Recovering dues from bankrupt telcos to be tough for government

NEW DELHI/MUMBAI: Given that the government classified as an operational creditor in the bankruptcy proceedings of Reliance Communications Ltd (RCom), Aircel Group and Videocon Communications Ltd, legal experts believe that the Centre may find it tough to recover regulatory dues, including adjusted gross revenues (AGR), from these telecom firms.

Under the Insolvency and Bankruptcy Code (IBC), financial creditors typically have a greater right on recovery proceeds, and the department of telecommunications (DoT) does not fall under the definition of a financial creditor as per law, which means that it may recover little or next to nothing from the resolution processes.

RCom owes the telecom department ₹25,199 crore, including spectrum usage charges and licence fees, according to government estimates. This is nearly half of ₹49,054 crore in dues calculated under the company’s insolvency proceedings. Aircel owes ₹12,389 crore to the DoT.

The Supreme Court earlier this week had voiced concerns on whether the DoT will be able to recover dues from bankrupt telcos and had asked the government to chart a plan.

The DoT has the option of retaining the spectrum, disallowing its sale under the IBC, and can auction the airwaves again. If the DoT decides to exercise this right, RCom and Aircel may not be able to monetise their spectrums in addition to the other assets put on the block.

The Anil Ambani-led company and Aircel have told the Supreme Court that they will transfer spectrum to the winning bidder, but the DoT has objected to this, saying spectrum cannot be sold as it is national property.

According to legal experts, sale of spectrum as an asset to a new buyer will require amendments in telecom law and policies.

"The DoT is bound by its own laws…It can allow transferring spectrum to new buyers only when license requirements are complied with and past dues are cleared," said Saurav Kumar, partner, IndusLaw, adding that the DoT, in case of RCom, can withdraw the spectrum and take a call to auction it again.

The DoT cannot be forced to enter into a new contract or continue to part with spectrum by taking a haircut, unlike any other operational creditor on account of the IBC process, said Sitesh Mukherjee, a New Delhi-based counsel who specialises in bankruptcy law.

In case a telecom operator goes into liquidation, the DoT will be able to get back the spectrum. The decision on whether to sell the same spectrum in the market and recover more than that offered under the resolution plan will be with the DoT, Mukherjee added.

The government can also seek special status as a financial creditor. For instance, the Supreme Court had granted the operational creditors of Binani Cement the same status as that of financial ones, allowing the former to recover dues as per the percentage of the total claims specified in the successful resolution plan. Homebuyers were given special rights that were on par with financial lenders by the apex court in the IBC proceedings of Jaypee Infratech.

"The DoT is rightly concerned about recovering its dues. However, there must be some flexibility allowed to the companies. The Supreme Court should avoid the nitty gritty details," said Mahesh Uppal, consultant on telecom regulations.

The next hearing in the AGR matter is scheduled on 14 August, when the Supreme Court wants to understand whether the DoT has a plan to recover the dues. The top court is of the view that the recovery proceeds from the resolution of bankrupt telcos should also be used to clear dues of the DoT.