TaxTMI 
TaxTMI 
2021 (4) TMI 1300
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....Resolution Professional of Aircel Ltd. 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. Abh....
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..... Aircel Ltd. & Anr 9. Comp. App. (AT) (Ins) No. 762 of 2020 Tatwa Technologies Ltd. Vs. Vijay Kumar 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 Para....
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....security interest and what is the mode of its enforcement. Whether the banks can enforce it in the proceedings under the Code or by the procedure as per the 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 acq....
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.... 6. Vide judgment dated 24th October, 2019, 'Union of India vs. Association of Unified Telecom Service Providers of India' and other Civil Appeals were decided by the Hon'ble Apex Court 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 ....
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....sharing, how the payment is to made by the Telecom Service Provider (for short, 'TSP')? and 3. In the case of trading, how the liability of the seller and buyer is to be 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 behal....
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....ase of inefficient utilization. It has a high economic value in the light of demand for it on account of the tremendous growth in the telecom sector. Although it does not belong to a particular State, right of use has been granted to States as 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 hol....
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.... down for grant of licence to ensure that only persons capable of operating telecom services are given the licence, which can only be transferred with the consent of DOT provided all dues of DOT prior to transfer are fully paid and the transferee 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 p....
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.... reinforces the public trust doctrine that in all circumstances the people will get the first right over the assets/infrastructure/proceeds of the defaulting Licensee. It is submitted that since the right to spectrum itself was given in trust to 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, repl....
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....form part of current dues and need to be paid. It is further submitted that though an asset that has vested cannot be withdrawn but right to use under the License Agreement and NIAs refers to conditions under which the licence can be revoked/cancelled 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 im....
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....stently defaulted in making payments. Under the regime an option was given to migrate to revenue share model which was a liberalized mode of payment. Under it the Government became a partner or sharer of gross revenue. Under this regime, it was stipulated 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 ....
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....tor and a Debtor, this is a relationship between the owner of the asset (State on behalf of the people) and the Grantee. The life of the grant is dependent on the terms of the grant and the state stands in position of a trustee to ensure that the terms and 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....
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....m. It is submitted that the Resolution Plan submitted by UVARCL is a liquidation plan in disguise to enable actions being taken which the CD could not have taken in liquidation. It is submitted that under Section 5(26) of the I&B Code 'Resolution Plan' is 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....
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....very description of interest. The term 'transfer of property' is defined to mean transfer of property including any interest in the property. General Clauses Act, 1897 defines 'movable property' as property of every description except immovable property. 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.....
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.... Entities controlled by it and the future economic benefits were expected to flow to it out of such assets. 26. Mr. Kadam would further submit that the right to use spectrum is an intangible asset of the Corporate Debtors and being the asset of Telecom Service Providers they 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 fe....
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....aforesaid assets by the Aircel Entities is evidenced from the treatment of such assets in their financial statements as their own assets. 30. It is further submitted that the UASL Agreement recognizes the right of the Licensee to transfer the telecom licences with the consent of DOT. 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 p....
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....joining upon the IRP to take control and custody of any asset of the Corporate Debtor. Explanation (a) to Section 18 only refers to asset of a third party in possession of a Corporate Debtor. The telecom licences and the right to use spectrum being assets of the TelCos do not fall under the 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 protect....
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....accrued prior to insolvency commencement date though payable subsequently, would be considered as pre-CIRP dues and would be dealt alongwith any other CIRP dues. It is further submitted that CBEC in their circulars, have acknowledged that an activity undertaken by the Government against a consideration 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 due....
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....on 238 of I&B Code contains a non-obstinate clause which provides that the Code shall have an overriding effect notwithstanding anything inconsistent contained in any other law. It is pointed out that in Ashwini Kumar Ghosh & Anr. vs. Arabinda Bose, AIR 1952 SC 369, the Hon'ble Apex Court held that 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 i....
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....riction for a Telecom Company to be subject to insolvency proceedings. 40. It is further submitted that the Resolution Plans do not propose dispensation of DOT's approval. It is provided that transfer of right to use spectrum and the telecom licences shall take place only upon obtaining approval from 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 ....
