Banks seeking to recover over Rs 40,000 crore in dues from Reliance Communications (RCom) told the Supreme Court that the telco may go into liquidation if the right to use spectrum cannot be transferred through the insolvency resolution process.
“RCom will go into liquidation if spectrum sale is not permitted. In any case, spectrum can only be sold with DoT nod,” the committee of creditors, through senior advocate Harish N Salve, told a three-judge bench led by Justice Arun Mishra on Wednesday.
The banks approved UV Asset Reconstruction Company Ltd. as the preferred bidder for some of RCom’s key assets including spectrum, fibre and data centre. The resolution plan now awaits approval by the insolvency court. However, the Department of Telecommunications opposed the plan in the National Company Law Tribunal. DoT has said it won’t get anything from the Rs 23,000 crore proceeds chalked out in the resolution plan. It has claimed AGR dues of Rs 25,199.27 crore and has said the telco’s deferred liability for spectrum purchased between 2014-2016 stood at Rs 1,597.68 crore.
“UVARC may back out of the bid if DoT decides against spectrum sale. If sufficient money is recovered and everybody can be paid, why can’t spectrum be transferred?” Salve asked.
Salve argued that the transfer of spectrum-use rights and the sale of RCom’s other assets need to be thrashed out in the NCLT, where DoT would also be represented.
Justices S Abdul Nazeer and MR Shah were the other judges on the SC bench examining whether bankruptcy claims by ailing telcos were bona fide or intended to avoid paying AGR dues.
Salve contended that once a right was assigned under a tripartite agreement between a lessor, lessee and banks, that contract must be vigorously enforced.
“The licence agreement clearly mandates spectrum as a security fit for banks,” he said.
The DoT, which is yet to argue its case, said in a recent affidavit that RCom’s resolution plan was a liquidation plan and not a bankruptcy resolution.
DoT said it won’t get anything from the Rs 23,000 crore proceeds chalked out in the resolution plan. DoT has claimed adjusted gross revenue (AGR) dues of Rs 25,199.27 crore and Rs 1,597.68 crore towards spectrum purchased between 2014 and 2016.
The department has also appealed against decisions by NCLT and the National Company Law Appellate Tribunal allowing the transfer of spectrum-usage rights. That is pending in the top court.
Salve argued in court that RCom doesn’t own the spectrum but only holds the right to use spectrum under a licence and conceded that the government held the airwaves as a natural resource as a trustee of the people.
Telcos are not trustees, but lessees, he said. Spectrum can be treated as an asset of the corporate debtor in its balance sheet and can be transferred to another entity to recover debt from a corporate borrower.
He said corporate debtors need to pay only their current dues while a moratorium is in place so that they can go about their business. The SC had insisted that all dues must be paid before a sale could be allowed.
Salve urged the top court not to step in and decide apportioning under the Insolvency and Bankruptcy Code and urged the court to relegate the issue to the NCLT to decide. The government will get its dues as an operational creditor.
DoT and the banks are both seeking to recover public money. DoT has its own dues to recover. All these will be balanced and adjusted, he said.
“Someone or the other will take a hit. Public money is involved on both sides,” Salve said.
Salve discounted the proposition that the settlement in the Ericsson case vetted by the SC had brought the resolution process to an end. No resolution process can be withdrawn without the CoC’s consent, he said.
He had earlier ignored the charge that the bankruptcy was mala fide and scotched the suggestion that Jio should pay all of RCom’s AGR dues for using the latter’s spectrum through a sharing pact. Jio would only pay to the extent it had used spectrum, he said.
