Telecom spectrum can be subjected to IBC proceedings, rules NCLAT

In a landmark ruling, the National Company Law Appellate Tribunal (NCLAT), on Tuesday, clarified on the several contentious legal issues around telecom spectrum, including whether it could be subjected to insolvency/liquidation proceedings, and also if bankrupt telcos could sell spectrum rights allotted to it (under a licence) as part of resolution process under the Insolvency and Bankruptcy Code (IBC).

The Appellate Tribunal has, in its 107 page ruling, concluded that spectrum, being an intangible asset of the licensee/Telecom Service Providers/Telcos/corporate debtor, can be subjected to insolvency/liquidation proceedings. The NCLAT has, through the latest ruling, addressed the various questions put forth to it by the Supreme Court in its September 1 order last year.

While a licence can be transferred as an intangible asset of the Licensee /Corporate Debtor under Insolvency Proceedings in ordinary circumstances, however, as the trading is subjected to clearance of dues by seller or buyer, as the case may be, the Transferor/Seller or Transferee/Buyer being in default, would not qualify for transfer of licence under the insolvency proceedings, the NCLAT has said.

A natural resource

It has held that spectrum is a natural resource and the government is holding the same as cestui que trust. Noting that natural resource would not be available to use without payment of requisite dues, the NCLAT has also held that dues of central government/DOT under the licence fall within the ambit of Operational Dues under the IBC. The NCLAT has also held that spectrum cannot be used as security interest by telcos before the lenders

Also, triggering of Corporate Insolvency Resolution Proceedings under the IBC by the corporate debtor with the object of wiping off of such dues, not being for insolvency resolution, but with malicious or fraudulent intention, would be impermissible, the three-member NCLAT Bench headed by Acting Chairperson Justice Bansi Lal Bhat ruled.

The spectrum cannot be utilised without payment of requisite dues which cannot be wiped off by triggering CIRP under the IBC. 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 IBC, not for purposes of resolution but fraudulently and with malicious intent of withholding the huge arrears payable to government, obtaining moratorium to abort 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 Code.

Also, telecom service providers have the right to use spectrum under licence granted to them. They cannot be said to be the owners in possession of the spectrum but only in occupation of the right to use spectrum. Ownership of spectrum belongs to the nation (people) with the government only being its trustee. Possession correlates with the ownership right, the NCLAT has ruled.

Under Section 18 of the IBC, the Interim Resolution Professional is bound to monitor the assets of the Corporate Debtor and manage its operations, take control and custody of assets over which the Corporate Debtor has ownership rights, including intangible assets that include right to use spectrum, the NCLAT has held.