Telecom issue: NCLAT dismisses petitions, says IBC to prevail over Trai Act

Insolvency tribunal NCLAT has said that the Insolvency & Bankruptcy Code (IBC) would prevail over the provision of the Telecom Service Regulatory Authority of India (Trai) Act, as it dismissed two petitions filed by the sectoral regulator in the RCom matter.

The National Company Law Appellate Tribunal (NCLAT) dismissed the plea by the telecom regulator Trai against the classification of the balances of the customers of RCom as operational debt by the resolution professional in the insolvency proceedings of the defunct service provider.

NCLAT also dismissed the second petition filed by Trai, where it sought direction to the resolution professional of RCom for payments of statutory dues amounting to Rs 85.10 lakh.

"The submission of the appellant (Trai) that Act being a special law, would prevail over the provisions of IBC cannot be accepted."  "The Supreme Court has already held that Section 238 of the IBC has overriding effect over any other law. Hence, IBC shall prevail over the provisions of the Trai Act," said a three-member NCLAT bench which also comprised Chairperson Justice Ashok Bhushan.

The telecom regulator had contended that the Trai Act is a special law governing all aspects of the provision of telecommunications services in the country, whereas the IBC is a general law governing insolvency and is not specific to telecom companies.

The provisions of the Trai Act and Regulations framed thereunder would prevail in respect of matters dealing with the regulation of telecom companies, Trai had contend.

However, a three-member NCLAT bench dismissed both the pleas of Trai and said: We are of the view that no grounds have been made out to interfere with the impugned order in these Appeals.

RCom has been going through a Corporate Insolvency Resolution Process (CIRP) since May 2018 over a petition filed by Ericsson India.

Trai had contended that security deposits are held by the telecom service provider, in which the beneficial interest continues to vest with the subscribers until the service is rendered.

Trai had issued binding directions to RCom to refund the entire excess amounts to subscribers. The excess amounts collected by RCom belong to the subscribers, cannot be appropriated by it and treated as mere operational debts' in the CIRP, Trai had contended.

However, this was rejected by the NCLAT in its 22-page-long order.

The financial disincentives are in the nature of a penalty imposed by the Appellant in terms of the Quality of Service Regulations pertaining to the pre-CIRP period, said NCLAT.

Trai could have only assessed the quantum of the penalty and is prohibited from enforcement of the same by virtue of Section 14 of the IBC.

These monies are statutory dues/ operational debt and therefore, the Appellant ought to have filed its claim with the RP regarding the same," said NCLAT.