hereby granted will remain valid for 20 (Twenty) years from the Effective date unless revoked earlier for any reason whatsoever.

# 6. ARGUMENTS OF DoT / U.O.I :- On the other hand from the side of the Department, Learned Additional Solicitor General Mr. Anil Singh appeared and pleaded that the Union of India has exclusive ownership right over the Spectrum. According to him in this case the default of non-payment of license fees had already occurred therefore, the licensor/DoT otherwise has right to terminate the impugned facility to the Company. The moment ‘licensee’/ AIRCEL fails to pay the fees, the ‘licensor’/DoT has every right to deprive of the licensee from the ‘License’. The ownership and the control over the Spectrum at all times is the property of Union of India and never vested with the Licensee. The terms of the said license also confirm the same that the Licensor reserves the right to suspend the operation of the license in whole or in part at any time if in the opinion of the Licensor it is necessary or expedient to do so in public interest. The Spectrum had never been sold as per the Agreement because this a natural resource of the country which belongs to the people of India. Reliance was placed on W.P. (C) 423 of 2010 Centre for Public Interest Litigation and others V/s Union of India and Others with Writ Petition (C) No. 10 of 2011 Subramanian Swamy V/s Union of India and Others.

# 6.1 Learned ASG has further pleaded that the Petitioner Company was granted "Right to use" and not the "Right to own" the Spectrum. Through an auction held in the year 2010 it was advertised as under :-

• "1.1 The Government of India (the "Government") through the Department of Telecommunications ("DoT"), proposes to allot the rights to use certain specified radio spectrum frequencies in the 2.1GHz band (the "3G Spectrum") and in the 2.3GHz band (unpaired) (the "BWA Spectrum") by means of auction in various telecom service areas in India."

# 6.2 In the "Notice Inviting Applications" (NIA) for Spectrum Auction 2010 had granted only Transfer of "Right to use" and in case of breach of condition the revocation has also been specified as per the terms, only relevant portion reproduced below :-

• “2.1 Spectrum to be auctioned. Rights to use spectrum at specified frequencies in the following bands (subject to fulfilment of eligibility conditions, relevant license conditions and any particular conditions related to specific frequency blocks) for a period of 20 years (from the date of award of right to commercially use the allocated spectrum block) are being offered for award.”

The relevant provisions in case of breach of those conditions, as per the NIA 2010 are :-

• 3.7 Breach, revocation and surrender The spectrum assignment may be revoked, withdrawn, varied or surrendered in accordance with applicable license conditions or any other applicable laws, rules, regulations or other statutory provisions. 

• The spectrum assignment may also be revoked if the Government determines the user of the spectrum to be in serious breach of any of the conditions of the award of the spectrum (including adherence to the Auction Rules) and the consequent obligations.”

# 6.4 Reliance has also been placed on a decision of NCLAT in the case of Rajendra K. Bhuta V/s Maharashtra Housing and Area Development Authority, Order dated 14.12.2018 bearing Company Appeal (AT) (Insolvency) No. 119 of 2018 it was held that :- 

• "On perusal of record it was found that the land of MHADA was handed over to the Corporate Debtor over which no right had accrued to the Corporate Debtor and the land belonged to MHADA thus cannot be treated as an asset of the debtor company hence out of the ambits of the provisions of section 14(1)(d) of the Code.”

The Learned Counsel has therefore pleaded that this case law is squarely applicable on the facts that the Spectrum being not the asset of the Corporate Debtor thus out of the ambits of Moratorium.

# 6.5 Reliance has also been placed on an Order of Hon'ble Supreme Court dated 14th May, 2015 pronounced in the case of Bharti Airtel Limited and others V/s Union of India in C.A. No. 2803 of 2014 with C.A. 1969 of 2014 for the legal proposition that the Licensee has no automatic right of renewal or extension on expiry of original tenure of license. Renewal is at sole discretion of Licensor/ DoT. It is the exclusive privilege of the Government of India which could be permitted to be exercised by others only by way of grant from the Government of India. Therefore, the argument is that the license/Spectrum is a National Asset, therefore, no individual or a corporate body can demand a claim over this property. Almost on identical lines a legal proposition has been laid down by the Hon'ble Supreme Court in the case of (2012) 3 Supreme Court Cases 1 (Writ Petition No. 423 of 2010) in Centre for Public Interest Limitation and others V/s Union of India and Others with Writ Petition (C) No. 10 of 2011 Subramanian Swamy V/s Union of India and Others dated 02.02.2012 that :-