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....ities and the fundamental asset of the CD cannot eviscerate only for the reason that the CD is in CIRP. 44. He further submits that the devolution of the right to use spectrum in favour of the CDs is complete. 45. On the issue whether DOT is an Operational Creditor of the Aircel Entities, the Successful Resolution 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 tha....
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.... a sub-set of such rights. Therefore, it is submitted, Section 3(27) of the I&B Code covers the right to use the spectrum within its ambit. It is further submitted that under Section 18 of I&B Code, IRP is obligated to take in custody all assets as recorded in the balance sheet of CD with intangible assets specifically 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 d....
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....s submitted that Section 238 of I&B Code overrides other laws and even crown debts do not take precedence over Secured Creditors. The provisions of I&B Code read with Section 238 override any existing contracts between the DOT, Lenders and the Aircel Entities. It is submitted that the claims of the DOT will be subservient 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 fa....
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....a particular State, right of use has been granted to States as per international norms." Dealing with the natural resources, it observed that natural resources are generally understood as elements having intrinsic utility to mankind. The natural resources may be renewable or non-renewable and same are considered as individual elements 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 ....
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....rators on behalf of all the people and especially future generations. For example, renewable and non-renewable resources, associated uses, ecological values or objects in which the public has a special interest (i.e. public lands, waters, etc.) are held subject to the duty of the State not to impair such resources, uses or values, even if private 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....
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....ng Aircel Entities participated and emerging as successful bidders obtained the right to use spectrum in lieu of consideration. This emerges from the terms of Licence Agreement/UASL dated 5th December, 2006 executed inter se DOT and M/s. Aircel Ltd. (forming Annexure A at page 1651 of Vol. VIII of convenience compilation of Respondent No. 1), which serves 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 ....
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....s an embargo upon the Licensee to permit service to any TSP whose licence has been terminated or suspended or is not in operation. Clause 10 vests the right of suspension, revocation or termination of licence in the hands of Licensor. In public interest, interest of the security of the State or for proper conduct of telegraph, the Licensor may terminate 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 powe....
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....eement. 55. To appreciate the arguments advanced by Mr. Ravi Kadam, Senior Advocate representing Respondent No. 1 that the spectrum, while being an asset of the Nation, use thereof in terms of the Licence Agreement is an intangible asset of the TelCos and under the Licence Agreement Aircel Group's right to use spectrum would last upto 2026 which cannot 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 ....
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....espondent No. 1 Vol. VI) Learned senior counsel for Respondent No. 1 invited our attention to page 1178 of CC of Respondent No. 1 Vol. VI which is the stand alone balance sheet of Aircel Ltd. as on 31st March, 2017 wherein intangible assets of the value of Rs. 62,447,618,927/- have been reflected. Learned counsel has further referred to page 1201 of CC of Respondent No. 1 Vol. 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 whic....
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....icensor not only retains the power to suspend, revoke or terminate the licence for breach of its terms but also can levy penalty in the nature of fine for the breach and enhanced penalty (fine) for continued breach (page no. 1162 to 1164 of CC of Respondent No. 1 Vol. VI). The expression telegraph, as defined in Section 3(1Aa) of the Act means any appliance, instrument, material or 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 with....
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....ngible assets' in the books of the Licensees. The loans provided by the Banks for roll out of business plan had to be treated as unsecured loans. The statement of gross block, depreciation and net block - service (at page 1493 of CC of Respondent No. 1 Vol. VII) forms part of the Guidelines for the Reporting System of Accounting Separation Regulations, 2016 which treats right to 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, re....
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....ring the right to use spectrum would be known as 'Buyer'. It further provides that only outright transfer of right to use the spectrum shall be permitted. Leasing of spectrum is not permitted. It also specifies the block sizes (band-wise) for which spectrum trading shall be permitted. It is significant to take note of the provision in the Guidelines that only that spectrum is permissible 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 s....
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....of Licensor in selection of Selectee shall be final and binding on the Licensee and the Lender. It further emerges that all actions of Lender pursuant to the Agreement shall be for the benefit of Lenders and if the Licensor decides to transfer the licence to any person other than the Selectee, it shall take into account the Lenders dues as well as the Licensors dues while inviting bids from 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 Fi....
