2021 (4) TMI 1300
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....td. and Dishnet Wireless Ltd. & Anr., Telecom Regulatory Authority of India Versus Aircel Ltd. & Anr. Tatwa Technologies Ltd. Versus Vijay Kumar Iyer & Anr., Telecom Regulatory Authority of India Versus Dishnet Wireless Ltd. &Anr. [Justice Bansi Lal Bhat] Acting Chairperson, [Justice Anant Bijay Singh] Member (Judicial) and [Shreesha Merla] Member (Technical) For the Appellant: Mr. Amit Mahajan, CGSC with Ms. Pooja Mahajan, Mr. Gitesh Chopra, Mr. Vidur Mohan, Mr. Kanu Agrawal and Ms. Shefali Munde, Advocates., Mr. Abhinav Vashisht, Sr. Advocate with Mr. Sumesh Dhawan, Mr. Anoop Rawat, Ms. Charu Bansal, Ms. Ankita Mandal, Mr. Vaijayant Paliwal, Mr. Saurav Panda, Ms. Kriti Kalyani and Ms. Salonee Kulkarni, Advocates, Mr. Arun Kathpalia, Sr. Advocate, Ms. Shyel Trehan, Mr. Rohan Rajadhyaksha, Mr. Prasad Lotlikar and Mr. Raghav Anand, Advocate, Mr. Raunak Dhillon, Mr. Aditya Marwah and Mr. Shubhankar Jain, Advocates, Mr. Ashish Joshi, Advocate, Mr. Abhishek Kumar and Mr. Saransh Gupta, Advocates, Mr. Ninad Deshpande, Ms. Manisha Kanojia and Mr. Shivalok Yashovardhan, Advocates., Ms. Maneesha Dhir For the Respondent: Mr. Ravi Kadam and Mr. Abhinav Vashisht, Sr. Advocates with Mr. Ano....
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.... Iyer & Anr. 10. Comp. App. (AT) (Ins) No. 822 of 2020 Telecom Regulatory Authority of India Vs. Dishnet Wireless Ltd. & Anr. While six out of the aforesaid ten appeals assail the impugned order in regard to approval of Resolution Plan remaining four appeals have been filed in respect of orders passed on I.A.s, subsequent to the passing of order of approval of Resolution Plan, relating to claims. 2. The Hon'ble Apex Court in Para 23 of the afore titled judgment directed as under:- "23. We consider it appropriate that the aforesaid various questions should first be considered by the NCLT. Let the NCLT consider the aforesaid aspects and pass a reasoned order after hearing all the parties. We make it clear that it being a jurisdictional question, it requires to be gone into at this stage itself. Let the question be decided within the outer limits of two months. We also make it clear that we have not observed on the merits of the case, and we have kept all the questions open to be examined by the NCLT." 3. The questions are enumerated in Paragraphs 18 to 22 of the said judgment which are reproduced hereinbelow:- "18. A question has been raised con....
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.... law of enforcement of security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (the Sarfaesi Act) or under any other law. 22. A question of seminal significance also arises whether the spectrum is a natural resource, the Government is holding the same as cestui que trust. In view of the nature of the resource, it can be subjected to insolvency/liquidation proceedings. Earlier licence was obtained on the payment of fees in advance that was not beneficial to the TSPs, as such a new revenue sharing regime was devised in 1999, and the Central Government has an exclusive right under Section 4 of the Telegraph Act, 1885 in use of spectrum, it can part with on certain statutory guidelines, its use is not permissible without the payment of requisite fee. Whether dues under the licence can be said to be operational dues? It is also to be examined whether deferred/default payment installment(s) of spectrum acquisition cost can be termed to be operational dues besides AGR dues. Whether as per the revenue sharing regime and the provisions of the Telegraph Act, 1885, the dues can....
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.... which dealt with the definition of 'AGR' and dues to be paid thereunder. MA (D) No. 9887 of 2020 in the above titled appeals came to be filed by Union of India seeking extension of time to make the payment as it was pointed out that several Telecom Service Providers (TSPs) were under insolvency proceedings. Order dated 20th July, 2020 came to be passed by the Hon'ble Apex Court wherein the Hon'ble Apex Court observed that under the guise of reassessment and recalculation attempts were being made to wriggle out of the liability in terms of the judgment which was impermissible. The Hon'ble Apex Court observed that no dispute could be raised with respect to dues which have to be paid and a new round of litigation would be prohibited. The Hon'ble Apex Court, noticed that before the initiation of insolvency proceedings, most of the Telecom Service Providers, who were undergoing insolvency proceedings had applied to the DOT to grant permission for trading of license which came to be resisted by the Central Government. The permission was declined. There were huge outstanding arrears concerning the spectrum license, payment whereof was a precondition for grant of s....
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....e determined?" 7. In para 16 of the judgment, while noticing the question for consideration whether spectrum can be subjected to proceedings under I&B Code, the Hon'ble Apex Court observed that it's a natural resource and under Section 4 of Indian Telegraph Act, 1885 (ITA) the Government has the sovereign right. It took note of the definition of creditor, debt, property, operational creditor and operational debt and thereafter formulated questions for consideration in paras 18 to 22 of the judgment which, in terms of direction passed in para 23 of the judgment as modified by order dated 25th September, 2020, this Appellate Tribunal is required to consider in the first instance and pass a reasoned order. 8. Mr. Amit Mahajan, learned CGSC representing the Appellant - 'Union of India' submitted that spectrum is a valuable and scarce natural resource which belongs to the people but the State legally owns it as a trustee on behalf of people. It is further submitted that Spectrum and its 'right to use' is a national asset and same has been granted by the DOT to the Telecom Companies (TelCos) subject to various terms and conditions which have been imposed for t....
