UNION OF INDIA versus ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA ETC. ETC. on 1 September 2020

(1) Whether spectrum can be subjected to proceedingsunder the Code? (2) In the case of sharing, how the payment isto be made by the Telecom Service Provider (‘TSP’)? and (3) Inthe case of trading, how the liability of the seller and buyer is tobe determined? [Para 10][555-F]D2.1 In Re. Whether spectrum can be subjected toproceedings under the Code?

Whether spectrum can be subjected to proceedings underthe Code is a significant question and is required to be gone into.It is a natural resource, and under Section 4 of the IndianETelegraph Act, 1885, the Government has the sovereign right.Section 3(10) of The Insolvency and Bankruptcy Code,2016defines ‘creditor’. The term ‘debt is defined in Section 3(11).The expression ‘property’ is defined in Section 3(27). ‘Operationalcreditor’ is defined in Section 5(20) in Part II under the headFInsolvency Resolution and Liquidation for Corporate Persons.Section 5(21) defines ‘operational debt’. A question has beenraised concerning ownership. Whether TSPs can be said to bethe owner based on the right to use the spectrum under licencegranted to them? Whether a licence is a contractual arrangement?Whether ownership belongs to the Government of India?GWhether spectrum being under contract can be subjected toproceedings under Section 18 of the Code? The question alsoarises whether the spectrum can be said to be in possession,which arises from ownership. What is the distinction betweenpossession and occupation? Whether possession correlates withHthe ownership right? A question also arises concerning the

difference between trading and insolvency proceedings. Whethera licence can be transferred under the insolvency proceedings,particularly when the trading is subjected to clearance of dues byseller or buyer, as the case may be, as provided in GuidelineNos.10 and 11; whereas in insolvency proceedings dues are wipedoff. Guideline No.12 is also assumed to be of significance in casespectrum is subjected to insolvency proceedings, which must beconsidered. It is also required to be examined that whenGovernment has declined the permission to trade and has notissued NOC for trading on the ground of non-fulfilment of theconditions as stipulated in the Licence Agreement, the spectrumcan be subjected to resolution proceedings which will have theeffect of wiping off the dues of the Government, which are morethan Rs.40,000 crores.Whereas the dues of the Banks are muchless. Whether obtaining the DoT’s permission and its approvalto the resolution plan would be a substitute for Trading GuidelineNos.10, 11, and 12? [Paras 16-19][562-C; 564-C-H; 565-A]

2.2 A question also arises of bona fide nature of theproceedings under the Code. In the backdrop facts of the cases,question also arises whether spectrum licence subjected toproceedings under the Code, and it overrides the provisionscontained in the Indian Telegraph Act, 1885, Indian WirelessTelegraphy Act, 1933, and Telecom Regulatory Authority of IndiaAct, 1997. In view of the fact that the licence contained anagreement between the licensor, licensee, and the lenders,whether on the basis of that, spectrum can be treated as a securityinterest and what is the mode of its enforcement. Whether theBanks can enforce it in the proceedings under the Code or bythe procedure as per the law of enforcement of security interestunder the Securitisation and Reconstruction of Financial Assetsand Enforcement of Securities Interest Act, 2002 (SARFAESIAct) or under any other law. A question of seminal significancealso arises whether the spectrum is a natural resource, theGovernment is holding the same as cestuique trust. In view of thenature of the resource, it can be subjected to insolvency/liquidationproceedings. Earlier licence was obtained on the payment of feesin advance that was not beneficial to the TSPs, as such a newrevenue sharing regime was devised in 1999, and the CentralGovernment has an exclusive right under section 4 of the A

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ATelegraph Act, 1885 in use of spectrum, it can part with on certainstatutory guidelines, its use is not permissible without thepayment of requisite fee. Whether dues under the licence can besaid to be operational dues? It is also to be examined whetherdeferred/default payment instalment/s of spectrum acquisitioncost can be termed to be operational dues besides AGR dues.BWhether as per the revenue sharing regime and the provisionsof the Indian Telegraph Act, 1885, the dues can be said to beoperational dues? Whether natural resource would be availableto use without payment of requisite dues, whether such dues canbe wiped off by resorting to the proceedings under the Code andCcomparative dues of Government, and secured creditors and bonafides of proceedings are also the questions to be considered.The aforesaid various questions should first be considered bythe NCLT. Let the NCLT consider the aforesaid aspects and passa reasoned order after hearing all the parties. It being ajurisdictional question, it requires to be gone into at this stageDitself. It is made clear that the Court has not observed on themerits of the case, and all the questions are kept open to beexamined by the NCLT. [Paras 20-23][565-B-H; 566-A-B]

