Spectrum ownership with Govt, but operators have the right to use it, rules NCLT

In a ruling that will have a significant impact on telecom companies undergoing the insolvency process, the Mumbai bench of the National Company Law Tribunal (NCLT) has ruled that even though the ownership of spectrum is with the Government, operators cannot be denied their right to use it.

The NCLT made this observation in a case involving Aircel, wherin the Department of Telecom (DoT)had sought to revoke the spectrum allocated to the operator so that it can be auctioned to other players. The DoT had argued that the ownership of spectrum was with the government, hence it cannot be sold to another player under the IBC process.

While the NCLT admitted that the license and spectrum is an asset of the Government over which the operators has no right of ownership, the ‘right to use’ should remain during the period of the licence term. Licences and spectrum are allocated for a period of 20 years.

“An important point which has been brought to our notice is that the Resolution Professional is not demanding the ‘ownership’ of the license as a product, but simply seeking uninterrupted use of the said intangible asset. Otherwise also, through agreements only ‘right to use’ is granted and not the ‘right to ownership’. Therefore, ‘right to use’ should remain during the period agreed upon, with the Corporate Debtor (Aircel) which is always beneficial for the company as well as for all stake holders,” the NCLT said.

The NCLT’s observation will also have an impact over Reliance Communications’ insolvency proceedings, where four companies have put in 11 bids to acquire various assets, including spectrum.

Valuable asset, says NCLT

The NCLT said that if the DoT were to take back the spectrum and licence, then the value of the company would be diminished.

“Any Resolution Applicant shall show interest in the business of the Company if the Company holds license. Without license, since no other valuable asset is available to the Company, no Resolution Applicant may show any interest in the business of this Debtor Company for it’s revival. Without License, this Company be as good as a shell company,” it said.

“As a fundamental principle, if a property is in possession of the Corporate Debtor the same cannot be demanded back by the Owner/Lessor/DoT of the property as long as the same is in use and in possession of the Corporate Debtor/Licensee. To this extent there should not be any controversy that since the intangible asset is used for business purpose by the Corporate Debtor, the provisions of Moratorium must apply. The Licensor/DoT can be prohibited from taking any step which may be prejudicial to the interest of the Licensee/ Aircel,” the NCLT added.

The NCLT said that as far as the insolvency proceedings are concerned, “We are governed by the object set out in the ‘Preamble’ of the Insolvency Code wherein it is prescribed to maximize the assets of the Company, as well as to protect the value so as to get good Resolution Plan for the revival of the debtor company. Our objective is limited to this extent that too governed by the Code, therefore, within the scope and ambit of Insolvency and Bankruptcy Code, 2016, hereby instruct the concerned DoT authority not to make any attempt to cancel the impugned license issued in favour of the debtor company.”

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