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....s per international norms. It is submitted that it is the duty of the Government to provide complete protection to the natural resources as a trustee of the people at large. Such natural resources must be used only for the interests of the country and not private interests. Reference has been made to Association of Unified Telecom Services Providers & Ors. vs. Union of India & Ors. (2014) 6 SCC 110, wherein the Hon'ble Apex Court stressed the worth of spectrum and held that the State is also bound to protect the same for the enjoyment of general public rather than permit their use for purely commercial purposes. It held that the public trust doctrine puts an implicit embargo on the right of State to transfer public resources to private property if such transfer affects general public and mandates affirmative State action for effective management of the natural resources. It further held that the State, or the licensee as the case may be hold it on behalf of the people and are accountable to the people. It is further submitted that the Licence Agreement between the DOT and the Corporate Debtor is also a facet of public trust and cannot be said to exist outside the said trust. It....
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....eree undertakes to pay all future dues. While the license has been granted for twenty years, the same can be revoked under Clause 10 for non-compliance with the terms and conditions including failure to timely pay the fee and other charges. It is submitted that the licence is not a simple transfer of right to operate telecom services for twenty years but is subject to compliance with various provisions of the agreement including continuous and uninterrupted telecom services by the Licensees and payment of fee, including AGR to maintain/preserve the licence. The twin requirements of payment of dues and maintenance of services are the imprimatur of the licence agreement as the same would protect the public interest. It is further submitted that various NIAs for assignment of right for use of spectrum stipulated the conditions for only the right to use spectrum at specified radio spectrum frequencies by payment of spectrum auction price and also percentage of AGR. Reference in this regard is made to NIAs floated in the year 2014, 2015 and 2016. It is submitted that the Telecom Licence Agreement and NIA neither grant an exclusive right to use spectrum nor an exclusive possession of the....
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....o the TelCos subject to payment of fee including AGR, all assets/infrastructure that was created by TelCos without paying the fee or sharing the revenue with DOT are also impressed with the character of a trust. Thus, on disposal of assets, DOT will have the first charge for recovery of its dues. 10. Learned CGSC would further submit that the CoC or RP cannot, in the face of Tripartite Agreement, now take a stand that the bargain struck between the parties should be ignored and CoC should be given priority over DOT since the CD is undergoing insolvency resolution. Replacement of Licensee with their own Selectee could have been undertaken by the Lenders in agreement with the terms of Tripartite Agreement and the License Agreement which postulated that the Selectee must meet the eligibility criteria, approval of DOT was taken for replacement and the Selectee pays all pending dues of DOT. It is further submitted that in the instant case, replacement is sought to be done by the CoC in favour of UVARCL, an asset reconstruction company and the provisions of Tripartite Agreement are not being complied in as-much-as UVARCL is neither a Telecom Company nor meets the eligibility criteria to....
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....d even prior to twenty year period. Such conditions include nonpayment of fee etc. There was no vesting of right, there being only a permission to operate the business and use spectrum subject to payment of fee and compliance with terms and conditions. It is submitted that the DOT's right to revoke the licence was curtailed by NCLT by passing order under Section 14 on wrong premise that the CD was a going concern which admittedly had stopped operating prior to initiation of CIRP. 13. It is further submitted that while intangible asset is included within Section 18, it needs to be an asset over which the CD has ownership rights. IRP can take into custody only such assets over which the CD has ownership rights but not assets owned by a third party in possession of the Corporate Debtor. Merely because spectrum or right to use spectrum may be classified as an intangible asset or is reflected in balance sheet of the TelCos does not imply that the TelCos have ownership rights over the same and the CD has unfettered right to further transfer such asset, moreso when consideration for such right to use has not been paid and terms of licence have not been complied. Reference is made to ....
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....that the conditions are to be accepted in entirety and no dispute concerning the License Agreement shall be raised at a future date. Though, the revenue sharing package was beneficial to the TelCos, they soon started raising disputes on calculation of AGR on one or the other pretext. TelCos continued to use spectrum without paying. It is submitted that the right to use spectrum ceased when TelCos started defaulting on terms of the Licence. The CD was in default in payment of licence fee and AGR and had admittedly suspended operations at the time of entering CIRP. The accumulated fee for right to use which remains in default is more than Rs. 10,000 crores in the present case. The amount would be staggering if other TelCos undergoing CIRP is considered. It is submitted that the Resolution Applicant (not being a TelCo), without payment of fee cannot be permitted to trade in spectrum without complying with the terms and conditions of the licence and right to use. The TelCos were holding the spectrum, a national resource in trust for the people and they cannot be permitted to trade therein without payment of consideration. Banking upon the judgment of Hon'ble Apex Court in 'Swis....