3. In Re. SharingComing to the question as to the liabilityof sharing operator, who is sharing the spectrum of the originalElicensee of the past AGR dues of the original licensee isconcerned, that spectrum sharing is permitted and approved bythe Sharing Guidelines dated 24.09.2015. The Parliament hasapproved spectrum sharing as part of “National Telecom Policy,2012”. However, DOT issued and approved the final guidelinesFin the year 2015. Spectrum sharing is a policy that permits thesharing of radio access network equipment of operators. On goingthrough the entire Sharing Guidelines, it does not stipulateanything about the past dues of the sharing operators. Accordingto DoT, in case of sharing of spectrum, there is an increment of 0.5% in SUC rate, and both TSPs pay this incremental SUC onGtheir respective AGRs if they are sharing spectrum. Both theTSPs (sharers) are required to pay this SUC on their respectiveAGRs.Even in the case of sharing spectrum, the liability of thesaid operator would be to the extent of using the said spectrumonly, and the liability of the sharing operator would be to the extentH

of the remaining spectrum used by it. Therefore, there shall notbe any liability of the said operator with respect to payment ofthe past dues (post shared) of the sharing operator– licensee.That in the present case, only part of the spectrum of the licenseehas been shared with the case of some of TSPs., which has beenapproved by the DoT under the Sharing Guidelines, 2015, andthere is no provision for the liability of the past dues on the sharedoperator. Even otherwise, the past dues of sharing operator/licensee covers AGR for the spectrum used by holder of licence,certain TSPs. such as Reliance came into existence later on, theliability of such operator of the AGR, would only be to the extentit has used the said spectrum. Shared operator TSPs. cannot besaddled with the liability to pay the past dues of AGR of licensee,that have shared the spectrum with the original licensees.[Paras 24-26][566-C; 569-F; 573-C-E, G-H; 574-A-B]

4. In Re. TradingSpectrum trading is governed by theSpectrum Trading Guidelines dated 12.10.2015 and under thesaid Trading Guidelines, part of the spectrum of the telecomcompany facing insolvency – the other telecom company is usingoriginal licensee. The purchaser and buyer’s liability shall be asper para 11 of the Spectrum Trading Guidelines dated 12.10.2015.Para 11 of the Spectrum Trading Guidelines was further clarifiedvide O.M. dated 12.05.2016. Thus, as per para 11 of the SpectrumTrading Guidelines dated 12.10.2015, read with the clarificationvide O.M. dated 12.05.2016, in case of a part of the spectrum isunder sale, the liability of the purchaser/buyer with respect topast dues of the seller shall not arise. In a case where the entirespectrum is under sale, in that case, the past dues of the sellershall be the liability of the buyer except the amount/dues, if any,found recoverable after the effective date of the trade, which wasnot known to the parties at the time of the effective date of tradeand in such a situation the liability of such dues of the buyer andseller would be jointly or severally and the government at itsdiscretion is entitled to recover such amount. In the present case,it is not in dispute that in some cases only part spectrum wastraded, and the remaining spectrum continued with the seller. Atthe time of agreement for spectrum trading, the AGR dues of theseller were also known. Therefore, on a joint reading of para 11of the Spectrum Trading Guidelines dated 12.10.2015 read with AB

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AO.M. dated 12.05.2016, the seller’s dues prior to the concludingof the agreement/spectrum trading shall not be upon the buyer.Itis clear that in the case, which was decided by this Court relatingto AGR dues, respondents were the parties, and they werelitigating with respect to the definition of AGR in the second roundof appeal filed in 215 before this Court. It is apparent that it wasBknown to the parties that AGR dues to be finalised as per thedecision of this Court in a pending matter, and lis was pending forthe last 20 years. The liability cannot be escaped as specified inthe Trading Guidelines to the extent that the seller or buyer isliable. They have to pay the AGR as per the judgment renderedCby this Court. The purchasers who are not seller or buyer, shallhave to pay the dues to the extent they are liable under theGuidelines. It was stated that they have paid dues as per the self-assessment or, in some cases, demands have not been raised.DoT to complete the assessment in such cases of trade and raise demand if it has not been raised and to examine the correctnessDof self-assessment and raise demand, if necessary, after dueverification. [Paras 27-29][574-C; 575-G; 576-A-B, C-E]

5. Payment of dues of AGRThe Union of India, afterenvisaging the larger interest, economic consequences on thenation and to ensure that the order of this Court is complied withEin its letter and spirit, has taken a conscious decision and soughtapproval of this Court to a formula for recovery of past dues fromthe telecom service providers. The formula is placed for approvalof this Court, which is arrived at after detailed and long drawndeliberations at various levels in the administrative hierarchy,Fincluding the Cabinet, and keeping in view the vital issues relatedto financial health and viability of the telecom sector, need forensuring competition and a level-playing field in the interest ofconsumers. The decision of the Cabinet is based on the variousfactors, and in the interest of the economy and the consumers.

