By Punit Dutt Tyagi & Swastika Chakravorti
The recent amendments to the Insolvency and Bankruptcy Code (IBC) aim to address roadblocks to the resolution process, especially the time limit for its completion.
The amendments clarify that resolution, including litigation, must be completed within a maximum of 330 days. Key to the successful implementation of this timeline is the reduction of the amount of litigation arising from the insolvency resolution process.
Indeed, the amendments testify to the government’s commitment towards making IBC a success, since it has clarified that a resolution plan, if approved, shall be binding on all stakeholders, including the government. Read in the context of the government’s classification as an operational creditor under the “waterfall” mechanism of the IBC, this implies that government departments will have to be satisfied with liquidation value in most cases, unless a resolution applicant agrees to pay more.
Jio’s offer to take over the assets of RCom, including spectrum, had to be shelved in March after the Department of Telecommunications (DoT) demanded that all its past dues be paid before it gave a go ahead to the sale. This forced RCom to initiate bankruptcy process against itself.
The DoT’s stand before the National Company Law Tribunal in the Aircel case has been that spectrum cannot be classified as an asset of the telecom company or be sold as part of a resolution process. Two reasons were offered for this. First, a telecom company is merely granted a licence to use spectrum for a limited period of time and has no ownership rights over it. Second, as per a 2012 Supreme Court verdict, spectrum is a public resource and only the government can auction it.
This stand made industry players jittery, as applicants were planning to bid for the assets of RCom and Aircel sans the spectrum to avoid litigation with the DoT.
The first casualty of DoT’s stand will be the sale of the debtor as a going concern. This will mean that the remaining assets, such as optic fibre, towers and land, will have to be sold in a fragmented manner, fetching far lesser value.
A ‘licence to use’ is commonly understood as limited right to use an asset, subject to terms and conditions and, normally, does not include the right of ownership, or, consequently, the right to transfer. But, is spectrum licence an ordinary licence to use?
While at this stage DoT has asserted that spectrum licence is not an asset of the telecom, in the past, spectrum has been sold by telcos. Sale of 4G spectrum by Aircel to Airtel in 2017 is an example. DoT even allowed spectrum sharing and trading between operators in 2015. Spectrum has also been transferred as an underlying asset in the Idea-Ecsotel acquisition and the more recent Vodafone-Idea merger.
DoT, therefore, may have a tough time justifying its stance against inter-se transfer of spectrum.
What it can do, however, is cancel licences of ailing telecom companies and take back spectrum. Notice Inviting Application issued at the time of auction of spectrum does gives DoT the right to terminate a licence and take back spectrum without refunding its cost. This may, however, not have the desired effect since DoT cannot assure profitable auction of such spectrum.
Per contra, selling spectrum as part of the resolution plan will at least ensure that DoT receives future licence charge.
Recently, DoT formed a committee to examine issues arising out of insolvency of telecom operators, including its rights as a creditor vis-à-vis the bankruptcy process.
Statutory dues lie in the realm of operational debt under IBC. The amendments are likely to boost the confidence of resolution applicants and, hopefully, will save ailing telecom companies, like Rcom and Aircel, from liquidation. DoT is likely to fare no better than other operational creditors since engaging in avoidable litigation will likely lead to erosion of the value of spectrum.
That said, RCom and Aircel owe large amounts to DoT. In one case, DoT has even landed a seat on the Committee of Creditors (CoC), since its dues are more than 10% of the debtor’s total debt. However, it remains toothless, since an operational creditor has no right to vote in CoC proceedings.
The government stands to lose large sums as it is forced to take large haircuts on statutory dues. Now, with the amendments in place, a government is ‘bound’ by the terms of the resolution plan and can stake no claim against the successful resolution applicant, who starts with a ‘clean slate’.
It may, therefore, be prudent for the government to relook the IBC, and consider giving voting rights to operational creditors who make their way to the CoC table.
Tyagi is executive partner & Chakravorti is associate, Lakshmikumaran & Sridharan. Views are personal
Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.
Source: Financial Express