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.... conditions of grant are complied and not in capacity of a creditor seeking to recover the dues. 16. It is further submitted that if the dues of DOT are considered operational, then the plan is not in compliance with Section 30(2) of the Code. Mr. Amit Mahajan would further submit that the Resolution Plan of UVARCL proceeds on the assumption that CD would be able to trade on spectrum and use the proceeds to pay off its financial creditors. However, the liquidation estate of TelCos does not include right to use spectrum. If the TelCos were ordered to be liquidated, the right to use spectrum could not have been sold as part of distribution of their liquidation estate and no benefit could have accrued to any of the creditors. It is further submitted that DOT is a Secured Creditor as the Tripartite Agreement clearly provides that the DOT shall have first priority from any sale of assets/infrastructure of the CD in case of a default. The arrangement between the DOT, CD and the Lenders under the Tripartite Agreement is such that secures payment to DOT in priority to the dues of Financial Creditors. As regards the factum of DOT having filed its claim as Operational Creditor, it is submit....
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....s defined as a plan proposed by the Resolution Applicant for insolvency resolution of the CD as a going concern. It is settled that a Resolution Plan is not a sale or auction or recovery or liquidation but a plan for insolvency resolution of CD as a going concern. Taking over a CD with intent to sell it is against the basic object of I&B Code. It is further submitted that the Aircel Companies stopped operations before going into insolvency and for about three years now spectrum is being wasted to ostensibly preserve the value of the CD. It is further submitted that in the instant case, the Resolution Plan is not intending to revive the operations of the Aircel Companies and put them back on their feet. The plan entails significant scaling down of the operations of the Aircel Companies and monetization of assets claimed by it. The proceeds of such monetization are proposed to be used for meeting the payment obligations of the Resolution Applicant under the plan primarily towards the Banks. With uncertainty writ large as to when the spectrum will be sold and for how much, the resolution process stands converted into recovery process for Lenders. Thus, the approved Resolution Plan res....
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....rty. Under Sale of Goods Act, 1930, the expression 'goods' has been defined to mean every kind of movable property. Thus, the definition of 'property' and 'goods' under various statutes is broad and includes tangible and intangible properties. It is submitted that an asset forming part of the balance sheet of Corporate Debtor and falling within the definition of property under the applicable law would be regarded as assets of a Corporate Debtor. 21. As regards the meaning of the term 'asset', it is submitted by Mr. Kadam that in Blacks Law Dictionary it is defined as 'an item that is owned and has value'. The term 'intangible assets' is defined in the same dictionary as 'any non-physical asset or resource that can be amortized or converted to cash such as patents, goodwill and computer programs or a right to something such as services paid for in advance'. 22. It is next submitted that the right to use spectrum and telecom licences are valuable intangible assets of the Aircel Entities, which are duly reflected as intangible assets of Aircel Entities in the financial statements of AL and DWL. These have been acquired and disp....
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.... are the owners of the right to use spectrum under licence granted to them. It is submitted that while under Indian Telegraph Act it is the exclusive privilege of Government to maintain and deal with telegraphs but the statute has enabled parting with the privilege by licensing it out for a specified period in lieu of consideration (subject to conditions) whereupon the Licensee becomes the owner of right to use of specific band of spectrum and unless there is breach of contractual terms, the DOT cannot cause interference in exercise of rights of the Corporate Debtors. 27. It is further submitted on behalf of Respondent No. 1 that the relationship between DOT and the TelCos are governed by the terms and conditions of NIA and UASL Agreements executed inter-se the Licensor and Licensee and having been acquired for a substantial consideration through auction, are permitted to be used upon payment of licence fee. This is a contractual arrangement between DOT and TelCos and judicially recognized as such by the Hon'ble Apex Court in Union of India vs. Association of Unified Telecom Providers of India (2011) 10 SCC 543. 28. As regards the question whether spectrum is a natural resour....
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..... The Spectrum Trading Guidelines permit transfer of right to use spectrum with the approval of DOT, and in this regard DOT has the right to recover the dues for the period prior to the effective date of trade. Various conditions and modalities for transfer are prescribed. Thus, the companies holding right to use spectrum are eligible to trade right to use spectrum subject to fulfillment of the conditions set out under the Spectrum Trading Guidelines. It is further submitted that sale of assets of a Corporate Debtor as a part of the Resolution Plan is permissible under Regulation 37 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations). The right to use of spectrum and licences being assets of the Corporate Debtors are permitted to be transferred under the approved Resolution Plans in addition to such transfer of right to use spectrum being allowed as per the guidelines. It is submitted that merely because full consideration had been not paid by the Corporate Debtor for certain rights to use spectrum, such rights do not cease to be assets of the Corporate Debtors or become non-transferable to a third party. 31. It is submitted that ....
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....said explanation. Under Section 25(2)(a) of I&B Code, the Resolution Professional is under a duty to take immediate custody and control of all assets of the Corporate Debtor and to protect and preserve the same. The telecom licence and the right to use spectrum being the intangible assets of the Corporate Debtors are the assets which the Resolution Professional is required to take into custody and control. Even Section 36(4)(iv) provides that liquidation estate assets do not include other contractual arrangements which do not stipulate transfer of title but only use of the assets. Right to use spectrum being an asset of the Corporate Debtors and not being a third party's asset does not fall within the purview of explanation (a) to Section 18. It is further submitted that under Explanation 1 of Section 14(1) all concessions, permits and licences given by the Government Authorities are protected under Section 14 of the I&B code during the CIRP. These provisions, read together with Section 238 of I&B Code make the position clear that the right to use spectrum and the telecom licences shall be subject to proceedings under Section 18 and 25 notwithstanding anything to the contrary c....
