AGR dues: Supreme Court to examine if IBC applies to natural resources

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August 21, 2020 6:15 AM

The apex court will redefine powers of IRP, NCLT and NCLAT in such matters

The bench said that it will examine whether in the cases of natural resources the government should be considered as an operational creditor or financial.The bench said that it will examine whether in the cases of natural resources the government should be considered as an operational creditor or financial.

The Supreme Court on Thursday indicated that it will be examining the jurisdiction and applicability of the Insolvency and Bankruptcy Code (IBC) where natural resources are concerned. Continuing its hearing in the adjusted gross revenue (AGR) case, a bench led by Justice Arun Mishra observed that it will examine whether insolvency resolution professional (IRP), National Company Law Tribunal, and the National Company Law Appellate Tribunal (NCLAT) have the right to deal with natural resources.

The issue has come up because insolvent telecom operators like Reliance Communications and Aircel have put up their spectrum for sale in the insolvency process. Spectrum is not owned by the companies but given to them on lease by the government in lieu of payment of usage charges. If the firms go bankrupt and their spectrum is sold through the IBC, banks get first priority over the proceeds rather than government which owns the spectrum and leases it as it is an operational creditor.

The bench said that it will examine whether in the cases of natural resources the government should be considered as an operational creditor or financial.

“We are extremely worried that almost entire AGR dues will be wiped out in the IBC process. And after sale of spectrum, 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, telecom companies are taking a ride. Unless dues are paid, nobody can start using the spectrum. Can a liability like AGR be wound up in this fashion, under the guise of selling spectrum under IBC?” the bench asked.

The stand of the counsel of the insolvent companies is that nobody is staking ownership claim on spectrum. The companies are merely stating that they have the right to use spectrum and transfer it under the contract. This transfer also requires the approval of the Department of Telecommunications (DoT).

The counsels argued that spectrum is a raw material for telecom companies. Banks lend to these companies based on their spectrum and if they can’t transfer it in the event of bankruptcy then they will go into liquidation and banks will suffer. If this is allowed to happen, banks in future will stop lending to telcos.
The SC will continue the hearings in the matter on Friday.

As reported, in the earlier hearings, the SC has brushed aside technicalities related to IBC and observed that the AGR dues of insolvent companies amount to Rs 45,000 crore and someone needs to pay this. It has so far held the position 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 apex 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.

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