Telecom spectrum can’t be treated as asset under IBC: Supreme Court

The judgment arose from the insolvency of Aircel Restricted, Aircel Mobile Restricted and Dishnet Wi-fi Restricted. After defaulting on licence payment and spectrum utilization fees, the businesses entered voluntary insolvency in 2018. The Division of Telecommunications (DoT) filed claims of almost ₹9,900 crore in the direction of unpaid dues. Lenders led by State Financial institution of India argued that spectrum utilization rights, mirrored as intangible belongings, may very well be handled underneath the IBC framework.

The SC judgement has cleared the trail for DoT to take again airwaves allotted to Aircel and Reliance Communications and Videocon, mentioned sources conscious of the event, who added that the DoT was inspecting the apex court docket’s order and would start proceedings of taking the spectrum again quickly.

The DoT would take a authorized opinion earlier than issuing official communication for terminating the licences and spectrum assignments to the businesses.

“Since they have not paid any dues and there are different non-compliances, the grounds for termination will probably be decided, after which licences will probably be cancelled and spectrum will probably be taken again,” one of many sources mentioned, asking to not be named. A number of situations could also be taken under consideration for cancelling the licences. Licences in some circles that had earlier expired have been prolonged by the courts, so these would now be formally cancelled.

Nonetheless, the spectrum returning to the federal government won’t be put up for public sale within the upcoming spherical, the sources mentioned, as the method for the subsequent spherical had already begun. Whereas the spectrum locked in litigation has been freed, the decision of the authorized entity will proceed to be determined by the IRP, and the DoT won’t intrude in that concern, the sources added. 

Insolvency regulation can not override telecom regime

In its ruling on Friday, the Supreme Court docket Bench cautioned towards permitting the IBC to recast sovereign useful resource governance, and mentioned that the statutory regime underneath IBC can’t be permitted to make inroads into the telecom sector and rewrite and restructure the rights and liabilities arising out of administration, utilization, and transfers of spectrum, which function underneath an unique authorized regime regarding telecommunications.

“The disharmony attributable to making use of IBC to the telecom sector, which operates underneath a special authorized regime, was by no means supposed by the Parliament,” the bench added.

Referring to Part 4 of the Indian Telegraph Act, 1885, the court docket reiterated that the Union retains unique privilege over telecommunication techniques. 

The court docket clarified that the grant of a telecom licence, together with the fitting to make use of spectrum, doesn’t have an effect on a switch of possession or proprietary curiosity. 

“What’s conferred is a restricted, conditional and revocable privilege to make use of spectrum,” it mentioned.

Accounting therapy doesn’t decide authorized character, the Bench mentioned.

“Recognition of spectrum licencing rights as an intangible asset within the steadiness sheet just isn’t determinative of recognition/switch of possession of the spectrum to TSPs,” the bench mentioned.

What it means

The ruling cements the place that spectrum, described by the court docket as a “materials useful resource of the neighborhood”, belongs to the general public, with the federal government performing as trustee. Insolvency proceedings can’t be used to reorganise possession or management of such a useful resource to keep away from statutory dues.

Telecom firms in insolvency can not invoke the Part 14 moratorium of IBC to stall licence payment, spectrum utilization cost or AGR dues. Decision plans should adjust to telecom statutes and acquire authorities approval earlier than any switch of utilization rights.

Stakeholder affect

Authorized consultants mentioned the choice will materially reshape telecom decision technique.

Ankit Rajgarhia, designate associate, Bahuguna Regulation Associates, mentioned the ruling reinforces sovereign management over spectrum and affirms that public-resource regulation can’t be overridden by insolvency regulation. Decision plans should now be structured strictly consistent with telecom statutes and DoT approval necessities, he famous.

Lenders ought to cease underwriting recoveries on spectrum, mentioned Shri Venkatesh, founding associate, SKV Regulation Workplaces. Banks are prone to face deeper haircuts in distressed telecom instances as spectrum recoveries at the moment are off the desk, he mentioned, including that future lending to the sector might carry larger threat premia, tighter covenants and stronger regulatory compliance triggers.

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  The Bench held that IBC can not override the telecom regime, reaffirming the Union’s unique privilege over spectrum
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  The SC dominated that spectrum is a public useful resource
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  The apex court docket Bench cautioned towards permitting the IBC to recast sovereign useful resource governance
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  The SC judgment has cleared the trail for DoT to take again airwaves allotted to Aircel and Reliance Communications and Videocon