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....ideration including by way of grant of privileges, licences, natural resources such as spectrum, etc. would be 'service' and be subject to GST/Service Tax. The telecom licences and right to use spectrum are parted with by the DOT in lieu of consideration and are governed by terms of licence and NIA. Any dues arising during CIRP period under these contracts are in the nature of a service, therefore, coming within the purview of 'operational debt'. Thus, the dues payable by the Corporate Debtors should have to be claimed and admitted as an operational debt. It is submitted that the DOT itself submitted its claim in Form B as an Operational Creditor, participated in the entire CIRP of the Corporate Debtors as an Operational Creditor attending the meetings of CoC and engaging in exercise involving discussions on Resolution Plans. It is now raising the issue on the nature of its dues with the sole intent to somehow steal a march over the other creditors of the Corporate Debtors. It is submitted that merely because credit period has been allowed for payment of certain dues such as the deferred spectrum consideration, it would not bring the debt within the concept of '....
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....hat where two statutes cannot be read harmoniously, a later law abrogates earlier laws clearly inconsistent with it. Therefore, I&B Code being comprehensive on the subject of insolvency would have an overriding effect. It is further submitted that the DOT being a statutory authority should be treated in the similar manner as other statutory authorities under the I&B Code as creditors of same class and no preferential treatment can be given to it. 38. On the aspect of a licence being transferred under the insolvency proceedings particularly when trading is subjected to clearance of dues under the Spectrum Trading Guidelines, it is submitted that the Spectrum Trading Guidelines intended to enable optimal utilization of spectrum through appropriate regulatory framework to facilitate greater competition, ease of doing business and optimization of business. On the other hand I&B Code was intended to provide for reorganization and insolvency resolution of corporate persons and seek maximization of value of assets, promote entrepreneurship and make credit available while balancing interests of all stakeholders simultaneously. It is submitted that the question of seeking approval of DOT f....
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....om the DOT which is specifically noted in the approval order. It is further submitted that the Resolution Plans only provide for the right of the Corporate Debtors to seek DOTs permission to transfer the right to use spectrum and licence related dues in accordance with the spectrum trading guidelines. The trading guidelines are not substituted under the CIRP but only required to be construed in accordance with the Resolution of pre-CIRP dues made in accordance with provisions of the I&B Code. 41. It is submitted that the CIRP of the Corporate Debtors had commenced long before decision of the Hon'ble Supreme Court on AGR dated 24th October, 2019 and does not appear to have been triggered as a consequence of the judgment or to avoid DOT's dues but due to various defaults. During CIRP commencement, order dated 29th February, 2016 passed by the Hon'ble Supreme Court was still in force as per which the DOT had undertaken not to enforce AGR demand on the Corporate Debtors. The CIRP stands concluded pursuant to the approval order. 42. So far as question regarding the spectrum being treated as a security interest and its mode of enforcement in the context of Tripartite Agreem....
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....ution Applicant adopts the arguments advanced by learned counsel for the Monitoring Agency that the dues owed to DOT constitute operational debt. It is submitted that keeping in view the essential attributes of financial debt and financial creditor, it is clear that DOT cannot be regarded as a 'Financial Creditor'. 46. It is lastly submitted that for the reasons assigned in order dated 12th March, 2018 passed by the Adjudicating Authority for admitting the petitions under Section 10 I&B Code and commence CIRP in respect of the Aircel Entities, it cannot be said that such initiation was malafide or for meeting oblique ends. 47. Mr. Ramji Srinivasan, learned senior counsel representing State Bank of India and rest of the members of the Committee of Creditors of Aircel Entities (Respondent No. 3 in Company Appeal (AT) (Insolvency) No. 733 of 2020) submitted that telecom spectrum is a public asset with the Government acting as its trustee. However, the right to use spectrum becomes an asset in the books of the allottee company when a licence is granted for a specific period and on payment of fees/consideration. It is submitted that Aircel Entities/CDs are holders of telecom l....
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.... included under Section 18 (f)(iv). It is further submitted that the explanation to Section 14(1) of the I&B Code clearly provides that licences, grants etc. given by Government or any other authority is an asset of the CD which cannot be suspended or terminated during the moratorium period. With reference to judgment rendered by Hon'ble Apex Court in Rajendra K. Bhutta vs. Maharashtra Housing and Area Development Authority, it is submitted that when a moratorium is imposed by Section 14, the idea is to alleviate corporate sickness and a statutory status quo is pronounced so that the insolvency resolution process may proceed unhindered by any of the obstacles that would otherwise be caused. It is submitted that the licences and right to use spectrum granted by the Government are valuable assets of the Aircel Entities which require protection by way of moratorium during the CIRP period so as to achieve the primary object of the I&B Code i.e. revival and rehabilitation of Corporate Debtor. Recovery of any property in occupation or possession of CD by an owner or lesser is prohibited during moratorium. Right to use spectrum is the property of the licensee who is in possession of t....