The decision is taken after extensive deliberations andGconsultations, and till the date of judgment, the dues have beenworked out as per the decision rendered by this Court. Only forthe subsequent period, some relaxation has been given as to therate of interest, penalty, and interest on penalty, which ispermissible. The arrears have accumulated for the last 20 years.HSome of the companies are under insolvency proceedings, validity of which is to be examined, and they were having huge arrears ofAGR dues against them. For protecting the telecom sector, adecision has been taken on various considerations mentionedabove, which cannot be objected to. However, the period of 20years fixed for payment is excessive. It is a revenue sharingregime, and it is grant of sovereign right to the TSPs. under theTelecom Policy. Some reasonable time is to be granted,considering the financial stress and the banking sector’sinvolvement. It is deemed appropriate to grant facility of time tomake payment of dues in equal yearly instalments. Rest of thedecision, taken by the Cabinet, shall stand except themodifications concerning the time schedule for making paymentof arrears. Further, DoT has decided to withdrawthe demandsraised for licence fee based on non-telecom revenue from thenon-telecom public sector undertakings, which areM/s. Powergrid, GAIL, Oil India Ltd., DMRC, which constitutesabout 96% of the demand regarding non-telecom PSUs.[Paras 33, 35, 36, 37][578-G; 579-H; 580-A-D, H; 581-A]

6. Following directions inter alia are issued: (i) That for thedemand raised by the Department of Telecom in respect of theAGR dues based on the judgment of this Court, there shall notbe any dispute raised by any of the Telecom Operators and thatthere shall not be any re-assessment. (ii) That, at the first instance,the respective Telecom Operators shall make the payment of10% of the total dues as demanded by DoT by 31.3.2021.(iii) TSPs. have to make payment in yearly instalmentscommencing from 1.4.2021 up to 31.3.2031 payable by 31[st] Marchof every succeeding financial year. (iv) The existing bankguarantees that have been submitted regarding the spectrum shallbe kept alive by TSPs. until the payment is made. (v) In the eventof any default in making payment of annual instalments, interestwould become payable as per the agreement along with penaltyand interest on penalty automatically without reference to Court.Besides, it would be punishable for contempt of Court.[Para 38][581-B-F]

Union of India v. Association of Unified Telecom ServiceProviders of India (2020) 3 SCC 525 : [2019] 16 SCR672; Union of India & Anr. v. Association of Unified AB

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ATelecom Service Providers of India & Ors. (2011) 10SCC 543 : [2011] 14 SCR 657; Centre for PublicInterest Litigation and Ors. v. Union of India and Ors.(2012) 3 SCC 1 : [2012] 3 SCR 147; M/s. EmbassyProperty Development Pvt. Ltd. v. State ofKarnataka 2019 (17) SCALE 37; Ram Dass v. DavinderB(2004) 3 SCC 684 : [2004] 3 SCR 518; Committee ofCreditors of Essar Steel India Limited v. Satish KumarGupta and Ors. (2019) SCC OnLine SC 1478 –referred to.

Case Law Reference

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From the Judgment and Order dated 23.04.2015 of the TelecomDisputes Settlement and Appellate Tribunal in Petition No. 7 of 2003, PENo. 82 of 2005; P. No. 57 of 2006; P. Nos. 284, 289, 290, 291, 292 of2007; P. Nos. 33, 34, 42, 249, 256 of 2008; P. Nos. 69, 151, 201, 233, 234,235, 244 of 2009; P. No. 106 of 2010; P. Nos. 388, 474, 475, 476, 477,478, 480 of 2011; P. Nos. 43, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106,107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 150, 170, 171,172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 198, 199, 200, 201, 202,F203, 204, 205 of 2012]

With

Diary No(s). 2450, 2458, 2461, 2476, 2578 of 2020

W.P.(C) No. 238/2020,SMC(C) No. 1/2020, MA 725-796/2020 inGC.A. No. 6328-6399/2015, MA No. 1464/2020.

Tushar Mehta, SG, Ramji Srinivasan, Kapil Sibal, Ritin Rai, ShyamDivan, Ravi Kadam, Harish Salve, K.V. Vishwanathan, Maninder Singh,Ranjit Kumar, Sandeep Sethi, Niraj Kishan Kaul, Sr.Advs., GurmeetSingh Makker, Ms. Binu Tamta, Rajat Nair, Ms. Swati Ghildiyal, KanuHAgarwal, Ashok Panigrahi, Dhruv Tamta, Ms. Manali Singhal, Mansoor Ali Shoket, Santosh Sachin, Deepak S Rawat, Ms Aanchal Kapoor, NitinKala, Kunal Singh, Ms. Ranjeeta Rohatgi, Harsh Kaushik, VijayendraPratap Singh, Nizam Pasha, Faisal Sherwani, Gurpreet Singh Kahlon,Mahesh Agarwal, Ms. Shally Bhasin, Victor Das, Ms. Saloni Mahajan,E.C. Agrawala, Manjul Bajpai, Nitin Kala, Pukhrambam Ramesh Kumar,Kunal Singh, Ms. Anupama Nagangom, Karun Sharma, Anil KumarMishra, Sriram Parakkat, Anoop Rawat, Ms. Smarika Singh, Ms. ShreyaSircar, Chaitanaya Safaya, Anuj Berry, Rishabh Sharma, Saurav Panda,Zeeshan Khan, Ms. Salonee Kulkarni, Rishabh Jaisani, Ms. Kriti Kalyani,Shardul S. Shroff, K.R. Sasiprabhu, Raghav Shankar, Bhavuk Agarwal,Vishnu Sharma,Tushar Bhardwaj, Ms. Vibha Dhawan, Ms. Alvia Ahmed,Akshat Jain, Karun Sharma, Amit Dhingra, Rohit Mahajan, SwetankShantanu, Ravi S Chauhan, Ankit Kumar, Ms. Shikha Sarin, RahulNarayan, Sameer Abhyankar, Amish Tandon, Ayush Beotra, SanjayKapur, Ms. Megha Karnwal, V. M. Kannan, Sambit Panja, HarshalNarayan, Abhay Chattopadhyay, Ms. Nikita Chitale, Atul Menon, Advs.for the appearing parties.

