AGR case: Spotlight on treatment of public resources under IBC framework

The on-going case relating to payment of Adjusted Gross Revenue (AGR) dues in the Supreme Court of India has put the spotlight on the treatment of public resources under the Insolvency and Bankruptcy Code (IBC) framework. When the apex court posed the question to Solicitor General Tushar Mehta, appearing for the Department of Telecommunications, whether spectrum can be sold by telecom companies undergoing proceedings under the IBC, his response clearly brought out the differences in thinking between the Department of Telecom (DoT) and Ministry of Corporate Affairs (MCA) in this matter.  

The SG noted in his arguments that spectrum is not defined as an asset under the IBC. A point of view endorsed by DoT, the Solicitor General argued that the ownership of spectrum continues to remain with the government, even though telecom companies have been allowed to use it for commercial exploitation through a contract. In other words, as asset, owned by a third-party — in this case, the government as trustee — but held by a company under insolvency, cannot be sold. 

The lawyers representing the insolvent telecom companies have held that they never claimed spectrum as an asset. But they do consider the right to use the spectrum as an asset. An asset that can be shared with other telcom companies or traded in, according to government established sharing and trading norms put out in 2015.

Lawyers following the arguments in the apex court in the AGR dues case say the issue of sale of spectrum under the IBC stems from an absence of a well-articulated policy in this regard. They say the Code does not deal with payment of spectrum or, for that matter, payment in relation to private exploitation of a public asset. “There are lacunae in the IBC law when it comes to defining the treatment of public resources by companies under insolvency. The law needs to clearly define what should be considered as assets owned by such companies,” says Saurav Kumar, partner at law firm, IndusLaw.

Lawyers note that the legal position vis-à-vis the effect of the IBC framework on public resources, such as spectrum licences, remains open. There are court orders that hold that spectrum licences are an asset of the State over which the private entity or corporate debtor has no right of ownership. 

Most agree that the right to use the spectrum ought to be considered as a “property” within the meaning of the Code.

“The bankrupt telcos ought to be allowed to trade in such right to use the spectrum under the resolution plan,” says Ashish Bhan, partner at law firm, Trilegal. Jay Parikh, partner, L&L Partners, adds that the right has to be dealt with according to the resolution plan —approved by the Committee of Creditors — subject to the laws applicable.

Most lawyers feel the Code should come out with clear-cut guidelines as to what should be considered an asset in a company undergoing the insolvency proceeding, especially in regard to treatment of public resources. 

Legal experts say the current case would also be relevant to see how the apex court balances the larger economic interest of the country with the rights of people.