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AGR dues case: Supreme Court wants dues paid, IBC may take a hit

Though DoT objected to sale of spectrum by insolvent telcos it did not pursue the matter diligently. Though DoT objected to sale of spectrum by insolvent telcos it did not pursue the matter diligently. Though DoT objected to sale of spectrum by insolvent telcos it did not pursue the matter diligently. Though DoT objected to sale of spectrum by insolvent telcos it did not pursue the matter diligently.

The Supreme Court on Tuesday brushed aside technicalities related to the Insolvency and Bankruptcy Code and observed that the adjusted gross revenue (AGR) dues of insolvent companies amount to Rs 45,000 crore and someone needs to pay this. Continuing the hearing for the second consecutive day, a bench led by Justice Arun Mishra observed, “How can we leave it (dues) like that… You may be entering into so many arrangements but finally someone will have to pay… We will decide it finally,” the bench observed, as counsel for State Bank of India and Reliance Jio Harish Salve presented arguments detailing that IBC provides for spectrum to be used as an asset and Jio does not need to pay the dues of Reliance Communications.

Making its stance clear, the bench said that the government needs to come out with a proposal for payment of the dues or else every company will go into liquidation and dues won’t be recovered. The observation of the bench was to the point that even functioning telecom operators like Bharti Airtel and Vodafone Idea have sought 20 years to clear their dues and the DoT has backed them, what happens if they go into liquidation during this period?

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“We are fully conscious of the scope of proceedings, we will not exceed our power. In 20 years, all kinds of manipulation and legal filings can take place, we can’t allow like this. You may raise technical points, but no technicalities will come in our way in enforcing recovery of AGR dues. We are conscious of our responsibility. We will decide on merits,” Justice Mishra said.

The hearings will continue on Wednesday.

The bench also expressed its unhappiness at the department of telecommunications for delaying in filing an appeal against the order of National Company Law Tribunal, which allowed insolvent telecom operator Aircel to put up its spectrum for sale. “Delay cannot be condoned. This is happening under our nose. We can’t leave it,” the bench said.

When the bench asked who has given the NCLT powers to decide whether AGR dues are operational, Salve said that the Parliament has given the powers. The bench responded that it will decide whether AGR dues are operational or not.

As reported earlier, the court is examining whether companies like Rcom and Aircel filed for bankruptcy to escape paying their AGR dues. It is also examining how will the government ensure that their AGR dues are recovered, thirdly whether these insolvent firms can put their spectrum up for sale when the government will not have the first charge on the proceeds.

While RCom has AGR dues worth Rs 25,000 crore, Aircel’s is around Rs 12,389 crore.

Though DoT objected to sale of spectrum by insolvent telcos it did not pursue the matter diligently. First, it did not file an appeal on time in the appellate tribunal when in November 2019 the NCLT dismissed its petition that Aircel cannot put spectrum up for sale as part of its resolution plan. Second, it once again delayed filing an appeal in the SC against the NCLAT order dismissing its appeal as time-barred.

Arguing on behalf of SBI, which needs to recover its loans to the insolvent firms under the IBC for which spectrum needs to be put up on sale as it is the only asset of these firms, Salve said that under tripartite licence agreement (between DoT, telecom operator and banks), the government has recognised the idea of spectrum as security to be used by telcos to raise funds from banks. He said that by recognising the spectrum as security, DoT has acknowledged that spectrum can be assigned, otherwise banks would not get a farthing. Banks would only be lend if security is allowed that can be monetised, he added.

According to Salve, only at the stage of resolution applicant seeking DoT nod, will the issue of spectrum sale under IBC arise. This stage has not come as yet and therefore the issue of spectrum sale under IBC should be decided at the relevant stage, he said. Salve said that the companies have not claimed spectrum as an asset, but only the right to use it as an asset. claim, even if contractual, made by the government is no higher than a tax demand. Even a tax demand is subservient, to the dues of financial creditors. Waterfall mechanism is clearly laid down by the Parliament, he added.

On the issue of Reliance Jio paying the AGR dues of Rcom, Salve said that it is sharing spectrum and paying spectrum usage charge for it and for the traded spectrum it has paid AGR dues from the date of the trade. He said Jio is not liable for past payments. He clarified that UVARCL, the top bidder for RCom is not a front company for anyone.

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