New Delhi: The Supreme Court today has given 10 years time for staggered payment of adjusted gross revenue (AGR) related dues by telecom giants including Vodafone Idea, Bharti Airtel and Tata Teleservices.

A three-judge bench of Justices Arun Mishra, B.R. Gavai and Krishna Murari, in its verdict today, said that the telecom firms get 10 years to clear their AGR dues with instalments to be paid by March 31, of every succeeding year.

The Court has issued the directions given below:
(i) That for the demand raised by the Department of Telecom in respect of the AGR dues based on the judgment of this Court, there shall not be any dispute raised by any of the Telecom Operators and that there shall not be any re­assessment.
(ii) That, at the first instance, the respective Telecom Operators shall make the payment of 10% of the total dues as demanded by DoT by 31.3.2021.
(iii) TSPs. have to make payment in yearly instalments commencing from 1.4.2021 up to 31.3.2031 payable by 31st March of every succeeding financial year.
(iv) Various companies through Managing Director/Chairman or other authorised officer, to furnish an undertaking within four weeks, to make payment of arrears as per the order.
(v) The existing bank guarantees that have been submitted regarding the spectrum shall be kept alive by TSPs. until the payment is made.
(vi) In the event of any default in making payment of annual instalments, interest would become payable as per the agreement along with penalty and interest on penalty automatically without reference to Court. Besides, it would be punishable for contempt of Court.
(vii) Let compliance of order be reported by all TSPs. and DoT every year by 7th April of each succeeding year.

The court has warned the telecom companies that any default in payment of their annual instalments will accrue interest and non-payment and will also invite contempt of court proceedings.

The court has shown agreement with Senior Advocate Harish Salve’s submission during the hearing that the question of whether spectrum can be a subject matter of IBC proceedings should be decided by NCLT first. The court has, therefore, directed NCLT to decide on the issue.

The Supreme Court on August 24 had reserved its judgement in the matter regarding duration for staggered payment of adjusted gross revenue (AGR) related dues by telecom giants.

The court had been hearing the telecommunications companies undergoing IBC proceedings on the larger question of whether spectrum can be sold under IBC proceedings and liability of companies towards AGR dues of companies whose spectrum they are sharing.

The Supreme Court on July 20 had reserved its order on the timeline of staggered payment AGR related dues by telecom giants including Vodafone Idea, Bharti Airtel and Tata Teleservices. The court had heard parties on liability and time frame for making the payment and noted that while hearing the matter, attempts were made to wriggle out of the liability like asking for reassessment and recalculations.

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The court before today had not decided the reasonable period for staggered payment of AGR dues. While the government had proposed 20 years, Telecoms like Airtel and Vodafone had asked for at least 15 years. Airtel’s AGR demand was Rs 43,989 crores out of which it paid Rs 18,004 crores, and Voda Idea have paid Rs 7,854 crores out of its total AGR demand of Rs 58,254 crores.

Read the judgment here;

– India Legal Bureau

The Supreme Court case relating to dues by telecom operators shows that a proactive government machinery has realised the need to support jobs and livelihoods and let the telecom industry survive

By Sujit Bhar

In a Harvard Law Review study on “Government Counsel and their Obligations”, the author starts with a rather interesting anecdote. It goes as follows: “Shortly after being sworn in as the seventy-ninth Attorney General of the United States, John Ashcroft was asked whether he saw his role as being an ‘attorney for the president or the country.’ ‘Yes,’ was his cryptic reply. Although he gave his answer in jest, the new Attorney General could be forgiven for any confusion he might have had.

“The question of the identity of the government lawyer’s client has long been controversial. One scholar, writing in the early 1990s, described the issue as one that had ‘vexed decision-makers and commentators for many years.’ Despite attempts to answer the question, it remains far from settled. The related question of what obligations a government attorney owes to his or her client also remains unanswered.”

That said, the impression amid hoi polloi is that India’s top lawyers—the attorney general and the solicitor general—would, naturally, have loyalty towards the government of the day. This is the truth, though in a recent case, on Adjusted Gross Revenue (AGR) dues from telecom companies Bharti Airtel, Vodafone Idea and others, the “country” factor was the main emphasis. The lawyers’ zeal is being pepped by the government, for sure, but the overarching desire to keep India’s industrial infrastructure in good health has been commendable.

The difference in the approaches of the Supreme Court—the bench led by Justice Arun Mishra—and the lawyers was that while the Court seemingly restricted itself to the pure merits of the case, arguments placed by counsel were emotional at times and rather subjective, though highly motivating and pointed. The Court reserved judgment in the case, but as Justice Mishra demits office on September 2, a judgment can be expected before that.