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....t to that of the Lenders as charge override to use spectrum and licence has been created in favour of the CoC with the consent of the DOT, therefore the CoC are Secured Financial Creditors of the Aircel Entities. The Tripartite Agreement has been executed to facilitate financing and the terms and conditions therein regulate transfer/assignment of licence to secure the loans extended by the Lenders. Lastly, it is submitted that the CoC had extended loans to the Aircel Entities only upon creation of charge over the spectrum and with the consent of the Appellant. Thus, the Appellant's claim over the spectrum will be subservient to the CoCs claim. CoC comprising of Public Sector Banks are custodians of public money and have advanced loans and financial assistance based on the Tripartite Agreement. The Public Sector Banks are in the business of providing financial facilities for betterment of National economy and should be allowed to recover money as per their security. 49. Mr. Anoop Rawat, Advocate seeking intervention on behalf of Reliance Communication and Reliance Telecom was permitted to address. He adopted the arguments advanced by Mr. Ravi Kadam, Senior Advocate representing....
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....nts of the natural environment that provides economic and social services to human society thus being valuable in their natural form. Of course its value rests upon the quantum available and demand for it. The observations of the Hon'ble Apex Court are of great relevance and are reproduced as under: "63. ...... Natural resources belong to the people but the State legally owns them on behalf of its people and from that point of view natural resources are considered as National Assets, more so because the State benefits immensely from their value. The State is empowered to distribute natural resources. However, as they constitute public property/national asset while distributing natural resources the State is bound to act in consonance with the principles of equality and public trust and ensure that no action is taken which may be detrimental to public interest. Like any other state action constitutionalism must be reflected at every stage of the distribution of natural resources." It further observed that the ownership regime rests upon the concept of sovereignty which, in International law seeks to respect the principle of permanent sovereignty of peoples a....
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....te interests are involved. The same obligations apply to managers of forests, monuments, parks, the public domain and other public assets. Professor Joseph L. Sax in his classic article, "The Public Trust Doctrine in Natural Resources Law: Effective Judicial Intervention" (1970), indicates that the public trust doctrine, of all concepts known to law, constitutes the best practical and philosophical premise and legal tool for protecting public rights and for protecting and managing resources, ecological values or objects held in trust. 55. The public trust doctrine is a tool for exerting long-established public rights over short-term public rights and private gain. Today every person exercising his or her right to use the air, water, or land and associated natural ecosystems has the obligation to secure for the rest of us the right to live or otherwise use that same resource or property for the long-term and enjoyment by future generations. To say it another way, a landowner or lessee and a water right holder has an obligation to use such resources in a manner as not to impair or diminish the people's rights and the people's long-term interest in that pro....
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....s as model licence agreement for all. A bare look at the licence agreement for Unified Access Services (UAS) would reveal that the DOT - the Licensor enjoying privilege to grant licence in terms of provisions of Section 4 of Indian Telegraph Act, 1885 agreed to grant licence to provide UAS in Andhra Pradesh as per terms and conditions described in the schedule appended thereto. The grant of licence was made on the request of M/s. Aircel Ltd. - the Licensee for providing UAS in the Andhra Pradesh service area. The licence came to be granted in lieu of consideration of licence fee and due performance of the terms and conditions enumerated in the Licence Agreement on the part of Licensee on a non-exclusive basis to set up and operate the UAS in the licensed service area. The licence was agreed to remain valid for twenty years from the effective date unless revoked earlier for any reason whatsoever. The Licensee agreed and unequivocally undertook to fully comply with all terms and conditions stipulated in the Licence Agreement. The period of licence was to commence from the effective date viz. 5th December, 2006. The licence Agreement specifically provided that additional licences may ....
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....the licence in given circumstances for breach of any conditions of licence by a written notice of 60 days. This is without prejudice to any other remedy. One of the conditions, breach whereof gives the right to Licensor to terminate the license, is the failure to perform obligations under the licence including timely payments of fee and other charges due to the Licensor. 54. A holistic view taken after a bare look at the provisions and terms and conditions of the Licence Agreement lays bare that the Licensor continues to exercise control over the subject of Licence Agreement notwithstanding the licence having been granted to Licensee for providing UAS in the licensed services area for a period of twenty years in lieu of consideration viz. payment of licence fee. The terms and conditions governing the grant of licence and the power vested with the DOT - Licensor to withhold consent for assignment or transfer of licence by the Licensee in any manner whatsoever to a third party or sub-lease, enter into partnership or create third party interest coupled with the fact that the Licensee is bound to furnish all required documents, accounts and information to the Licensor/TRAI and refrain....
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....t be overridden and the factual position emerging from the terms and conditions of the Licence Agreement would support such proposition, it would be relevant to refer to provisions of I&B Code to determine what are the assets of a Corporate Debtor. Section 3(27) of I&B Code defines 'property' as under: "3. In this Code, unless the context otherwise requires,- x x x (27) "property" includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property;" Section 3 (36) of General Clauses Act defines 'property' as under: ""movable property" shall mean property of every description, except immovable property;" Section 18 of I&B Code enjoins upon the Interim Resolution Professional (IRP) to collect all information, inter-alia, related to the assets of the Corporate Debtor for determining the financial position of the Corporate Debtor. Section 18(1)(f) mandates that the IRP shall take control and custody of any ....
