Spectrum can be transferred but not without settling dues, says NCLAT

The National Company Law Appellate Tribunal (NCLAT) on Tuesday said that spectrum, an intangible asset, can be subjected to insolvency proceedings. It can be transferred by the corporate debtor under such proceedings but not without clearing the dues of the government.

In its findings, a three-judge Bench of the NCLAT, which was tasked with finding answers to the questions posed by the Supreme Court in the Aircel issue, said, defaulting telecom companies cannot be permitted to wriggle out of their liabilities. 

It added, they cannot resort to triggering of the corporate insolvency resolution process (CIRP) by seeking it under Section 10 of Insolvency and Bankruptcy Code (IBC), with the malicious intent of withholding payment to the government, obtaining a moratorium on its assets, and then paying peanuts to the government, as an operational creditor, under the distribution mechanism of the code.

“The spectrum cannot be utilised without payment of requisite dues, which cannot be wiped off by triggering CIRP under the I&B Code,” read the order of the NCLAT.

The Bench, comprising Justice Bansi Lal Bhat, acting chairperson of NCLAT, Justice Anant Bijay Singh, judicial member, and Shreesha Merla, technical member, also said that spectrum cannot be treated as a security interest by the lenders.

Furthermore, the appellate tribunal has ruled that dues of the central government or department of telecom (DoT), under the licence, fall within the ambit of operational dues under IBC.

It has also said that telecom service providers have the right to use spectrum under licence granted to them. But they cannot be referred to as owners in possession of the spectrum but only in occupation of the right to use spectrum. It said, spectrum belongs to the nation (people) with government only being its trustee. Possession correlates with the ownership right.

The apex court, in September last year, had directed the NCLAT to dwell on the questions it had posed in its judgment in the Aircel resolution plan issue. The questions were — whether spectrum can be subject to proceedings under the code, in the case of sharing. Also, how the payment is to be made by the telecom service provider, and in the case of trading, how the liability of the seller and buyer is to be determined.

Once answers to the questions were found, only then could NCLAT consider the appeal.

Since the questions posed by the apex court has been dealt with by the tribunal now, the appeals by the DoT will be heard by the NCLAT on April 26, it ruled.

Anoop Rawat, an insolvency lawyer, said, “While NCLAT has accepted spectrum dues as operational debt, the order also states that spectrum cannot be utilised without payment of requisite dues to the government and the same cannot be wiped off by triggering CIRP. This creates a huge anomaly and contradiction, which would need immediate correction. Once the dues are categorised as operational dues, these can’t be prioritised and should follow the same payment entitlement like any other operational dues. Government dues include income tax or goods and services tax as provided under Section 53 of the code. These need to be settled, according to the provisions of the IBC. Section 238 provides that IBC shall prevail over any other law or instrument.

DoT had earlier contested the National Company Law Tribunal’s (NCLT’s) approval of the resolution plan for beleaguered telecom company Aircel.