2021 (4) TMI 1300 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - Whether spectrum is a natural resource and Government is holding the same as cestui que trust? - HELD THAT - The question whether spectrum is a natural resource is no more res integra. In the CENTRE FOR PUBLIC INTEREST LITIGATION ORS. VERSUS UOI. ORS. 2012 (2) TMI 568 - SUPREME COURT where it was held that The licences granted to the private respondents on or after 10.1.2008 pursuant to two press releases issued on 10.1.2008 and subsequent allocation of spectrum to the licensees are declared illegal and are quashed. 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 asset over which the Corporate Debtor has ownership rights as recorded in balance sheet of the Corporate Debtor or with information utility etc. that records the ownership of assets including intangible assets which include intellectual property - Assets owned by a third party in possession of the Corporate Debtor held under trust or under contractual arrangements including bailment have been excluded from the purview of assets which the Interim Resolution Professional is required to take in his control and custody. Whether limited right to use of spectrum vested with the Licensee for the licence period would constitute assets of Licensee? - HELD THAT - The trading of access spectrum by Access Service Providers being based on recommendations of TRAI on spectrum trading and in pursuance of National Telecom Policy providing the status of Seller to the Access Service Provider transferring the right to use spectrum with corresponding status of Buyer to the Access Service Provider acquiring the right to use spectrum is only compatible with the hypothesis that the Access Service Provider/Licensee has the capacity and is possessed of right to transfer the right to use the spectrum that had been acquired by it under the Licence. So long as the licence is not suspended revoked or terminated or until the expiration of period of licence the Access Service Provider/Licensee continues to have right to trade subject to observance of the Spectrum Trading Guidelines and terms and conditions of the regulatory framework. The trading activity envisaged under the Guidelines is subject to approval of DOT which has the right to recover the dues for the period prior to the effective date of trade. It is a trading of limited nature with the trading being permitted only between companies eligible to trade and the Buyer satisfying the eligibility criteria. Sale of assets of a Corporate Debtor as a part of the Resolution Plan within the ambit of I B Code and regulated under Regulation 37 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 - HELD THAT - 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 being devoid of merit has to be repelled. Whether spectrum can be subjected to proceedings under the I B Code? - HELD THAT - The statutory protection against suspension or termination of licence would extend to the Corporate Debtor as the Central Government through DOT is the Licensor. Of course it is a contractual relationship but that does not depart from the fact that the Central Government is the Licensor and in that capacity it is covered under the explanation. In conclusion it can be said without any fear of contradiction that in the event of spectrum being subjected to proceedings under I B Code protection would be available to Telecom Licences and spectrum under Section 14(1) of the I B Code. Whether spectrum being under contract can be subjected to proceedings under Section 18 of the I B Code? - HELD THAT - Finding in respect of spectrum as a natural resource being property of the public vested in the State as a Trustee and the right to use of spectrum being granted by DOT to Telecom Service Providers through licence in lieu of consideration which partakes of the character of a contract governing relations between the Licensor and Licensee with terms and conditions of licence regulating the right to use spectrum by the Licensee for the period of licence has already been returned. It has also been found that in terms of the Licence Agreement and Guidelines for Access Trading of Spectrum for Access Service Providers the right to use of spectrum vests in the TSPs/Licensees. Possession is co-related to ownership 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 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 its operations until Resolution Professional is appointed by Committee of Creditors (CoC) and take control and custody of assets over which the Corporate Debtor has ownership rights as recorded in the balance sheet of Corporate Debtor with such assets including intangible assets falling within the purview of Section 18 of I B Code there should be no hesitation in holding that the right to use of spectrum under the Licence Agreement or falling within the ambit of Tripartite Agreement can be subjected to proceedings under Section 18 of I B Code. Therefore we are of the considered opinion that we need not go into the question of distinction between possession and occupation. Whether a licence can be transferred under the insolvency proceedings particularly when the trading is subjected to clearance of dues by Seller or Buyer as provided in Guidelines No. 10 and 11 whereas in insolvency dues are wiped off and what is the Significance of Guideline 12 of the Guidelines for Access Spectrum Trading for Access Service Providers in case spectrum is an issue in any adjudication pending before a court of law? - HELD THAT - The broad features of the Guidelines for Trading of Access spectrum by Access Service Providers elsewhere in this judgment. It has been taken note of that based on National Telecom Policy and upon consideration of recommendations of TRAI on spectrum trading the Government decided to allow trading of access spectrum only between two Access Service Providers holding inter alia UASL with authorization of Access Service in the licensed service area with the earmarked spectrum bands treated as tradable spectrum bands - if the Seller Buyer or both while giving prior intimation for trading have either provided false information suppressed a material fact or provided incorrect information in regard to the proposed trading being in conformity with the conditions of licence and the Spectrum Trading Guidelines the Government would be within its rights to take appropriate action including annulment of trading arrangement. Admittedly Central Government objected to grant permission for trading of licence to the TelCos before initiation of insolvency proceedings. It appears that inter alia Central Government declined permission for trading of licence as in its opinion spectrum cannot be subject matter of I B Code proceedings. It is not disputed that the TelCos were faced with huge arrears concerning the spectrum licence which were required to be cleared before granting of such permission by Central Government. Since the DOT was of the view the spectrum could not be the subject matter of insolvency proceedings and the dues under the licence towards the spectrum use could not be put in the category of operational dues it did not accept the sharing arrangements made inter se Telecom Service Providers with respect to spectrum. The issue for consideration would be whether spectrum can be treated as security interest and what was the mode of its enforcement. Admittedly NOC for trading has been declined by the Government for non-compliance of the terms and conditions stipulated in the Licence Agreement - 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. Spectrum being treated as security interest and mode of enforcement - HELD 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 - we need not consider the mode of enforcement of security interest. Application disposed off.