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....he project including the licence to the Selectee. DOT is a party to the Tripartite Agreement and it cannot shrug off its shoulders in claiming that the Tripartite Agreement was in the nature of binding agreement only between the Licensee and the Lender with no obligations created for it to perform. DOT is a constituent and a party to the Tripartite Agreement which provides for transfer/assignment 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 th....
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....his regard, preservation of the Corporate Debtor as a going concern during continuation of CIRP being of primary importance as the Appellant was the sole purchaser of power from Corporate Debtor under Power Purchase Agreement, the termination of which on account of triggering of CIRP would result in corporate death, the following observations of Hon'ble Apex Court in para 164 of the 'Gujarat 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 deal....
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.... the property, with a view to do all the things that are mentioned in it, there can be no gain saying that after such entry, the property would not be "occupied by" the developer. 16. There is no doubt whatsoever that important functions relating to repairs and re-construction of dilapidated buildings are given to MHADA. Equally, there is no doubt that in a given set of circumstances, 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 jud....
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....ip and entitlement to possession cannot be divorced from the title to property. Spectrum being the property of Nation is in possession of the State as a Trustee, however, right to use spectrum under the Licence Agreement vests in the Licensees/TSPs, who are in occupation of the same being its actual users irrespective of whether they have a right to hold the same in their possession or not. Bulk of case law cited 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 teleco....
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....ing between the two Licensees would have to give 45 days prior intimation for trading the right to use the spectrum to DOT. Guidelines No. 10, 11 and 12 relevant for our purpose are reproduced hereinbelow: "(10). Both the licensees shall also give an undertaking that they are in compliance with all the terms and conditions of the guidelines for spectrum trading and the license conditions and will 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, w....
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.... DOT and the Licensee would not be competent to assign or transfer the Licence without prior written consent of the Licensor. Though the licence is valid for a period of twenty years from the effective date, the Licensor has reserved unto itself the right to revoke the licence for any reasons whatsoever. Further the licence can be suspended if public interest or interest of security of State or proper conduct of telegraph so 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 p....
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....ngement, if there is no compliance with all the terms and conditions of the Guidelines for Spectrum Trading even if such fact is discovered at a subsequent stage. In view of the same, there should be no difficulty in holding that 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, 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 gui....
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....s and conditions stipulated in the Licence Agreement. If the spectrum can be subjected to insolvency resolution proceedings, it is stated to have the effect of wiping off the dues of the Government accumulating to more than Rs. 40,000 Crores. In comparison thereto the liability of lenders is much less. This is not a case where a Financial Creditor or an Operational Creditor is seeking initiation of Corporate Insolvency Resolution 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....
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.... survives for the Operational Creditors within the ambit of distribution mechanism contemplated under Section 53 of I&B Code. When a Company undergoes insolvency proceedings, the pre-CIRP dues including the statutory dues would have to be dealt with in terms of provisions of I&B Code under an approved Resolution Plan or in Liquidation, as the case may. Therefore, nonpayment of full consideration would impact the right of the Licensor 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 ....
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....RP proceedings and attended the meetings of CoC where Resolution Plans were evaluated and approved. MCA had issued an Office Memorandum clarifying that the dues arising under the Indian Telegraph Act, 1885 or under the Licence Agreement would be in the nature of operational dues. In view of this admitted factual position, DOT cannot now make a U-turn and raise an issue in regard to nature of its dues styling the same as a 'Financial 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 ....
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....dues of other creditors, be they secured or unsecured creditors. We have already held a threadbare discussion on the relevant clauses of the Tripartite Agreement and found that the Lender has been permitted to cause assignment of Licence and change of Licensee with permission of DOT on conditions including payment of dues owed to DOT. Such Tripartite Agreement cannot be overridden and nullified. Enforcement of security interest by the Lenders 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....
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....in full till the date of transfer. On the other hand, Insolvency Proceedings arise out of default in discharge of financial or operational debt and are triggered for insolvency resolution of corporate persons, etc. in a time bound manner for maximization of value of assets of such persons. k) 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. 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 morat....