IBC will prevail over TRAI Act: NCLAT dismisses TRAI plea against Reliance Telecom

The National Company Law Appellate Tribunal (NCLAT) on Wednesday dismissed a plea by Telecom Regulatory Authority of India (TRAI) against the classification of security balance of postpaid subscribers and unspent balances of prepaid subscribers of the now defunct Reliance Telecommunications as 'operational debt'..A coram of Chairperson Justice Ashok Bhushan and Technical Members Barun Mitra and Arun Baroka also dismissed TRAI's contention that a financial disincentive of over ₹85 lakh that it had imposed in 2017 over quality of service could not have been classified as operational debt. "The submission of the Appellant that Act being a special law, would prevail over the provisions of IBC cannot be accepted. The Hon’ble 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 TRAI Act."The Appellate Tribunal further rejected the contention that TRAI Act, 1997, being a special statute would override the Insolvency and Bankruptcy Code (IBC), 2016 in case of conflict..Anil Ambani-owned Reliance Telecommunications was admitted to the Corporate Insolvency Resolution Process (CIRP) in 2019 after a plea was filed by Ericsson India under Section 9 of the IBC.In 2020, TRAI filed an application in the NCLT asking for directions to the resolution professional (RP) of the company to ascertain the unspent balance and security deposit payable to the subscribers and make provision for it in the resolution plan. TRAI further asked the NCLT to direct the RP to pay the statutory dues amounting to ₹85,10,000.On the subscriber refunds, NCLT held that since the amount remains unpaid as on date of commencement of the CIRP, it is liable to be paid into the Telecommunication Consumers Education and Protection Fund. Furthermore, the Tribunal permitted the amount to be admitted as an operational debt.The NCLT noted held that the statutory dues will be paid as per the resolution plan, and classified the same as an operational debt..TRAI appealed against the order contending that subscriber dues need to be treated as CIRP costs rather than as operational debt. It was TRAI's contention that the excess amounts collected by the Reliance Telecom, which belong to the subscribers, cannot be treated as mere ‘operational debts’ in the CIRP. Such amounts are held by the company only under a ‘constructive trust’ or ‘contractual arrangement’, the regulator said.It also contended that since the TRAI Act is a special regulation, the financial disincentive it levied on Reliance Telecom should be paid over other CIRP dues. .The NCLAT in its order noted that the amount which was received towards unspent balance and security deposit was the amount utilised in the business and there was no prohibition or any statutory regulation refraining the company from utilising this amount in running of its business. The order said, "An additional affidavit was filed by the RP to the application of the Appellant, where the RP has given the reasons as to why the balance of post-paid and prepaid subscribers cannot be treated to be held in trust by the Corporate Debtor. The RP in the affidavit has also given detailed facts with regard to refund of process adopted by Corporate Debtor for refund of security deposit of post-paid subscribers and unspent balance of prepaid subscribers.".The Appellate Tribunal also found that the RP has accounted for liabilities, which including security as well as statutory dues.While dismissing TRAI's plea, NCLAT held that since statutory dues would come under the category of government dues, it would have to be paid as per the resolution plan..TRAI was represented by Advocates Ankur Sood and Dhaman Trivedi.Reliance Communications was represented by Senior Advocate Krishnendu Datta and Advocates Anoop Rawat, Saurav Panda, Shally Bhasin, Gaurav Arora, Udbhav Nanda, Mohana Nijhawa and Akhil..[Read Judgment]