Spectrum can be subjected to insolvency/liquidation; trading subject to payment of past dues: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has ruled that spectrum is an intangible asset that can be subjected to insolvency/liquidation proceedings and the dues of Central Government/DOT under the spectrum licence fall within the ambit of operational dues under the Insolvency & Bankruptcy Code. (UOI vs Vijaykumar V. Iyer).Trading in intangible assets like use of spectrum would, however, be subject to fulfillment of conditions including payment of past dues in full till the date of transfer, the NCLAT has held. ."While a licence can be transferred as an intangible asset of the Licensee /Corporate Debtor under Insolvency Proceedings in ordinary circumstances, however as the trading is subjected to clearance of dues by Seller or Buyer, as the case may be, the Transferor/Seller or Transferee/Buyer being in default would not qualify for transfer of licence under the insolvency proceedings.", it is said. .A judgement to this effect was passed by a three-member Bench of Justice Bansi Lal Bhat, Acting Chairperson; Justice Anant Bijay Singh, Member (Judicial) and Shreesha Merla, Member (Technical) in relation to the insolvency of mobile operator Aircel. .Following a clarification plea by Aircel, the Supreme Court, in October 2020, had allowed the NCLAT to decide the question of whether mobile operator Aircel's spectrum licence could be sold under IBC..Invoking the public trust doctrine, the Central government inter alia argued before the NCLAT that there was an implicit embargo on the right of State to transfer public resources to private property if such transfer affected general public. It was also contended that the Licence Agreement between the Department of Telecom (DoT) and the Corporate Debtor, a mobile operator, is also a facet of public trust and could not be said to exist outside the trust..Central government also claimed that on disposal of assets, DoT would have the first charge for recovery of its dues and that it would be a Financial Creditor in the insolvency process. .The Resolution Professional inter alia submitted that dues owed to DoT constituted operational debt and being a statutory authority, DoT should be treated in a similar manner as other statutory authorities under IBC as creditors of the same class and no preferential treatment can be given to it..Agreeing that the DoT dues were operational dues, the CoC for Aircel stated that Section 3(27) IBC covered the right to use the spectrum within its ambit and that under Section 18 of IBC, Resolution Professional was obligated to take into custody all assets as recorded in the balance sheet of CD with intangible assets specifically included under Section 18 (f)(iv). .It was also claimed that the licence could not be terminated by virtue of any document in view of prohibition imposed under Section 14 IBC..The Appellate Tribunal stated that there was no controversy on the spectrum being a natural resource and the property of the public vested in the State as a Trustee..It further held that the "use of spectrum" under the licence was an intangible asset in the hands of Licensee, which had to be managed by the Resolution Professional under Section 18 IBC.."TSPs (Telecom service providers) have the right to use spectrum under licence granted to them. They cannot be said to be the owners in possession of the spectrum but only in occupation of the right to use spectrum. Ownership of spectrum belongs to Nation (people) with Government only being its Trustee. Possession correlates with the ownership right.", it said. .The spectrum, however, cannot be utilized without payment of requisite dues, the NCLAT added. "Natural Resource would not be available to use without payment of requisite dues. Triggering of Corporate Insolvency Resolution Proceedings under I&B Code by the Corporate Debtor with the object of wiping off of such dues, not being for insolvency resolution, but with a malicious or fraudulent intention, would be impermissible.".It specifically stated that a defaulting Licensee could not be permitted to wriggle out of their liabilities by resorting to initiation of CIRP under Section 10 IBC for purposes of maliciously withholding the huge arrears payable to the government, obtaining a moratorium to abort Government’s move to suspend, revoke or terminate the Licences and subsequently subjecting the government to "peanuts" offered to it in terms of distribution mechanism under Section 53 IBC. .The NCLAT also stated that the spectrum could not be treated as a security interest by the lenders as the priority/first charge belonged to DoT. .Apart from stating that dues under the Licence were operational dues, the NCLAT stated that even the deferred/ default payment instalments of spectrum acquisition cost also fell within the ambit of Operational Dues. Centre was represented by Standing Counsel Amit Mahajan with Advocates Pooja Mahajan, Kanu Agrawal, Gitesh Chopra, Vidur Mohan, and Shefali Munde..Senior Advocates Ravi Kadam, Abhinav Vashisht with Advocates Anoop Rawat, Charu Bansal, Ankita Mandal, Vaijayant Paliwal, Saurav Panda, Kriti Kalyani, Salonee Kulkarni appeared for Resolution Professional. .Senior Advocate Ramji Srinivasan with Advocates Raunak Dhillon, Aditya Marwah, Madhav Kanoria, Shubhankar Jain, Shivkrit Rai, Rajshree Chaudhary appeared for CoC..[Read Order]