Summary

Issues Involved:
1. Whether spectrum is a natural resource and the Government holds it as cestui que trust.
2. Whether spectrum can be subjected to insolvency/liquidation proceedings.
3. Whether dues of the Central Government/DOT under the Licence fall within the ambit of Operational Dues under I&B Code.
4. Whether deferred/default payment installments of spectrum acquisition cost fall within the ambit of Operational Dues under I&B Code.
5. Whether natural resources would be available for use without payment of requisite dues.
6. Whether triggering of Corporate Insolvency Resolution Proceedings under I&B Code by the Corporate Debtor with the object of wiping off such dues is permissible.
7. Whether TSPs have the right to use spectrum under the licence granted to them.
8. Whether under Section 18 of the I&B Code, the Interim Resolution Professional is bound to monitor the assets of the Corporate Debtor and manage its operations.
9. Whether trading in intangible assets like the use of spectrum derives strength from the terms and conditions of the Licence Agreement/UASL.
10. Whether a licence can be transferred as an intangible asset of the Licensee/Corporate Debtor under Insolvency Proceedings.
11. Whether spectrum can be utilized without payment of requisite dues.
12. Whether defaulting Licensees/TelCos can resort to triggering CIRP by seeking initiation of CIRP under Section 10 of I&B Code.
13. Whether spectrum can be treated as a security interest by the Lenders.

Detailed Analysis:

1. Spectrum as a Natural Resource:
The judgment establishes that spectrum is a natural resource and the Government holds it as cestui que trust. It is internationally accepted as a scarce, finite, and renewable natural resource, susceptible to degradation if inefficiently utilized. The Government, as a trustee, must ensure its optimal use for the public good.

2. Spectrum in Insolvency/Liquidation Proceedings:
Spectrum, being an intangible asset of the Licensee/TSPs/TelCos/Corporate Debtor, can be subjected to insolvency/liquidation proceedings. The right to use spectrum is treated as an asset in the balance sheet of the Licensee and falls within the definition of property under I&B Code.

3. Dues Under the Licence as Operational Dues:
The dues of the Central Government/DOT under the Licence fall within the ambit of Operational Dues under I&B Code. This includes deferred/default payment installments of spectrum acquisition cost.

4. Deferred/Default Payment Installments:
Deferred/default payment installments of spectrum acquisition cost also fall within the ambit of Operational Dues under I&B Code. These dues are considered operational debts as they arise from the provision of goods and services.

5. Use of Natural Resources Without Payment:
Natural resources would not be available for use without payment of requisite dues. The Licensees/TelCos must pay for the right to use spectrum, and such dues cannot be wiped off by triggering CIRP under I&B Code.

6. Triggering CIRP for Wiping Off Dues:
Triggering of Corporate Insolvency Resolution Proceedings under I&B Code by the Corporate Debtor with the object of wiping off such dues, not being for insolvency resolution, but with malicious or fraudulent intention, is impermissible.

7. Right to Use Spectrum:
TSPs have the right to use spectrum under the licence granted to them. They cannot be said to be the owners in possession of the spectrum but only in occupation of the right to use spectrum. Ownership of spectrum belongs to the Nation (people) with the Government only being its Trustee.

8. Role of Interim Resolution Professional:
Under Section 18 of the I&B Code, the Interim Resolution Professional is bound to monitor the assets of the Corporate Debtor and manage its operations. This includes taking control and custody of assets over which the Corporate Debtor has ownership rights, including intangible assets like the right to use spectrum.

9. Trading in Intangible Assets:
Trading in intangible assets like the use of spectrum derives strength from the terms and conditions of the Licence Agreement/UASL, which allows for transfer or assignment with prior written approval of the Licensor and subject to fulfillment of conditions, including payment of past dues.

10. Transfer of Licence Under Insolvency Proceedings:
While a licence can be transferred as an intangible asset of the Licensee/Corporate Debtor under Insolvency Proceedings, the trading is subjected to clearance of dues by Seller or Buyer. The Transferor/Seller or Transferee/Buyer being in default would not qualify for transfer of licence under the insolvency proceedings.

11. Utilization of Spectrum Without Payment:
The spectrum cannot be utilized without payment of requisite dues, which cannot be wiped off by triggering CIRP under I&B Code.

12. Malicious Intent in Triggering CIRP:
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 the Government.

13. Spectrum as Security Interest:
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. The enforcement of security interest would be subject to compliance with the terms and conditions of the Tripartite Agreement.

Conclusion:
All questions framed in paragraphs 18 to 22 of the judgment dated 1st September 2020, rendered by the Hon'ble Apex Court in "Union of India vs. Association of Unified Telecom Service Providers of India, etc. etc." (Civil Appeal Nos. 6328-6399 of 2015) have been considered and answered in the aforesaid terms.