• "Natural resources belong to the people but the State legally owns them on behalf of its people and from that point of view natural resources are considered as national assets, more so because the State benefits immensely from their value. The State is empowered to distribute natural resources. However, as they constitute public property/national asset, while distributing natural resources, the State is bound to act in consonance with the principles of equality and public trust and ensure that no action is taken which may be detrimental to the public interest."

7.2 As far as the legal question is concerned, the Application of Section 14(1)(d) of the Code is in respect of a property by an owner and the restriction is that on commencement of Insolvency the Adjudicating Authority shall declare Moratorium for prohibiting recovery of any property by an Owner or Lessor in the possession of the Corporate Debtor. Section 14(1)(d) reads as under : --

• “ MORATORIUM Section 14 (1) - Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall be order declare moratorium for prohibiting all of the following, namely :-

• (a) -------

• (b) --------

• (c) -------

• (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

• (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium.”

# 7.3 As a fundamental principle, if a property is in possession of the Corporate Debtor the same cannot be demanded back by the Owner/Lessor/DoT of the property as long as the same is in use and in possession of the Corporate Debtor/ Licensee. To this extent there should not be any controversy that since the intangible asset is used for business purpose by the Corporate Debtor, the provisions of Moratorium must apply. The Licensor/DoT can be prohibited from taking any step which may be prejudicial to the interest of the Licensee/ Aircel.

# 7.6 As far as the apprehension of cancellation of license by DoT is concerned, on examination we have noticed that there is a clause of "Force Majure" which prescribes that in addition to any act of God even by an act of State or direction from Statutory Authority the licensor shall not be entitled to terminate the license. Since the signing parties have duly agreed upon the terms and conditions, therefore, it shall be unfair on the part of the DoT to suspend the license at this juncture.

# 7.7 An important point which has been brought to our notice is that the Applicant or the Resolution Professional is not demanding the 'ownership' of the license as a product but simply seeking uninterrupted use of the said intangible asset. Otherwise also, through agreements only 'right to use' is granted and not the 'right to ownership". Therefore, 'right to use' should remain, during the period agreed upon, with the Corporate Debtor which is always beneficial for the company as well as for all stake holders. This argument can further be buttressed by placing reliance on Sub-sec. (2) of Section 14 of the I&B Code which prescribes that the supply of essential goods or services to the Corporate Debtor shall not be terminated or suspended or interrupted during Moratorium Period. The usage of license/spectrum is akin to "Essential Goods or Services" because without usage the Company cannot run its Telecom Business. This prohibition shall, therefore, also applicable on DoT.

# 8. To conclude this Bench is of the view that, admittedly the License/Spectrum is an asset of State over which the Corporate Debtor has no right of ownership, therefore, up to this extent the argument of the Government is hereby accepted. The relief sought by the Corporate Debtor is that due to issuance of Demand Notice by DoT an apprehension is that the same may be suspended. We hereby direct that the clauses of "Moratorium" are squarely applicable on this Corporate Insolvency Resolution Process Proceedings, hence need not be interrupted or hampered by any authority. It has also been brought to our notice that worst come if the department is aggrieved then it can approach TRAI or TDSAT, regulatory authorities constituted to supervise the functioning of Telephone Companies. As far as the Insolvency Proceedings are concerned, we are governed by the object set out in the 'Preamble' of the Insolvency Code wherein it is prescribed to maximize the assets of the Company as well as to protect the value so as to get good Resolution Plan for the revival of the debtor company. Our objective is limited to this extent that too governed by the Code, therefore, within the scope and ambit of Insolvency and Bankruptcy Code, 2016 hereby instruct the concerned DoT authority not to make any attempt to cancel the impugned license issued in favour of the debtor company. Both the applications are disposed of and Ordered accordingly.

----------------------------------------