“We are of the view that the spectrum allocated to TSPs and shown in their books as an ‘asset’ cannot be subject to proceedings under the Insolvency and Bankruptcy Code (IBC), 2016,” the judgment said. TSPs are telecom service providers and in this case Aircel and Rcom went bankrupt in 2018 and 2019 respectively.
A bench comprising Justice PS Narasimha and Justice Atul Chandurkar observed that “spectrum is a scarce and limited natural resource owned by the Indian people, with legal title solely in the Union of India, which holds it in public trust. The licensees do not acquire any ownership interest in the spectrum”.
In a more than 60-page judgment, the court ruled that telecom spectrum cannot be considered an asset under the IBC and cannot be sold or restructured during insolvency to repay creditors. The bench clarified that the IBC applies only to assets actually owned by the company. Given that the spectrum remains state property, it cannot be part of an insolvency or liquidation case. The decision made it clear that the Insolvency Act cannot take precedence over the Telecommunications Act.
“The future of these two telcos is over and there is a possibility that the creditors’ committee will ask for liquidation,” said the executive, who did not want to be named.
The Supreme Court was hearing a case involving a tussle between Aircel and the Department of Telecom on pleas filed by the State Bank of India (SBI) and two insolvent telecom operators challenging a 2021 order of the Appellate Court that ruled that spectrum can be transferred or sold under a resolution plan only after clearing all outstanding government dues.
Friday’s order states that RCom and its unit Reliance Telecom Ltd. they also filed an appeal against the order of the Court of Appeal.
SBI, UVARCL, Department of Telecommunications (DoT) and Resolution Professionals (RP) of Aircel and Rcom did not respond to Mint’s queries emailed on Friday. Anish Nanavaty of Deloitte is the solution expert for Rcom while Vijaykumar V. Iyer is Aircel.
In this case, the government gains. But according to a government official, who did not want to be identified, a legal perspective will be needed to determine whether the airwaves can be included in the upcoming spectrum auction. “It appears that the ministry may reclaim spectrum from insolvent companies and auction it. However, the process would involve sending a show cause notice to the companies citing a court order,” the official said.
The DoT will also have to work out how to claim statutory dues like Adjusted Gross Revenue (AGR) from the two telcos and it would have to go through the IBC process.
According to the Supreme Court order of 2020, the AGR charges for Aircel and Reliance Communications were Rs ₹12,389 million and ₹25,195 million, or
Legal options
Legal experts have weighed in on the impact of the ruling.
“As a practical matter, once the license is deemed terminated or expires in accordance with the unified license conditions, the spectrum reverts to the DoT and can be re-managed for future auctions under the existing policy framework,” said Arpit Choudhary, partner, King Stubb & Kasiva, Advocates and Attorneys.
“The government does not have to wait for the distribution of the value of the IBC as the spectrum is no longer part of the insolvency estate,” he added.
According to Choudhary, the telco’s insolvency process can continue separately for its other assets; so there will be some procedural overlap but not a legal impediment to planning future DoT auctions.
Context
Aircel and its subsidiaries were awarded 20-year licenses in 2006 and acquired spectrum in auctions between 2010 and 2016 for ₹6,249.27 million crowns. In 2014, lenders including SBI provided loans from ₹13,729 million crowns. After non-fulfillment of obligations, insolvency proceedings were initiated in 2018 and the government registered claims from ₹9,894.13 million crowns. RCom owes around ₹26,000 crore by Indian banks and financial institutions, according to a 2020 PTI report.
Other telecom operators also wanted the government to auction spectrum stuck in insolvency.
In its filing with the Telecom Regulatory Authority of India (Trai) in November last year, Bharti Airtel said the spectrum, which is currently locked up in insolvency proceedings before the National Company Law Tribunal (NCLT) or its Appellate Tribunal (NCLAT), remains a non-productive national asset.
“Its prompt inclusion in the upcoming auctions will prevent further value erosion, ensure transparent access for all service providers and enable efficient demand-driven utilization,” Airtel said.
The battle between the operators and the government began when RCom, Aircel and Videocon went bankrupt in 2018-19, leaving behind unpaid statutory dues of more than ₹40,000 million crowns. As an operating creditor, DoT was in a long queue because under your IBC rules, it is the financial creditors – essentially banks – who get first priority if any amount is recovered.
What’s at stake?
Under Aircel’s resolution plan approved by the Insolvency Court in June 2020, operational creditors – including the DoT – have just been provided ₹28.50 crores, a mere 0.16% of it ₹17,462 crore that they demanded. The Ministry therefore refused to back down from its position.
The latest Supreme Court order will now hit financial lenders. SBI, one of the largest lenders to RCom and Aircel, has a total exposure of Rs ₹12,000 crore in both the companies.
Financial creditors who demanded repayment ₹58,795 crore from Aircel and its entities Dishnet Wireless and Aircel Cellular Ltd. ₹6,630 crore under the resolution plan of UVARCL, representing a reduction of 89%.
SBI is not the only bank that has been affected. When RCom went bankrupt in 2019, more than 53 financial creditors made claims for around ₹57,382 million crowns.
UVARCL initially estimated that it would generate ₹800-1300 million by selling spectrum to Aircel in 1800 MHz and 2100 MHz bands. But these estimates turned upside down after the DoT made it clear that the government only leased and did not sell the broadcast.