The following Judgment of the Court was delivered:

JUDGMENT

The following Judgment of the Court was delivered:

JUDGMENT

1. This Court passed judgment and order in C.A. Nos.6328-6399of 2015 – Union of India v. Association of Unified Telecom ServiceProviders of India and other civil appeals decided by a commonjudgment and order dated 24.10.2019. The Court decided regarding thedefinition of the ‘AGR’ and dues to be paid thereunder.

2. The concept of AGR arose in the light of the provisions containedin the policy framed by the Government of India and the provisions ofthe Indian Telegraph Act. Under section 4(1) of the Telegraph Act, theCentral Government has the exclusive privilege of establishing,maintaining, and working telegraphs. Section 4 of the Telegraph Actenables the Central Government to part with the exclusive privilege infavour of any other person by granting a licence on such conditions andconsidering such terms as it thinks fit. The licence issued under section4(1) becomes a contract between a licensor and a licensee. This Courtconsidered the provisions of the Telegraph Act in AUSPI (I) matter –(2011) 10 SCC 543 in this very case, thus:

“37. A bare perusal of sub-section (1) of Section 4 of theTelegraph Act shows that the Central Government has theexclusive privilege of establishing, maintaining and working A

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telegraphs. This would mean that only the Central Government,and no other person, has the right to carry on telecommunicationactivities.

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39. The proviso to sub-section (1) of Section 4 of the TelegraphAct, however, enables the Central Government to part with thisexclusive privilege in favour of any other person by granting alicence in his favour on such conditions and in consideration ofsuch payments as it thinks fit. As the Central Government ownsthe exclusive privilege of carrying on telecommunication activitiesand as the Central Government alone has the right to part withthis privilege in favour of any person by granting a licence in hisfavour on such conditions and in consideration of such terms as itthinks fit, a licence granted under the proviso to sub-section(1) of Section 4 of the Telegraph Act is in the nature of acontract between the Central Government and the licensee.

40. A Constitution Bench of this Court in State of Punjab v.Devans Modern Breweries Ltd., (2004) 11 SCC 26, relying onHar Shankar case, (1975) 1 SCC 737 and Panna Lal v. Stateof Rajasthan, (1975) 2 SCC 633, has held in para 121 at p. 106that issuance of liquor licence constitutes a contract between theparties. Thus, once a licence is issued under the proviso to sub-section (1) of Section 4 of the Telegraph Act, the licence becomesa contract between the licensor and the licensee. Consequently,the terms and conditions of the licence including the definition ofadjusted gross revenue in the licence agreement are part of acontract between the licensor and the licensee. We have to,however, consider whether the enactment of the TRAI Act in1997 has in any way affected the exclusive privilege of the CentralGovernment in respect of the telecommunication activities andaltered the contractual nature of the licence granted to the licenseeunder the proviso to sub-section (1) of Section 4 of the TelegraphAct.

41. Section 2(e) of the TRAI Act quoted above defines “licensee”to mean any person licensed under sub-section (1) of Section 4 ofthe Telegraph Act for providing specified public telecommunication services and Section 2(ea) defines “licensor” to mean the CentralGovernment or the telegraph authority who grants a licence underSection 4 of the Telegraph Act. Sub-section 2(k) defines“telecommunication service” very widely so as to include all kindsof telecommunication activities. These provisions under the TRAIAct do not affect the exclusive privilege of the Central Governmentto carry on telecommunication activities nor do they alter thecontractual nature of the licence granted under the proviso tosub-section (1) of Section 4 of the Telegraph Act.”

(emphasis supplied)

(emphasis supplied)

3. During consideration of the matter, concerning the M.A. filedby the Union of India for extension of time to make the payment, it waspointed out that several telecom service providers were under insolvencyproceedings under The Insolvency and Bankruptcy Code, 2016 (for short“the Code”). This Court passed an order on 20.7.2020, and the same isextracted hereunder:

“We have heard the learned counsel appearing for the parties atlength with respect to the prayer made by the Central Governmentand the time frame for making the payment as per the order passedby this Court. During course of hearing, again an attempt wasmade to wriggle out of our judgment and orders, which werepassed by this Court under the guise of reassessment andrecalculation. That is not at all permissible. In view of decision,there is no scope of raising any further dispute with respect toany item or to raise fresh dispute. No dispute can be raised withrespect to dues and they have to be paid. New round of litigationis prohibited. In the second inning, we have heard the same afterremand of the issues to the TDSAT. Thereafter, there is no questionof entertaining any kind of dispute with respect to the paymentand dues worked out. No dispute shall be entertained. Thecalculations which have been given and the amount to be recoveredat pages 180-181 of M.A.D. No. 9887 of 2020 (application formodification) in C.A. No. 6328-6399 of 2015 are taken to be asfinal amount and there can be no dispute raised about it. Norecalculation and self-assessment can be undertaken. Thecalculations are as under :- A

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A“AMOUNTS RECOVERABLE FROM MAJOR TSPs AS PERPRILIMINARY ASSESSMENTS

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Note :

1. Total Demands are inclusive of Principal, Interest, Penaltyand Interest on Penalty.

2. Total Demands have been calculated generally up to FY2016-17. On these outstanding amounts, Interest/Penalty/Interest on Penalty is calculated up to October, 2019.