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.... VI providing particulars of intangible assets of Aircel Ltd. in the form of licence fees/spectrum etc. Note V appended thereto records that during the year viz. ending March, 2013, the Company has disposed of its DWA spectrum in three circles to another telecom operator as per the Guidelines for Trading of Access Spectrum by Access Service Providers issued by the WPC wing of the DOT on 12th October, 2015. 57. The material relied upon by learned counsel for Respondent No. 1 leads to one and the only irresistible conclusion that spectrum under the Licence Agreement between DOT and the Licensee TSPs is an asset being a valuable thing and same has been treated so and reflected as intangible asset in the balance sheet of the Licensee. Mr. Kadam has referred to page 1202 of CC of Respondent No. 1 Vol. VI which records the factum of Company having participated in the auction held by DOT and obtained additional spectrum in Tamil Nadu Circle which was put to use. It records that the Company has categorized the spectrum fees as an 'intangible asset'. This is besides acquisition of some SAP upgradation software which has been disclosed under 'intangible assets under development&....
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.... apparatus used or capable of use for transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature by wire, visual or other electromagnetic emissions, radio waves or hertzian waves, galvanic, electric or magnetic means. The explanation clarifies that radio waves or hertzian waves would mean electro-magnetic waves of frequencies lower than 3000 giga cycles per second propagated in space without artificial guide. A bare look at this definition unmistakably shows that besides the hardware in the form of appliances, instruments, material or apparatus used or being capable of used for transmission or reception of signals etc. by wire, visual or other electromagnetic emissions, electro-magnetic waves of frequencies lower than 3000 giga cycles per second are included within the definition of telegraph. Appliances etc. are the hardware used for transmission of the radio or hertzian waves, the later being the spectrum covering the frequencies of permissible range which is incapable of being perceived, touched or stored. While there is no difficulty in holding that the apparatus, instruments, appliances or other material used for transmission of signa....
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....use spectrum/auction money for spectrum and licence fee/one time entry fee as 'intangible assets' of the Company. Indian Accounting Standard (IndAS) 38 (at page 1519 of CC of Respondent No. 1 Vol. VII) deals with the standard applied in accounting for intangible assets other than financial assets or intangible assets falling within the scope of another standard. Amortization has been defined as the systematic allocation of the depreciable amount of an intangible asset over its useful life (at page 1522 of CC of Respondent No. 1 Vol. VII). It is provided that an intangible asset must be identifiable to distinguish it from goodwill. At page 1524 of CC of Respondent No. 1 Vol. VII an asset is defined as being identifiable if it either is separable from the entity and sold, transferred, licensed, rented or exchanged either individually or together with a related contract asset or liability or arises from contractual or other legal rights irrespective of such rights being separable from the entity. At page 1526 of CC of Respondent No. 1 Vol. VII, it is stated that an intangible asset shall be recognized if, and only if, it is probable that the expected future economic benefits a....
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....missible to be traded which has either been assigned through an auction in the year 2010 or afterwards or on which the Telecom Service Provider has already paid the prescribed market price. In such case, entire spectrum would be tradable. It also provides that both licensees trading the spectrum shall jointly give prior intimation for trading the right to use spectrum at least 45 days before the proposed effective date of the trading to DOT. They are also required to furnish undertaking regarding compliance with terms and conditions of the spectrum trading. A mere glance at the Guidelines for Trading of Access Spectrum by Access Service Providers would reveal that the trading of access spectrum is a step taken under the National Telecom Policy which envisaged a swift move towards liberalization of spectrum for providing any service in any technology and achieving the object of optimal utilization of spectrum with regulations adopted for innovation, better services made available to consumers at cheaper tariffs with options being available. The policy envisaged permitting of spectrum pooling, sharing and subsequent trading for optimum utilization of spectrum to facilitate ease of do....
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....m the prospective transferees. However, the Lenders are not entitled to operate the service under licence themselves as a Licensee. The agreement appears to have been worked out to facilitate the financing of the project to be set up by the Licensee pursuant to the licence and provide for transfer/assignment of licence to protect and secure the Lenders interest arising out of grant of financial assistance to the Licensee. Article 2 of the Tripartite Agreement provides for transfer or assignment of licence as security for financial assistance. Under Article 2.1 Licensor agrees to transfer or assign the licence by endorsement thereon in favour of the Selectee selected by the Lenders and proposed to the Licensor for purpose of assignment/transfer of licence. In the event of a default, the agent (a Financial Creditor acting for itself and as agent for other members of a consortium of Lenders who agreed to provide financial assistance to the Licensee for a project) shall notify the Licensee and the Licensor about such default and require the Licensee to remedy the same within 30 days from the date of notice which shall be conclusive evidence of the event of default. Upon such default an....
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....ignment of licence by the Licensee in favour of the Selectee of the Lenders with the consent and approval of DOT. It is flabbergasting to hear DOT advancing the proposition that use of spectrum in terms of the licence does not constitute the assets of the Licensee and that the licence granted to Licensee and use of spectrum thereunder is not a tradable asset. In the face of provisions of Tripartite Agreement read in juxtaposition with the Guidelines for Trading of Access Spectrum, it is inconceivable that DOT as Licensor is not aware of the import of the provisions and the effect of the stipulations in the Tripartite Agreement and the Guidelines for Trading of Access Spectrum based on National Telecom Policy and formulated by Central Government on the recommendations of TRAI. Presence of DOT in the Tripartite Agreement is neither cosmetic nor an idol formality. The combined effect of all this is that the DOT has taken a stand which is in direct conflict with the factual proposition emanating from record and the role it has played all along. The argument raised on the score that the use of spectrum under the licence granted to it is not an intangible asset in the hands of Licensee b....
