SC spectrum ruling likely to weigh on IBC recovery from Aircel, RCom

Supreme Court says telecom spectrum cannot be treated as a corporate asset under IBC, a move bankers say will dent recoveries in Aircel and RCom cases

The Supreme Court’s ruling that spectrum allocated to telecom service providers cannot be treated as a corporate asset capable of being restructured under the Insolvency and Bankruptcy Code (IBC) is expected to impact recoveries from the insolvency proceedings of Aircel and Reliance Communications (RCom), bankers said.

 

Going forward, the ruling is also expected to alter credit assessment frameworks, with lenders likely to reassess the nature of security available while extending loans to telecom companies, they said. 

 

With this ruling, recovery from the two corporate insolvency cases — Aircel and RCom — will suffer, said one banker on the condition of anonymity. “Whatever the prospect of recovering something was there, that is gone now,” he said, adding that banks will now not be able to recover much. 

 

Aircel had bank dues worth over ₹13,500 crore, while Reliance Communications had over ₹50,000 crore. 

 

The person also said, for future funding towards telecom companies, this aspect (spectrum cannot be considered as a corporate asset) will be a key consideration, as the most valuable security (spectrum) will no longer be available. “Lenders will have to assess what alternative security can be considered for the loan; otherwise, it will become an unsecured exposure,” the banker said. 

 

This is likely going to weigh on the fundraise of Vodafone Idea also, which is looking to raise around ₹35,000 crore in debt funding from banks and other sources. Banks are evaluating the company’s proposal and no final decision has been reached as far as fresh lending to the company is concerned. 

 

The Supreme Court ruling will have some bearing on the company’s fundraise because security is an important part to some extent, said a senior banker, adding that nothing has been decided yet, as the numbers are getting crystallised. “The teams are talking to each other. So, we will let that happen, and then talk to all the banks,” he said. 

 

On Friday, a bench of Justice PS Narasimha and Justice AS Chandurkar ruled that spectrum allocated to telecom firms and shown as an “asset” in their books cannot be subjected to proceedings under IBC.

 

“We could demystify the legal challenge by first understanding spectrum as a material resource, precisely as what our Constitution refers to as the material resource of the community,” the ruling stated. 

 

The decision came in the insolvency proceedings of Aircel and RCom, where lenders had sought to monetise spectrum to recover their dues. The verdict was delivered on a batch of petitions filed by State Bank of India and the two insolvent telecom operators, challenging a 2021 order of the National Company Law Appellate Tribunal (NCLAT), which had held that spectrum could be transferred or sold under a resolution plan only after clearing all outstanding government dues.