Spectrum held by telecom operators can’t be transferred to new consumers underneath insolvency proceedings if authorities dues are usually not cleared, the Nationwide Firm Legislation Appellate Tribunal (NCLAT) dominated on Tuesday, dealing a blow to lenders to bankrupt telcos Reliance Communications Ltd (RCom), Aircel Group and Videocon Telecommunications Ltd.

The appellate tribunal clarified that spectrum, which is an intangible asset of a telecom firm, will be subjected to insolvency proceedings or liquidation. Nevertheless, telcos can’t use or switch the airwaves underneath the Insolvency and Chapter Code (IBC) with out settling authorities dues.

It added that dues of the federal government, together with deferred spectrum funds, can’t be wiped off underneath chapter proceedings.

“Triggering of company insolvency decision proceedings (CIRP) underneath IBC by the company debtor with the item of wiping-off of such dues, not being for insolvency decision, however with malicious or fraudulent intention, can be impermissible,” the appeals court docket stated.

The NCLAT’s judgement pertains to the Supreme Courtroom order of 1 September 2020, the place the apex court docket directed the Nationwide Firm Legislation Tribunal (NCLT) to contemplate all points associated to the sale of spectrum utilization rights and adjusted gross income (AGR) dues of bankrupt telcos—RCom, Aircel and Videocon.

Although the highest court docket had approved NCLT to look into the matter, an utility filed by Aircel on 9 September requested the Supreme Courtroom to permit NCLAT to take choices associated to its spectrum sale as nothing was pending earlier than NCLT. The apex court docket then approved NCLAT.

Nevertheless, a two-judge bench, headed by Justice S. Abdul Nazeer, stated the choice was just for Aircel as NCLT had accredited UV Asset Reconstruction Co. Ltd’s (UV ARC) decision bid for the bankrupt telco.

“The judgement removes regulatory uncertainties on the problem of standing and buying and selling of spectrum throughout insolvency proceedings. Rightly, it rejected the argument of DoT that spectrum shouldn’t be an intangible asset and never topic to insolvency proceedings,” stated Asim Abbas, associate, L&L Companions.

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NCLAT additionally stated spectrum can’t be handled as a safety curiosity by lenders. The tribunal stated the federal government is an operational creditor. This implies the Centre has little or no probability recovering AGR dues as monetary lenders get desire over the operational ones underneath IBC.

On 1 September, the Supreme Courtroom allowed Vodafone Concept Ltd, Bharti Airtel Ltd and Tata Teleservices Ltd to pay AGR dues over 10 years. Nevertheless, it didn’t resolve on whether or not spectrum could possibly be bought underneath the insolvency course of.

Previous to the judgement, whereas lenders argued spectrum was an asset and an vital a part of the decision course of to get better dues, DoT claimed it couldn’t be bought because it was nationwide property.

In June, the Mumbai bench of NCLT accredited a ₹6,630 crore bid for Aircel by UV ARC that included switch of spectrum, topic to the federal government’s approval. Aircel owes ₹12,389 crore to DoT in AGR dues. RCom has to pay ₹25,199 crore in AGR dues, and Videocon owes the federal government ₹1,376 crore.