The judgment will cover three aspects. First is the issue of staggered payment. This is the first instance where the government has come forth with a rather soft solution. The Department of Telecommunications (DoT) has sought 20 years for repayment of dues. Surprisingly, even private players Bharti Airtel and Vodafone Idea are seeking a 15-year pay-off period.

Solicitor General Tushar Mehta informed the Court that Vodafone Idea owes balance dues of around Rs 50,399 crore, while Bharti Airtel’s outstanding amount is Rs 25,976 crore.

The second issue is whether spectrum (or right to use spectrum) can be transferred, assigned or sold under the Insolvency and Bankruptcy Board of India (IBBI). The telecom companies have claimed that spectrum is an asset. That is how they have dressed their books, with the asset side mostly being covered by the notional value of the spectrum they hold. This is not deemed illegal because there is no guideline on this.

However, the argument against this is that as spectrum (like the water of a river) is a natural resource (explained as “a part of the natural environment of the earth and the space around it”), only the government is the “keeper” or “trustee” of it, and hence it cannot become an “asset” in some company’s books. Therefore, it cannot be sold either.

The Supreme Court was worried that in the IBC process, the entire dues on spectrum would be wiped out, simply because the new buyer (or holder of rights) would legitimately not be interested in any liabilities attached to the purchase. And spectrum cannot be held in a locker for disputes to be settled before sale.

The third is the smaller issue of additional liabilities. This refers to liabilities during the sharing of spectrum by a company in the IBC process with another which is not. These are cases where Jio had spectrum sharing and trading pacts with RComm, while Airtel had it with Videocon, Aircel.

If the DoT agrees on a long-term settlement (15-20 years) by telcos, there isn’t much the Court needs to do in the matter. Regarding additional liabilities, it seems purely a technical matter where the prime question would be to decide, for example, if Jio paid all its legitimate dues while sharing spectrum, should it also be liable to spectrum dues of the “owner” of the spectrum? This might not be too difficult to solve.

The crucial point seems to be the spectrum issue. That is where it has been stuck. And that is where the attorneys have shown exemplary loyalty to the country. However, there is a caveat as far as the AGR dues are considered. As it stands, spectrum and all financial issues associated with it would directly impact the AGR valuation as well as the net asset worth of the companies under IBC.

During the hearings, Mehta informed that Aircel’s insolvency proceedings have been initiated and that this is where the spectrum sale as an asset came up. He added that for RComm, the amount to be recovered is Rs 31,000 crore, which included spectrum usage and licensing charges.

Mehta also admitted that spectrum can never be a subject of sale in IBC proceedings because his belief was that spectrum was a property of the government which acts as trustee. This has been a Catch-22 situation for Mehta himself. While the DoT wants the dues to be paid, it clearly does not want to kill telcos and jobs and livelihoods along with it.

Arguing the case were some of the best legal minds of the day. They were Senior Advocate Harish Salve for R­Comm’s Committee of Creditors (CoC)/Jio, Senior Advocate Ranjit Kumar for Aircel CoC, Senior Advocate Kapil Sibal and Senior Advocate Abhishek Manu Singhvi for Airtel, Senior Advocate Mukul Rohatgi for Vodafone-Idea, the SG for DoT and more.

It was apparent that a large spread of ideas among the attorneys seemed to have coalesced into one: save those telcos that can be saved, let the industry survive, let jobs not be lost and let the economy not be wrenched off its moorings, resulting in a free-falling economic landscape ruled by anarchists.

It’s a bold move, no doubt, and in this the AGR dues will have a major say. If the telcos have asked for a 15-year graded payback scenario, that would be a one-time gift which the government can later cash in on.

The entire issue of dues in this case, in patches, seems quite like the “manufactured” 2G “scam” that rocked India once. Here, though, even the DoT was amenable, realising that it would be better off with a live hen laying golden eggs, rather than killing it by stupidly trying for immediate gratification.

The interesting part is in the unification of a “defence” presented by all attorneys. It was as if the Court was the prosecutor and the entire hullabaloo before it represented the combined force of the defence. And the SG was as usual treading a rather thin, swaying, high wire.

Whatever the scenario, the payback procedure and amount decided by the Court, what emerged was a proactive government machinery, for once, supporting jobs and livelihoods, realising the importance not only of the telcos, but an entire gamut of downstream industries that thrive due to these behemoths.

A look at some of the arguments presented by the attorneys before the bench would make things clear. However, before that, it would be wise to understand the Court’s logical argument on merits. The bench said: “We are verifying if Insolvency and Bankruptcy Code (IBC) proceedings are a subterfuge (route) to escape paying AGR dues. Can an asset (spectrum) that does not belong to telecom companies be sold under IBC?