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....ujarat Urja Vikas Nigam Ltd. vs. Mr. Amit Gupta & Ors.' (Civil Appeal No. 9241 of 2019) are of great significance: "164. In this case, the PPA has been terminated solely on the ground of insolvency, which gives the NCLT jurisdiction under Section 60(5)(c) to adjudicate this matter and invalidate the termination of the PPA as it is the forum vested with the responsibility of ensuring the continuation of the insolvency resolution process, which requires preservation of the Corporate Debtor as a going concern. In view of the centrality of the PPA to the CIRP in the unique factual matrix of this case, this Court must adopt an interpretation of the NCLT's residuary jurisdiction which comports with the broader goals of the IBC." The Hon'ble Apex Court, while dealing with the scope of Section 14(1)(d) of I&B Code in a case of licence granted to a Corporate Debtor under a joint development agreement in 'Rajendra K. Bhutta vs. Maharashtra Housing and Area Development Authority & Anr.' (Civil Appeal No. 12248 of 2018) observed as under: "7. A bare reading of Section 14(1)(d) of the Code would make it clear that it does not deal wit....
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....the Board may, on such terms and conditions as may be agreed upon, and with the previous approval of the Authority, handover execution of any housing scheme under its own supervision. However, when it comes to any clash between the MHADA Act and the Insolvency Code, on the plain terms of Section 238 of the Insolvency Code, the Code must prevail. This is for the very good reason that when a moratorium is spoken of by Section 14 of the Code, the idea is that, to alleviate corporate sickness, a statutory status quo is pronounced under Section 14 the moment a petition is admitted under Section 7 of the Code, so that the insolvency resolution process may proceed unhindered by any of the obstacles that would otherwise be caused and that are dealt with by Section 14." The earlier judgments dealing with the scope of Section 14(1)(d) of I&B Code would be of little value after introduction of explanation by Act 1 of 2020 enforced from 28th December, 2019 which has a non-obstinate clause giving an overriding effect to it. The explanation is clarificatory in nature and provides in unambiguous terms that a licence, permit, registration, quota, concession, clearances or similar grant or right g....
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....ed at the Bar in regard to concept of possession and occupation is of little relevance in this case as the spectrum being a natural resource belonging to the Nation with State holding it in trust for the benefit of the Nation is not in controversy. It is also not disputed that as owner in possession of the spectrum of defined frequencies allocated to the Nation under International Norms, it is only the right of user that is granted to the Licensees/TSPs under licence permitting it to use the spectrum of specified frequencies for consideration. In the instant case, in terms of the Licence Agreement, provisions whereof have been adverted to elsewhere in this judgment, the Licensees/TSPs have been granted right of use of spectrum of specified frequencies in the particular telecom service area for twenty years with renewal clause which leads to the conclusion that the right to use of spectrum would be in occupation of the Licensees/TSPs or the Assignees/Transferees in terms of the Tripartite Agreement. It being the duty of the IRP to collect all information relating, inter alia, to the assets of the Corporate Debtor for determining its financial position, monitor its assets and manage ....
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....ill agree that in the event, it is established at any state in future that either of the licensee was not in conformance with the terms and conditions of the guidelines for spectrum trading or/and of the license at the time of giving intimation for trading of right to use the spectrum, the Government will have the right to take appropriate action which inter-alia may include annulment of trading arrangement. (11). The seller shall clear all its dues prior to concluding any agreement for spectrum trading. Thereafter, any dues recoverable up to the effective date of trade shall be the liability of the buyer. The Government shall, at its discretion, be entitled to recover the amount, if any, found recoverable subsequent to the effective date of trade, which was not known to the parties at the time of the effective date of trade, for the buyer or seller, jointly or severally. The demands, if any, relating to licenses of seller, stayed by the Court of Law, shall be subject to outcome of decision of such litigation. (12). Where an issue, pertaining to the spectrum proposed to be transferred is pending adjudication before any court of law, the selle....
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.... warrants. That apart, the licence can be terminated by a written notice of 60 days in situations including failure to perform obligations under the licence which include timely payment of fee and other charges due to the Licensor. Trading in spectrum is clearly subject to the Seller having a valid and subsisting right as licensee competent to trade under the Spectrum Trading Guidelines with the prior consent of the DOT. If the Licensee has assigned or transferred the licence by way of sub-leasing/partnership/creation of third party interest without the prior written consent of Licensor or the transferee/assignee is not fully eligible, transfer of licence and trading of spectrum shall not be valid. The Licensee may transfer or assign the Licence Agreement with prior written approval of the Licensor on fulfillment of conditions which inter alia include the condition that all the past dues are fully paid till the date of transfer/assignment by the Transferor company and the Transferee company undertakes to pay future dues inclusive of anything remaining outstanding against the outgoing company for the past period. Thus, there is an embargo on the Licensee to transfer or assign the li....