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3. All dues are subject to further revisions due to departmentalassessments, CAG audits, Special Audits, Court Cases etc.”

However, when we consider the dues of Telecom ServiceProviders under insolvency, we find that there are severalcompanies which have dues to the extent of Rs. 38,964.27 crores,which have gone under liquidation. Since the dues are huge, wepropose to examine the bonafides of the initiation of theproceedings under the IBC. Let all the documents of the companiesviz. Aircel Group of Companies, Reliance Communication/RelianceTelecom Limited, Sistema Shyam Teleservices Ltd. and VideoconTelecommunications Ltd. relating to liquidation and orders passedin proceedings be placed on record within 10 days from today.

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We have closed the matter with respect to the prayer madefor making the payment in installments and the offer made by theGovernment, the time frame thereto and how to secure the amount.The order is reserved on that aspect.

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However, we will hear the matter separately with respectto the companies under liquidation and test the bonafides of theiraction and how to ensure that the amount is recovered. Let all the H

Adocuments be placed on record within 10 days from today andthe matter be listed for hearing about these companies on theabove aspect on 10.08.2020.

Written submissions and the reply, if any, be filed on orbefore 07.08.2020.”

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This Court wanted to examine the bona fides of the telecom serviceproviders who have resorted to the process of insolvency, hence, invitedthem to file their response. Before the initiation of insolvency proceedings,most of the telecom service providers who are under the insolvencyproceedings had applied to the Department of Telecommunications toCgrant permission for trading of licence. The Central Government objectedon the ground that it would not be possible for it to grant permission. Itdeclined the permission. There were huge arrears concerning thespectrum licence, which were required to be paid, as a pre-condition tosuch permission. Various sharing arrangements made inter se telecomservice providers with respect to the spectrum also came to the fore.D

4. The Union of India, Department of Telecommunications’ standis that the spectrum cannot be the subject-matter of the IBC proceedingsin view of the provisions in sections 14 and 18. The dues under thelicence towards the spectrum’s use cannot be put in the category ofoperational dues. In contrast, the Department of Commerce holds theEopinion that the dues under the licence are operational dues, and theprovisions of the IBC are applicable. The Department ofTelecommunications also pointed out that as per guideline Nos.10, 11,and 12 of the Guidelines relating to the trading of 2015, it is a pre-conditionof trading licence that the seller pays dues of licence arrears. After that,Fthe purchaser has to pay arrears as provided in paras 10, 11, and 12 ofthe guidelines.

5. The telecom service providers’ stand is that the proceedings ofinsolvency under the Code have been triggered bona fide. This Courtcan examine the limited question in these proceedings whether theGproceedings are resorted to as a subterfuge to avoid payment of AGRdues, and it is for the NCLT to decide whether the licence/spectrum canbe transferred and be a part of the resolution process initiated under theprovisions of the Code. Whether spectrum/licence can be subjected toresolution process as an asset belonging to the telecom service providers,and whether the AGR dues are operational dues and have to be dealt H

with under the provisions of the IBC by NCLT. With respect to thetrading and sharing arrangement to the extent of spectrum traded orshared by different service providers under the sharing arrangement,the liability as per the guidelines, has to be borne by the respective telecomservice providers.

6. As per the statutory guidelines issued by the Department ofTelecommunications in 2015, spectrum sharing allows the operators topool their respective spectrum for usage in a specific geographical area.The Central Government framed spectrum sharing guidelines on24.9.2015.

7. The details of sharing arrangement between different telecomservice providers have been given.

8. The “spectrum trading” allows parties to transfer their rightsand obligations to another party. In the case of “spectrum sharing”, theright to use spectrum remains with the respective telecom serviceproviders, whereas in the case of spectrum trading, the right to use getstransferred from the buyer to the seller. Under spectrum tradingguidelines, details of transactions which have taken place, are given.

9. Another aspect is that how much time is to be provided to thetelecom service providers to pay AGR dues. The Union of India on therepresentation made by the telecom service providers and Indian Banks’Association, has decided to provide the facility of making payment ininstalments within 20 years.

10. The following three questions arise for consideration:

(1) Whether spectrum can be subjected to proceedings underthe Code?

(2) In the case of sharing, how the payment is to be made bythe Telecom Service Provider (for short, ‘TSP’)? and

(3) In the case of trading, how the liability of the seller andbuyer is to be determined?

In Re. Whether spectrum can be subjected to proceedingsunder the Code?

