Aircel Insolvency: NCLT Directs Telecom Department Not To Cancel Aircel’s License And Spectrum

The Mumbai Bench of the National Company Law Tribunal has directed the Department of Telecommunications not to cancel or terminate the telecom license and spectrum granted to Aircel Ltd.

Aircel, which had telecom license and spectrum in nine telecom circles, is undergoing insolvency resolution process. It had filed a voluntary insolvency petition in March 2018 citing operational difficulties and owes around Rs 27,000 crore to its creditors and vendors.

That comes after Aircel’s resolution professional had moved the tribunal apprehending that the telecom department may cancel its telecom and spectrum licenses on account of a default in payment of telecom license fees. Aircel had sought uninterrupted use of the spectrum allotted to it. “The usage of license or spectrum is akin to ‘Essential Goods or Services’ because without usage the company cannot run its telecom business,” the tribunal said.

Reliance Communications Ltd. is also locked in a similar dispute with the telecom department and any order in the Aircel case may impact it as well.

Background

Aircel had obtained a “Unified Access Service License” for 20 years by paying Rs 6,249 crore as licence fee for providing telecom services in nine telecom circles. The licence agreement also entailed that Aircel must make periodic payments to the telecom department under the license agreement, failing which, the department reserved rights to suspend or terminate licences.

The department had issued a demand notice to Aircel in April 2018 after it failed to make a payment of Rs 55 crore. Aircel had sought protection under the moratorium imposed by the NCLT on the ground that it was undergoing insolvency resolution process.

The telecom department had sought cancellation as:

• Union of India had exclusive ownership rights over spectrum granted to telecom companies and such rights never vest with the licencee.
• Spectrum is not sold to a licensee.
• The terms of use/licence agreement allow the government to partially or fully suspend or terminate a license on account of default.

Aircel’s resolution professional opposed the telecom department’s move on the following grounds:

• Aircel had made periodic payment of license fees till the imposition of moratorium in March 2018.
• It’s protected under Sec. 14 of the IBC which prevents cancellation or interruption of essential goods or services of a corporate debtor.
• Any move by the telecom department to terminate or cancel the licence would erode its value, hampering chances of revival.

Reading into the preamble and Sec. 14 of the IBC, the tribunal held that the telecom department cannot cancel spectrum and telecom licence as it was essential for Aircel’s revival. It ruled in Aircel’s favour on the following grounds:

• Telecom licence is the only valuable asset available with Aircel. If the licence is cancelled, there’s a likelihood that no resolution applicant would bid for its revival.
• Telecom licence is essential for Aircel’s business continuity. As a moratorium has been imposed, the licence will be considered as an “essential service” under Sec. 14 of the IBC. Therefore, supply of essential services cannot be interrupted.
• Right to use the spectrum must remain with Aircel as per its agreement with telecom department.