Insolvent companies could lose spectrum under the new Telecom Bill

Insolvent telecom companies that do not meet government conditions could lose spectrum under the proposed telecom Bill but some experts suggested that its sections need to align with Insolvency and Bankruptcy Code (IBC).

The draft Bill said a company which is subject of insolvency proceedings can still operate if it continues to provide telecom services, doesn’t default in payment of any dues, and meets any other stipulated conditions.

Spectrum assigned to the insolvent company will revert to government control in case it fails to comply with these conditions.

According to the draft Bill, the central government may take such further action which may include allowing such licensee, or assignee to continue to use the spectrum, subject to placing the revenue of such entity in a separate designated account with license fee and charges applicable being paid first in priority during such period.

Anoop Rawat, partner at Shardul Amarchand Mangaldas, said the proposed amendments need to be aligned with the IBC. One instance is the clause which intends to provide for mandatory payment of dues as a condition for continuation of license is against the principles of IBC, he said.

“Only the current dues are payable under the IBC and not the pre-insolvency commencement dues which are subject matter of resolution under the IBC. The clause, therefore, needs to be aligned with Section 14 of the Code. Section 14 provides in no unambiguous terms that licenses shall not be terminated provided the current dues are paid. Any deviation from these principles will wipe out the progress made under insolvency laws,” Rawat said.

“The draft Bill implies that ownership of spectrum remains with the government, and value of spectrum cannot be sold by creditors under the Insolvency and Bankruptcy Code (IBC). Government reserves the right to take back the spectrum if the ailing telecom operator fails to pay government dues,” Prashant Tarwadi, director (corporates) at India Ratings and Research. “The proposed Bill may not accelerate resolution of stressed assets,” he said.