11. Shri Tushar Mehta, learned Solicitor General of India on behalfof Government of India, argued as under:

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A(i) Section 4 of the Indian Telegraph Act, 1885, provides that theCentral Government has the exclusive privilege of establishing,maintaining, and working telegraphs. The DoT grants licences whichare in the form of contractual arrangements. The TSPs are bound bythe terms and conditions contained therein. As per the contractual terms,the licence is strictly contingent upon fulfilment of the terms and conditions,Bthe payment being first and foremost. On failure of payment, the licensoris entitled to take action under the Licence Agreement, includingrevocation and termination.

(ii) The spectrum is a scarce recognised natural resource, andthis Court in 2G judgment [C.A.No.423 of 2010] held that the naturalCresources belong to the people and cannot be subjected to proceedingsunder the Code. The State acts as a guardian and trustee of the naturalresources.

(iii) The licensee does not own the spectrum and has merely beengranted a right to use, which is based on fulfilment of the conditions ofDthe contract in the form of a Licence Agreement. Thus, the spectrumcannot be subjected to transfer in proceedings under the Code as thelicensee is not the owner. Section 18(f), along with its Explanation (a),mandates that only the corporate debtor’s assets can be taken into controland custody by the resolution professionals, which is in the ownership ofEthe corporate debtor. Explanation to Section 18 provides that assetsowned by a third party in possession of the corporate debtor or heldunder contractual arrangements are not included in the term ‘assets’ forthe purpose of Section 18. It is not an asset for Section 18. The spectrumheld under a contractual arrangement is not an asset of the corporatedebtor. The spectrum cannot be a subject matter of proceedings underFthe Code. The resolution professional has no jurisdiction to prepare aresolution plan as per Guidelines for Trading of Access Spectrum byAccess Services Providers (for short, ‘the Guidelines of 2015’) issuedon 12.10.2015.

(iv) Guideline No.10 provides that for trading of right to use theGspectrum, both the licensees shall give an undertaking that they are incompliance with the terms and conditions of the Guidelines for spectrumtrading that is seller and buyer both. In case terms and conditions forspectrum trading are not fulfilled, the Government will have the right totake appropriate action including annulment of trading arrangement.H

(v) As per Guideline Nos. 11 and 12 of the Guidelines of 2015, theseller has to clear the dues. After the trading date, the Government hasthe discretion to recover the amount from the seller or buyer, jointly orseverally.

(vi) The permission was sought to trade the licence; however, theGovernment of India, DoT, declined it because arrears have to be paid,and other conditions were not fulfilled. After that, insolvency proceedingswere initiated, which were not permissible concerning the spectrum givenprovisions contained in Section 18 of the Code.

(vii) National Company Law Tribunal (for short, ‘the NCLT’),Mumbai vide order dated 27.11.2019, held that licence is an asset ofState over which the corporate debtor has no right of ownership. Theabove argument of the State Government was accepted; however, inview of the provisions contained in Section 14 on moratorium beingcreated, the licence could not be revoked. An appeal was filed beforethe National Company Law Appellate Tribunal (for short, ‘the NCLAT’)against the order mentioned above, which was dismissed on the groundof limitation. An appeal has been filed in relation to the revocation oflicence, which is pending in this Court registered as Diary No.15564 of2020.

(viii) The licence under Section 4 of the Indian Telegraph Act,1885, was granted on certain terms and conditions. The spectrum didnot construe property as defined in Section 3(27) of the Code.

(ix) Concerning public trust doctrine, reliance has been placed onCentre for Public Interest Litigation and Ors. v. Union of India andOrs. (2012) 3 SCC 1, in which it was held that natural resources mustalways be used in the country’s interests, not private interests. Thecorporate debtor can never be said to be in occupation of either thelicence or spectrum as per Section 14(1)(d) of the Code. Any dispute isto be settled under the provisions of Telecom Regulatory Authority ofIndia Act, 1997 by the Telecom Disputes Settlement and AppellantTribunal.

(x) Reliance has been placed on M/s. Embassy PropertyDevelopment Pvt. Ltd. v. State of Karnataka [C.A.No.9170 of 2019],in which this Court held that the Code would not apply to right to mine asexclusive possession had not been granted to the corporate debtor andgrant was limited to right to mine, excavate and recover iron ore and red A

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Aoxide for a specified period. It was further held that the right not to bedispossessed found in Section 14(1)(d) of the Code would have nothingto do with the rights conferred by a mining lease, especially on aGovernment land.

(xi) In Ram Dass v. Davinder, (2004) 3 SCC 684, it was held thatBpossession amounts to holding property as an owner, while occupy is tokeep possession by being present in it. Spectrum is not capable of beingin possession of licensee neither in the eye of law they can be said to bein possession.

