1. Whether spectrum can be subjected to proceedings under the Code?
2, Payments to be made by TSPs in case of sharing.
3. Liability of seller and buyer in case of trading.
4. Directions in respect of payment of AGR dues by TSPs.
Facts of the case; An aggregate sum of Rs.38960 crore was due from telecom service providers (TSPs) under insolvency, namely, Aircel Group of companies, Reliance Communications, Sistema Shyam Teleservices Ltd., and Videocon Telecommunications Ltd. Before the initiation of insolvency proceedings, most of the TSPs under the insolvency proceedings had applied to the Department of Telecommunications (DoT) for permission for trading of licence. The DoT had declined the permission as there were huge arrears concerning the spectrum licence, which were required to be paid, as a precondition to such permission.
Excerpts of the order;
In Re. Whether spectrum can be subjected to proceedings under the Code?
# 16. Whether spectrum can be subjected to proceedings under the Code is a significant question and is required to be gone into. It is a natural resource, and under Section 4 of the Indian Telegraph Act, 1885, the Government has the sovereign right.
# 17. Section 3(10) defines ‘creditor’. The term ‘debt is defined in Section 3(11). The expression ‘property’ is defined in Section 3(27). ‘Operational creditor’ is defined in Section 5(20) in Part II under the head Insolvency Resolution and Liquidation for Corporate Persons. Section 5(21) defines ‘operational debt’.
# 18. A question has been raised concerning ownership.
Whether TSPs can be said to be the owner based on the right to use the spectrum under licence granted to them?
Whether a licence is a contractual arrangement?
Whether ownership belongs to the Government of India?
Whether spectrum being under contract can be subjected to proceedings under Section 18 of the Code?
The question also arises whether the spectrum can be said to be in possession, which arises from ownership.
What is the distinction between possession and occupation?
Whether possession correlates with the ownership right?
A question also arises concerning the difference between trading and insolvency proceedings.
Whether a licence can be transferred under the insolvency proceedings, particularly when the trading is subjected to clearance of dues by seller or buyer, as the case may be, as provided in Guideline Nos.10 and 11; whereas in insolvency proceedings dues are wiped off. Guideline No.12 is also assumed to be of significance in case spectrum is subjected to insolvency proceedings, which must be considered.
# 19. It is also required to be examined that when Government has declined the permission to trade and has not issued NOC for trading on the ground of nonfulfilment of the conditions as stipulated in the Licence Agreement, the spectrum can be subjected to resolution proceedings which will have the effect of wiping off the dues of the Government, which are more than Rs.40,000 crores. Whereas the dues of the Banks are much less. Whether obtaining the DoT's permission and its approval to the resolution plan would be a substitute for Trading Guideline Nos.10, 11, and 12 ?
20. A question also arises of the bona fide nature of the proceedings under the Code. In the backdrop facts of the cases, question also arises whether spectrum licence subjected to proceedings under the Code, and it overrides the provisions contained in the Indian Telegraph Act, 1885, Indian Wireless Telegraphy Act, 1933, andTelecom Regulatory Authority of India Act, 1997.
21. In view of the fact that the licence contained an agreement between the licensor, licensee, and the lenders, whether on the basis of that, spectrum can be treated as a security interest and what is the mode of its enforcement. Whether the Banks can enforce it in the proceedings under the Code or by the procedure as per the law of enforcement of security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) or under any other law.
22. A question of seminal significance also arises whether the spectrum is a natural resource, the Government is holding the same as cestui que trust. In view of the nature of the resource, it can be subjected to insolvency/liquidation proceedings. Earlier licence was obtained on the payment of fees in advance that was not beneficial to the TSPs, as such a new revenue sharing regime was devised in 1999, and the Central Government has an exclusive right under section 4 of the Telegraph Act, 1885 in use of spectrum, it can part with on certain statutory guidelines, its use is not permissible without the payment of requisite fee.
Whether dues under the licence can be said to be operational dues?
It is also to be examined whether deferred/default payment instalment/s of spectrum acquisition cost can be termed to be operational dues besides AGR dues.
Whether as per the revenue sharing regime and the provisions of the Indian Telegraph Act, 1885, the dues can be said to be operational dues?
Whether natural resource would be available to use without payment of requisite dues, whether such dues can be wiped off by resorting to the proceedings under the Code and comparative dues of Government, and secured creditors and bona fides of proceedings are also the questions to be considered.
23. We consider it appropriate that the aforesaid various questions should first be considered by the NCLT. Let the NCLT consider the aforesaid aspects and pass a reasoned order after hearing all the parties. We make it clear that it being a jurisdictional question, it requires to be gone into at this stage itself. Let the question be decided within the outer limits of two months. We also make it clear that we have not observed on the merits of the case, and we have kept all the questions open to be examined by the NCLT.
In Re. Sharing
# 26. That in the present case, only part of the spectrum of the licensee has been shared with the case of some of TSPs., which has been approved by the DoT under the Sharing Guidelines, 2015, and there is no provision for the liability of the past dues on the shared operator. Even otherwise, the past dues of sharing operator/licensee covers AGR for the spectrum used by holder of licence, certain TSPs. such as Reliance came into existence later on, and as observed hereinabove, the liability of such operator of the AGR, would only be to the extent it has used the said spectrum. Shared operator TSPs. cannot be saddled with the liability to pay the past dues of AGR of licensee, that have shared the spectrum with the original licensees.
In Re. Trading:
# 28. ……… Thus, as per para 11 of the Spectrum Trading Guidelines dated 12.10.2015, read with the clarification vide O.M. dated 12.05.2016, in case of a part of the spectrum is under sale, the liability of the purchaser/buyer with respect to past dues of the seller shall not arise. In a case where the entire spectrum is under sale, in that case, the past dues of the seller shall be the liability of the buyer except the amount/dues, if any, found recoverable after the effective date of the trade, which was not known to the parties at the time of the effective date of trade and in such a situation the liability of such dues of the buyer and seller would be jointly or severally and the government at its discretion is entitled to recover such amount. In the present case, it is not in dispute that in some cases only part spectrum was traded, and the remaining spectrum continued with the seller. At the time of agreement for spectrum trading, the AGR dues of the seller were also known. Therefore, on a joint reading of para 11 of the Spectrum Trading Guidelines dated 12.10.2015 read with O.M. dated 12.05.2016, the seller's dues prior to the concluding of the agreement/spectrum trading shall not be upon the buyer.
Payment of dues of AGR :
# 38. Resultantly, we issue following directions:-
(i) That for the demand raised by the Department of Telecom in respect of the AGR dues based on the judgment of this Court, there shall not be any dispute raised by any of the Telecom Operators and that there shall not be any reassessment.
(ii) That, at the first instance, the respective Telecom Operators shall make the payment of 10% of the total dues as demanded by DoT by 31.3.2021.
(iii) TSPs. have to make payment in yearly instalments commencing from 1.4.2021 up to 31.3.2031 payable by 31st March of every succeeding financial year.
(iv) Various companies through Managing Director/Chairman or other authorised officer, to furnish an undertaking within four weeks, to make payment of arrears as per the order.
(v) The existing bank guarantees that have been submitted regarding the spectrum shall be kept alive by TSPs. until the payment is made.
(vi) In the event of any default in making payment of annual instalments, interest would become payable as per the agreement along with penalty and interest on penalty automatically without reference to Court. Besides, it would be punishable for contempt of Court.
(vii) Let compliance of order be reported by all TSPs. and DoT every year by 7th April of each succeeding year.
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