“The government should move to cancel licence, spectrum if dues are being wiped out. If telcos are unwilling to pay, we will direct cancellation of spectrum allocation. How else is DoT supposed to deal with such an issue?

“How can you sell somebody else’s property? This will allow for dues to be wiped out, new party will take over free of all encumbrances, liabilities. Wiping out of government dues in this fashion is not permissible. What is being proposed is like you renting out your house to a tenant, and the tenant selling your house under IBC. (A) new person will take over the asset, (only if it is) free of encumbrances and liabilities. Spectrum, if cancelled, will have to be surrendered to DoT, may be auctioned for higher realisation.

“Trading guidelines say that seller of spectrum shall satisfy all pending dues, before sale of spectrum. Our understanding is that upon non-payment of dues by seller, the trading guidelines transfer the burden on the buyer.”

Then the Court found that it was the DoT which was hesitant, in almost a similar Catch-22 situation, as Mehta before the Court. The Court asked: “It’s been almost a year since our AGR judgment, why is DoT dithering?”

The strong argument by lawyers was based on the fact that spectrum (which has become the fulcrum of this case) has to be associated with telcos as an asset. What would the banks give loans against? Shorn of spectrum, which has intrinsic value, there would be no debt available for the telcos and they would be as good as dead wood, the lawyers have argued.

These are interesting developments. While the Court is right in trying to prevent dues to the national exchequer from getting lost, one can also see some reluctance on the part of the government to simply wring the neck of the hen and scotch any possibility of future golden eggs. That’s also a correct approach to the tricky situation. Whatever the verdict, the takeaway from this is the realisation of proactive government machinery that has come round to realising that the private sector needs to be nurtured back to health. In this, the lawyers have helped and a good beginning has been made.

New Delhi: The Supreme Court today expressed its concern regarding payment of AGR dues by telecommunication companies, observing that the AGR dues might be wiped out in the IBC process. The Court also stated that once the spectrum is sold, the new user will have extinguished any pending demand against the spectrum in question.

The court has been hearing the telecommunications companies undergoing IBC proceedings on the larger question of whether Spectrum can be sold under IBC proceedings and liability of Companies towards AGR dues of companies whose spectrum they are sharing.

A three-judge Bench of Justices Arun Mishra, S. Abdul Nazeer and M.R. Shah heard the matter regarding staggered payment of adjusted gross revenue (AGR) related dues by telecom giants including Vodafone Idea, Bharti Airtel and Tata Teleservices. The Court was hearing question of whether Spectrum can be sold under IBC proceedings.

The Court has yet not decided the reasonable period for staggered payment of AGR dues. While the government had proposed 20 years, Telecoms like Airtel and Vodafone had asked for atleast 15 years. Airtel’s AGR demand was Rs 43989 crores out of which it paid Rs 18004 crores, and Voda Idea have paid 7854 crores out of its total AGR demand of 58254 crores.

During the hearing today, Ravi Kadam for Aircel Monitoring Committee informed that the Court that there has been no instance of spectrum sharing by Aircel with any operator.

“What has Aircel going into resolution proceedings got to do with AGR dues? Has Airtel paid AGR dues for spectrum bought from Aircel?” The Court asked.

The Court sought details of all spectrum sharing agreements by telcos and Department of Telecommunications submitted the details of spectrum allocated to RComm Care, Aircel since 1999.

The Court questioned Aircel if its looking to sell spectrum under IBC. Kadam on behalf of Aircel Monitoring Committee submitted before the Court that DOT is seeking payment of deferred spectrum dues, as current dues and the claims of DOT for deferred spectrum dues have not been upheld to be current dues. Right to use spectrum is an intangible good under IBC that can be sold. Since License agreement recognises right to use spectrum as an asset Aircel has the right to transfer the right to use the spectrum.

Kadam stated that the right to use spectrum is an asset and the right to use it will be sold on approval of the resolution plan. It added that the resolution process is done and UVARC plan has been approved. COC has approved the plan, following the IBC.

The Court also questioned Aircel regarding its AGR dues and how much has it paid. Kadam responded by saying that only a fraction will be paid and not even 1% of the AGR demand will be paid.

The Court observed that its worried that almost the entire AGR dues might be wiped out in the IBC process and once the spectrum is sold, the new user will have extinguished any pending demand against the spectrum in question.

Spectrum trading is different from sale of spectrum in IBC. Without paying for the horse, the telcos are taking a ride. Unless dues are paid, nobody can start using the spectrum. Can a liability like AGR be wound up in, under the guise of selling spectrum under IBC? “ the Court remarked

Senior Counsel Ranjit Kumar appearing on behalf of the Committee of Creditors (COC) for Aircel addressed the court on rights of telcos to transfer the right of usage of the spectrum, as recognised under the tripartite license agreement.