(xii) As per Regulation 32 of the Insolvency and Bankruptcy BoardCof India (Insolvency Resolution Process for Corporate Persons)Regulations, 2016, the spectrum agreement cannot be held to be essentialgoods or services under Section 14(2) of the Code. Similarly, it cannotbe subjected to proceedings under Section 18 of the Code. In theresolution plan, selling the right to use the spectrum to some othercompany could not have been made. A corporate debtor cannot createDany third party right in any manner whatsoever. Against the order dated9.6.2020 passed by the NCLT approving the resolution plan of UVARC,DoT has filed a petition before the NCLAT relating to Aircel Group.Guidelines are statutory and binding.Aircel Licensee has defaulted inmaking payment of Deferred Spectrum Auction.E(xiii) In the case of RCOM, W.P. (C) No.845 of 2018 was filedunder Article 32 of the Constitution of India for closure/quashing of theCIRP initiated against it. After that, payment was made to M/s. EricssonIndia Pvt. Ltd, who initiated the proceedings under the Code. RCOMhas sought NOC to trade Reliance Jio Infocomm Limited (for short,F‘RJIL’). DoT informed it on 14.12.2018 that the Government couldn’tgive the NOC for trading. This Court decided the proceedings on24.4.2019. Thereafter, the Board of Directors of RCOM decided tocontinue with the proceeding under the Code and, decided to withdrawthe appeal from NCLAT. RCL/RTL defaulted in payment of variousdeferred spectrum auction instalments.G(xiv) The matters of AGR being C.A. Nos.6328-6399 of 2015were sub judice before the commencement of CIRP. A demand wasraised to RCL/RTL. AGR dues amount of RCL/RTL is Rs.25,199.27crores.

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(xv) In the case of Videocon, DoT was not the party. DoT wasnot invited to the Committee of Creditors’ meetings, in complete violationof the provisions of the Code. The resolution professional applied beforeNCLT to restrain DoT from encashing certain bank guarantees submittedby Videocon, in which interim injunction has been granted.

12. Shri Harish Salve, learned senior counsel argued as under:

(i) The NCLT should decide the question of whether the spectrumcan be sold or not. After that, there is a provision for an appeal to NCLAT,and then this Court can look into the matter.

(ii) Under Section 18, the spectrum can be subjected to insolvencyproceedings. This Court examined the question of recoverability of AGRdues in preference to the dues of secured creditors on the basis that theuse of spectrum would rank in priority higher than that of secured creditors.Leasing of the spectrum is not permissible as per the Guidelines. TheRJIL is also not proposing to buy any spectrum from the resolutionapplicant of RCOM or any other company. Only sharing and trading ispermissible subject to the conditions specified in the Guidelines. Theassets of RCOM are comprised primarily of the spectrum, real estate,and active assets. Even if this Court permitted the sale of such a spectrum,RJIL is not intending to acquire the same.

(iii) RJIL has paid Rs.195 crores on a self-assessment basis andshall pay a further sum demanded by DoT.

13. Shri Shyam Divan and Shri Ravi Kadam, learned senior counselon behalf of Committee of Creditors of RCOM, Aircel Limited, andDishnet Wireless Limited, argued:

(i) the spectrum and telecom licences are assets of the telecomcompany. Section 18(f) of the Code mandates that resolution professionalwould take control and custody of any asset over which the corporatedebtor has ownership rights as recorded in the balance sheet of thecorporate debtor. Section18(f)(iv) includes intangible assets. The telecomlicence and right to use the spectrum form a part of the intangible assets.The right to use is a valuable right. In the financial statement, telecomlicence and the right to use the spectrum had been shown as an intangibleasset. Without telecom licences and spectrum, there would be no hopeof reviving Aircel entities.

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A(ii) Clause 6 of the Licence Agreement deals with the restrictionsof transfer of licence by either directly or indirectly without the priorwritten consent of the licensor. It can be transferred on fulfilment ofcertain conditions.

(iii) Reliance has been placed on Consultation Paper dated 7.3.2012.BIts licence/spectrum is considered an intangible asset, and in the Guidelinesfor the Reporting System on Accounting Separation Regulations, 2016,the right to use spectrum is again shown as an intangible asset. TheIndian Accounting Standards-38 has also been referred to indicate thatan asset is a resource controlled by the entity for further economicbenefits. The spectrum and licence being assets of the telecom companyCare not assets owned by a third party under a trust.

(iv) The licence and spectrum of Aircel Entities are held in securityby the lenders in terms of the TPAs to which the DoT is also a party. Inthe resolution plans, DoT acted as an operational creditor. The NCLTasked to take the approval of the DoT for the transacting spectrum.DThus, it is for the DoT to give permission. Dot has to approve theimplementation of the resolution plan.

(v) The Code provides that the resolution plan is to be approvedby the Committee of Creditors, and the adjudicating authority of theNCLT in terms of Section 31 of the Code and liquidation is to be made inEterms of the priority set out in Section 53 of the Code. Section 5(20)defines ‘operational creditor’. Section 5(21) defines ‘operational debt’to include dues payable to the Government. Thus, claims of DoT forunpaid dues are operational debts, and DoT is an operational creditor.

(vi) Reliance has been placed upon Section 31 of the Code. TheFresolution plan shall be binding on the corporate debtors, including theCentral Government, any State Government to whom a debt in respectof the payment of dues arising under any law for the time being in force.Reliance has also been placed on Committee of Creditors of EssarSteel India Limited v. Satish Kumar Gupta and Ors., (2019) SCCOnLine SC 1478.G

(vii) The proceedings under the Code cannot be nullified to realiseAGR and other dues of DoT.

