[Case Analysis] Aircel Limited v. Union of India | IBC

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NCLT, MUMBAI BENCH

Aircel Limited: Corporate Debtor
Vijay Kumar Iyer Applicant/
Resolution Professional*
v.
Union of India ….. Respondent

HON’BLE Mr M.K. Shrawat, Member (J)
AND HON’BLE Mr Chandra Bhan Singh, Member (T)

ORDER DELIVERED ON 27th November, 2019

In this matter, the question that came up for consideration was whether the Telecom License (Unified Access Service License) granted by the Government of India to the corporate debtor for use of ‘Spectrum’ to offer telecom services to the public would remain with the corporate debtor during the CIRP period. Though in terms of the moratorium allowed under section 14 of the Code, the property occupied or in the possession of the corporate debtor cannot be recovered by the owner or lessor during the CIRP period, it was argued by the government that under section 18(1)(f) of IBC, RP can take custody of only those assets owned by the corporate debtor and in this case the spectrum is not owned by the corporate debtor but belongs to the people of India. The NCLT bench agreed that the spectrum belongs to the people of India but instructed DoT authority not to make any attempt to cancel the license issued in favour of the debtor company, as provided under section 14(1)(d) of the Code.

Brief Facts of the Case

M/s Aircel Limited (Corporate Debtor) along with group entities i.e. Dishnet Wireless Limited and Aircel Cellular Limited operated under the brand name “AIRCEL”, offering 2G and 3G services in several telecom circles across India. This company was given the telecom license by the Government of India (GOI) through an auction process for a period of 20 years, for which an amount of ` 6249.27 Cr. was paid by the corporate debtor. This company piled up huge debts of about ` 27000 Cr. and, unable to bear this burden, applied under section 10 of IBC to declare itself as an insolvent company. NCLT admitted this application and appointed an Insolvency Professional to complete the CIRP. A Moratorium was also declared under section 14 of IBC.

The corporate debtor is said to have paid annual license fee to the Department of Telecommunications (DOT) of the GOI up to the initiation of CIRP. Thereafter there was a default in payment of this fees and as such DOT issued a notice for recovery. Apprehending that the telecom license of the company could be terminated, the RP conducting the CIRP filed two applications (referred to above) before NCLT, praying that the DoT be directed not to take any action against the Company such as termination of Telecom License and Spectrum Allocation, as this cannot be allowed under section 14 of IBC.

During the course of arguments, the applicant argued that the corporate debtor had paid huge amount for the license and as such it is a valuable asset for the company. The corporate debtor can continue as a going concern only if the license is available and also that a good resolution plan under CIRP can be received only if the license is available to the corporate debtor. Without the license, the corporate debtor would be just a shell company.

On the other hand, Union of India, the respondent, argued that the corporate debtor is not the owner of spectrum but only is a licensee and only has a right to use the spectrum. As decided by the Apex Court in the case of Centre for Public Interest Litigation v. Union of India [W.P. (C) 423 of 2010 and the case of Subramanian Swamy v. Union of India [Writ Petition (C) No. 10 of 2011], Spectrum had never been sold as per the Agreement because this a natural resource of the country which belongs to the people of India. As such, the RP cannot take custody of the spectrum. Respondent further cited section 18(1)(f) of IBC which states that an asset owned by a third party but in possession of the Corporate Debtor held under contractual arrangement shall not be an asset over which the Resolution Professional can take control.

Order of the Tribunal

NCLT Mumbai held that admittedly the License/Spectrum is an asset of State over which the Corporate Debtor has no right of ownership, and therefore, up to this extent, the argument of the Government is hereby accepted. However, the relief sought by the Corporate Debtor was allowed and directions were issued stating that the clauses of “Moratorium” of IBC are squarely applicable on this CIRP Proceedings and hence it need not be interrupted or hampered by any authority.

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*[2020] 114 taxmann.com 347 (NCLT-Mum.)