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.

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

 

Union of India Vs. Association of Unified Telecom Service Providers of India Etc. - Whether spectrum can be subjected to proceedings under the Code & AGR Dues.

 Supreme Court of India (01.09.2020) in the matter of Union of India Vs.Association of Unified Telecom Service Providers of India Etc. [M.A. (D) No. 9887 of 2020 in Civil Appeal Nos. 6328-6399 of 2015] The Hon’ble Supreme Court wanted to examine the bona fides of the TSPs who have resorted to insolvency proceedings and hence invited them to file their response. While examining the bona fides of TSPs, it made important observations in the context of insolvency proceedings.

• 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.

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