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.... dues by Seller or Buyer, as the case may be, in terms of Guidelines 10 and 11 of the Guidelines for Access Spectrum Trading for Access Service Providers, the Transferor/Seller or Transferee/Buyer being in default, would not qualify for transfer of licence under the insolvency proceedings. 69. As regards, Guideline 12, it is deducible from the plain language of this Guideline that in the event of spectrum being the subject of dispute in any pending litigation before a court of law, the Seller would be under an obligation to ensure that the rights and liabilities are transferred to the Buyer in accordance with the legal procedure and the transfer of spectrum would be permitted only after securing the interests of the Licensor. The provision covered by this guideline pertains to the spectrum being the subject of controversy before a court competent to adjudicate on the issue and not an insolvency proceeding. The object of the provision is to ensure transfer/trading of spectrum in conformance of Spectrum Trading Guidelines and permission for such transfer/trading being subjected to securing of interest of Licensor. The issue regarding spectrum referred to in this guideline is in rega....
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....n Process against the Corporate Debtor but the Corporate Debtor itself is seeking such initiation. This would therefore, require to be examined alongwith the question whether such dues as are payable to Government can be wiped off by resorting to the proceedings under the I&B Code and whether insolvency proceedings are bonafide. 71. A conclusion has been reached elsewhere in this judgment that the Licence Agreement is in the nature of a contractual arrangement between the Central Government and the TSPs (Licensee). This position is recognized by the Hon'ble Apex Court in "Union of India & Anr. vs. Association of Unified Telecom Service Providers of India and Ors.", (2011) 10 SCC 543. We have already come to conclusion that the right to use spectrum is an intangible asset of the Licensee and can be subjected to insolvency proceedings. It is indisputable that the assets of the Corporate Debtor including the intangible assets can be subjected to insolvency/liquidation proceedings. Since right to use spectrum, in our opinion, is an intangible asset in the hands of Corporate Debtor/Licensee though the spectrum is not the property of the Corporate Debtor/Licensee and it being the ad....
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....sor with the Licensee - Corporate Debtor continuing to enjoy the benefits under the Telecom Licence and also deriving pecuniary benefits from the right to use spectrum. The admitted claims qua the operational debts would have to be settled as the part of the approved Resolution Plan or in Liquidation, as the case may be. Operational Debt, as defined under Section 5 (21) of the I&B Code includes dues payable towards provision of goods and services and the dues payable to Government under any law for the time being in force which would include the dues of Licensor - DOT. Of course the interests of the Operational Creditor are statutorily protected under Section 30(2)(b) of the I&B Code with the explanation emphasizing that the distribution shall be fair and equitable to the class of creditors taken care of by the provision. The 'Operational Creditors' are not accorded the same treatment as 'Financial Creditors'. Section 53 lays down a waterfall mechanism for distribution of proceeds from the sale of liquidation assets, dues pertaining to Central Government under Section 53(1)(e)(i), which rank below the Secured and Unsecured Financial Creditors. Such priority has stoo....
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....cial Debt'. DOT is estopped by its conduct from staging such U-turn. It also operates as estoppel by record. Even otherwise, the payment of dues admissible to DOT is not in the nature of 'a debt disbursed against the consideration for the time value of money' within the meaning of 'Financial Debt' defined under Section 5(8) of the I&B Code to designate it as a 'Financial Creditor'. Arguments raised by the Appellant on this score are accordingly repelled. 73. Under Section 4 of the Indian Telegraph Act, 1885, establishing, maintaining and working of telegraphs is the exclusive privilege of the Central Government which may grant a licence on such conditions and in consideration of such payments as it thinks fit to any person to establish, maintain and work a telegraph within any part of India subject to such restrictions and conditions as it thinks fit to be imposed. The explanation makes it clear that for determination of payment for grant of a licence the sum attributable to the universal service obligation may be determined by it after considering recommendation of TRAI. Section 20A provides that if the holder of a licence granted under Section 4 of th....
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....enders will be subject to compliance of terms and conditions of Tripartite Agreement which envisages satisfaction of Bank's claims only after settling the dues of DOT. We are therefore of the view that having regard to Clause 3.4 and 3.5 of the Tripartite Agreement according priority/first charge to DOT, the spectrum cannot be treated as a security interest by the Lenders. That apart, it being within the domain of Licensor to suspend, revoke or terminate the Licence Agreement besides being empowered under Section 20A of the Indian Telegraph Act, 1885 to levy fine for contravention of any condition contained in its licence, the security interest, if any, in the hands of Lenders would be so fragile and vulnerable that would seriously jeopardize its enforcement. In view of this finding, we need not consider the mode of enforcement of security interest. Summary of Findings 75. In conclusion we summarize our findings as under: a) Spectrum is a natural resource and the Government is holding the same as cestui que trust. b) Spectrum, being intangible asset of the Licensee/TSPs/TelCos/Corporate Debtor, can be subjected to insolvency/liquidation....
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....ever 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. l) The spectrum cannot be utilized without payment of requisite dues which cannot be wiped off by triggering CIRP under I&B Code. m) The defaulting Licensees/TelCos cannot be permitted to wriggle out of their liabilities by resorting to triggering of CIRP by seeking initiation of CIRP under Section 10 of I&B Code, not for purposes of resolution but fraudulently and with malicious intent of withholding the huge arrears payable to Government, obtaining moratorium to abort Government's move to suspend, revoke or terminate the Licences and in the event of a Resolution Plan being approved, subjecting the Central Government to be contended with the peanuts offered to it as 'Operational Creditor' within the ambit of distribution mechanism contemplated under Section 53 of I&B Code. n) Having regard to Clause 3.4 and 3.5 of the Tripartite Agreement according priority/first charge to DOT, the sp....