Aircel’s resolution: SC banks say IBC violates telecommunications license terms

The CoC stated that the DoT being an operational creditor in this case, cannot be paid in priority over other financial and operational creditors.

Aircel’s creditors’ committee and successful bidder UV Asset Reconstruction Company (UAVRCL) challenged the order of the National Business Appeals Tribunal (NCLAT) on April 13 in the Supreme Court, which ruled that spectrum may be transferred as part of the insolvency resolution plan, but only after paying all government contributions. The CdC petition said the appeals court did not consider the provisions of the Insolvency and Bankruptcy Code (IBC) to override the license conditions of the universal access service, the tripartite agreement and guidelines on frequency exchange.

The NCLAT order maintained that the telecommunications department in the Aircel bankruptcy case is an operational creditor, but clauses relating to the spectrum trading guidelines and the license agreement state that the dues government authorities must be fully paid before the spectrum is transferred and used.

Challenging the order, the State Bank of India, on behalf of the CoC of Aircel entities, said in its petition that NCLAT’s directive to pay DoT dues first would amount to preferential treatment for the government department, which happens to be an operational creditor, and therefore, “amounts to discrimination against other operational and financial creditors of Aircel entities”.

She declared that the NCLAT judgment is “inherently contradictory” insofar as on the one hand it considers that the right of use of the spectrum is an intangible good of the debtor company, the right of use of the spectrum can be subject to bankruptcy proceedings. and the DoT is an operational creditor, on the other hand, it ruled that the natural resource should not be available for use without payment of the required contributions, which cannot be cleared by triggering the insolvency resolution process companies under the Insolvency and Bankruptcy Code.

The CoC stated that the DoT being an operational creditor in this case, cannot be paid in priority over other financial and operational creditors.

UAVRCL also argued that NCLAT’s conclusion was patently incorrect, contrary to IBC’s underlying scheme, and inherently inconsistent with the other conclusions.

A SC bench led by Judge S Abdul Nazeer requested a response from the Center, the insolvency professional and others on both appeals. Solicitor General Tushar Mehta also informed the judiciary that the Center is also appealing the judgment of NCLAT.

The NCLAT order, which was issued on April 13, concerned Aircel, where the Mumbai tribunal of the National Company Law Tribunal in June 2020 approved a resolution plan of Rs 6,630 crore from the UAVRCL. The DoT challenged this at NCLAT last year in September on the grounds that the spectrum does not belong to the carriers but is leased to them and that in the event of non-payment, they have the right to get it back.

Although the NCLAT order concerns the insolvency of Aircel, it would have implications for similar proceedings of another company, Reliance Communications. Here too, the creditors’ committee approved the UVARCL resolution plan.

Aircel and RCom both owe adjusted gross revenues to the DoT. While Aircel’s contributions are Rs 12,389 crore, RCom’s are Rs 25,199.27 crore.

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