Operational debt treatment of subscriber balances and regulatory dues prevails through insolvency claims process, not CIRP cost.

Pre-CIRP subscriber security deposits, unspent prepaid balances and TRAI-imposed financial disincentives are treated as operational liabilities where they are reflected in the corporate debtor's books, not shown to be held in a separate trust account, and are otherwise part of the insolvency claims process. The insolvency regime prevails over a conflicting telecom law framework by virtue of its overriding provision, and such sums cannot be directed to be paid as CIRP cost unless they were incurred by the resolution professional in running the corporate debtor as a going concern. The claims had to be pursued through the insolvency process, and no basis existed for direct payment outside it.

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Issues: (i) Whether the amounts representing subscriber security deposits, unspent prepaid balances, and TRAI-imposed financial disincentives were liable to be treated as operational debt under the Insolvency and Bankruptcy Code, 2016. (ii) Whether the Telecom Regulatory Authority of India Act, 1997 and the regulations framed thereunder could prevail over the Insolvency and Bankruptcy Code, 2016, or whether the amounts could be directed to be treated as CIRP cost.

Issue (i): Whether the amounts representing subscriber security deposits, unspent prepaid balances, and TRAI-imposed financial disincentives were liable to be treated as operational debt under the Insolvency and Bankruptcy Code, 2016.

Analysis: The amounts claimed in respect of subscriber balances and security deposits were reflected as liabilities in the corporate debtor's books and were not shown to have been kept in a separate trust account or otherwise segregated from business funds. The record also showed that the amounts had been utilized in the business of the corporate debtor and that the claim for pre-CIRP dues had to be pursued through the insolvency claims process. The financial disincentives imposed by the regulatory authority were also pre-CIRP liabilities. On these facts, the characterization adopted by the adjudicating authority as operational debt was found to be justified.

Conclusion: The amounts were correctly treated as operational debt and were not shown to be excluded from the CIRP framework as trust property or otherwise.

Issue (ii): Whether the Telecom Regulatory Authority of India Act, 1997 and the regulations framed thereunder could prevail over the Insolvency and Bankruptcy Code, 2016, or whether the amounts could be directed to be treated as CIRP cost.

Analysis: The Code contains an overriding provision and prevails in case of inconsistency with other laws. The claim that the telecom statute, as a special law, would override the insolvency regime was rejected. The record also did not establish any basis to treat the subscriber balances or the regulatory disincentives as CIRP cost, since such amounts were not shown to have been incurred by the resolution professional in running the corporate debtor as a going concern. The prayer to bypass the claims mechanism and obtain direct payment was therefore unsustainable.

Conclusion: The insolvency regime prevailed, and no direction could be issued to treat the amounts as CIRP cost.

Final Conclusion: No ground was made out to interfere with the impugned orders, and the appeals failed.

Ratio Decidendi: In insolvency proceedings, pre-CIRP regulatory dues and subscriber-related liabilities reflected as corporate liabilities must be pursued through the claims and resolution process unless a legally recognized trust or exclusion is established; the insolvency code's overriding provision prevails over conflicting statutory regimes.

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