“Requirement to pay AGR is entirely contractual. Tripartitie agreement recognises the spectrum as security before banks.Payment of dues to a company shall be decided under the law of land” he said.

Kumar also submitted that spectrum is raw material for telcos and by not allowing its sale, the Court will push all the insolvent companies into liquidation.

According to Mr Kumar, the bank dues are the same as AGR dues for Aircel and if all proceeds are used to satisfy AGR dues, banks dealing with public money will also not get anything. Payment to banks after payment of AGR dues would be a violation of IBC. Even the Ministry of Corporate Affairs has sought for spectrum sale under IBC.

Advocate NK Kaul appearing for Videocon Telecom‘s resolution professional informed the Court that the DoT had put their AGR dues at 1512 crores and the Spectrum was transferred to Bharti Airtel in 2016. While Videocon’s business is nil as of now, the resolution process is on. The Court has asked Solicitor General Mehta to reply if Bharti Airtel has undertaken to pay the spectrum liability.

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The Supreme Court on July 20th had reserved its order on the timeline of staggered payment AGR related dues by telecom giants including Vodafone Idea, Bharti Airtel and Tata Teleservices. The Court had heard parties on liability and time frame for making the payment and noted that while hearing the matter, attempts were made to wriggle out of the liability like asking for reassessment and recalculations. The bench had also said that as a huge amount of AGR dues is remaining, they will examine the bonafide of RCom going into insolvency. The bench had asked for the details of RCom, Sistema Shyam Teleservices, Videocon to be submitted within 7 days.

-India Legal Bureau

New Delhi: The Supreme Court today asked if Jio can be held liable for RComm’s AGR dues when they are generating revenue from shared spectrum. The government has informed the court that it will support any decision that the Supreme Court takes to help recovery of AGR dues.

The bench of Justices Arun Mishra, S. Abdul Nazeer and M.R. Shah was hearing the matter of staggered payment of adjusted gross revenue (AGR) related dues by telecom giants including Vodafone Idea, Bharti Airtel and Tata Teleservices.

The court has yet not decided the reasonable period for staggered payment of AGR dues. While the government had proposed 20 years, Telecoms like Airtel and Vodafone had asked for at least 15 years. Airtel’s AGR demand was Rs 43,989 crores out of which it paid Rs 18,004 crores, and Voda Idea have paid 7,854 crores out of its total AGR demand of Rs 58,254 crores.

The court, in its last hearing, had directed Jio and RComm to submit details of their spectrum sharing agreement, because the RComm spectrum is being used by Jio. The court had also asked the insolvent telcos under the bankruptcy process to furnish details on use of their spectrum.

During the hearing today Senior Counsel Harish Salve, appearing for Reliance Jio, clarified that neither did it acquire RComm’s spectrum nor is it involved in the IBC proceedings for R.Comm.

Solicitor General Tushar Mehta, appearing for the Department of Telecommunications, stated that sharing of spectrum is different from spectrum trading. There is divergence of view between the two ministries – Department of Telecommunication and Ministry of Corporate Affairs – on whether the spectrum of a telecom company can be sold in insolvency proceedings. The Supreme Court had indicated that the entity using the spectrum must discharge the AGR dues and spectrum cannot be sold under IBC.

SG Mehta added that the assets owned by a company under insolvency in trust, cannot be sold. People of the country are owners of spectrum, which is held by the government in trust, and cannot be sold under IBC. That was DoT’s view and hence spectrum cannot be subject to insolvency proceedings seems correct.

The court questioned RComm as to where its assets have gone, considering that at the time of proposed sale to Jio, before IBC, RComm claimed assets of Rs 35,000 crore.

The resolution professional for RComm informed the court that RComm wanted to sell the company to evade insolvency proceedings, but when the sale didn’t materialise the IBC was the preferred route.

RComm shared details of initiation of IBC proceedings for RComm, despite settlement reached with operational creditor Ericsson. In the settlement, operational creditor Ericsson had initiated IBC proceedings claiming dues of Rs 1,600 crore and had settled it with payment of Rs 570 crore.

Regarding the question of whether spectrum can be bought and sold under IPC, RComm submitted that spectrum is an asset in the hands of the company, it can be subject of IBC, and can be bought and sold.

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The Supreme Court on July 20 had reserved its order. The court had heard parties on liability and time frame for making the payment and noted that while hearing the matter, attempts were made to wriggle out of the liability like asking for reassessment and recalculations. The bench had also said that as a huge amount of AGR dues is remaining, they will examine the bonafide of RComm going into insolvency. The bench had asked for the details of RComm, Sistema Shyam Teleservices, Videocon to be submitted within seven days.

Order Attached;

-India Legal Bureau