14. Shri Ranjit Kumar, learned senior counsel, on behalf ofCommittee of Creditors of Aircel Limited, Aircel Cellular Limited andHDishnet Wireless Limited argued that:

(i) under the Code, UV Asset Reconstruction Company Limitedhas submitted a resolution plan, which has been approved by the NCLTon 9.6.2020. Aircel Entities are holders of telecom licences. The licencesissued by DoT contain the format for the execution of the TripartiteAgreement between the licensor, licensee, and the lenders. He has reliedupon the following paragraph:

“With a view to help and facilitate the financing of the Project tobe set up by the LICENSEE pursuant to the LICENCE referredto above, the parties hereto are desirous of recording the termsand conditions to provide transfer/assignment of LICENCE ashereinafter provided in this AGREEMENT to protect and securethe Lender’s interest arising out of grant of financial assistance tothe LICENSEE.”

(ii) Aircel Entities have offered lenders spectrum as a securityagainst the loans advanced by the lenders to Aircel Entities. Thus, theDoT claim over the spectrum will be subservient to the claims of thelenders as per the Code, and DoT has to be treated as an operationalcreditor.

(iii) The Banks are in the business of lending money for thebetterment of the national economy, in the same manner, the Governmentis in the business of spectrum. As per Clause 6.3 of the LicenceAgreement, licence can be transferred subject to fulfilment of theconditions agreed between the licensor, licensee, and the lenders.

(iv) The right to use spectrum is an asset of the corporate debtor.Paras 8.4 and 8.5 of the Insolvency Law Committee Report have beenreferred to. Revocation of Licences, permission-based on past dues, isprohibited under Section 14 after the moratorium is created. Currentdues have to be paid during the moratorium period. He has referred toSections 3(27) and 14(1).

(v) The provisions of the Code have to prevail. The Governmenthas entered into a pure business transaction by granting a licence andtaking fees against the grant. The spectrum is a raw material for telecomcompanies. If the spectrum’s licence is terminated, the resolutionprofessional will find it difficult to run the company as a going concern.DoT is an operational creditor. AGR dues are contractual dues and cannothave precedence over the dues of secured creditors. He has referred toSection 53 to contend that the operational creditor is protected in a manner AB

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Aprovided in the Code. Section 238 of the Code contains a non-obstanteclause to the effect that anything inconsistent therewith contained in anyother law for the time being in force, the Code shall prevail. As such, theCode overrides the provisions of the Indian Telegraph Act, 1885, IndianWireless Telegraphy Act, 1933, and Telecom Regulatory Authority ofIndia Act, 1997.B

15. In the case of RCOM, the resolution plan is pendingconsideration of the adjudicating authority under Section 31 of the Code.

16. Whether spectrum can be subjected to proceedings under theCode is a significant question and is required to be gone into. It is aCnatural resource, and under Section 4 of the Indian Telegraph Act, 1885,the Government has the sovereign right. Section 4 of the Indian TelegraphAct, 1885 is extracted hereunder:

“4. Exclusive privilege in respect of telegraphs, and powerto grant licences.— (1) Within India, the Central GovernmentDshall have the exclusive privilege of establishing, maintaining andworking telegraphs:

Provided that the Central Government may grant a license,on such conditions and in consideration of such payments as itthinks fit, to any person to establish, maintain, or work a telegraphEwithin any part of India:

Provided further that the Central Government may, by rulesmade under this Act and published in the Official Gazette, permit,subject to such restrictions and conditions as it thinks fit, theestablishment, maintenance and working—

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(a) of wireless telegraphs on ships within Indian territorialwaters and on aircrafts within or above India, or Indian territorialwaters, and (b) of telegraphs other than wireless telegraphs within any partof India.

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Explanation.—The payments made for the grant of a licenceunder this sub-section shall include such sum attributable to theUniversal Service Obligation as may be determined by the CentralGovernment after considering the recommendation made in thisbehalf by the Telecom Regulatory Authority of India establishedHunder sub-section (1) of Section 3 of the Telecom RegulatoryAuthority of India Act, 1997 (24 of 1997).

(2) The Central Government may, by notification in the OfficialGazette, delegate to the telegraph authority all or any of its powersunder the first proviso to sub-section (1).

The exercise by the telegraph authority of any power sodelegated shall be subject to such restrictions and conditions asthe Central Government may, by the notification, think fit to impose.

(3) Any person who is granted a license under the first proviso tosub-section (1) to establish, maintain or work a telegraph withinany part of India, shall identify any person to whom it provides itsservices by—

(a) authentication under the Aadhaar (Targeted Delivery ofFinancial and Other Subsidies, Benefits and Services) Act, 2016(18 of 2016); or (b) offline verification under the Aadhaar (Targeted Delivery ofFinancial and Other Subsidies, Benefits and Services) Act, 2016(18 of 2016); or

(c) use of passport issued under Section 4 of the Passports Act,1967 (15 of 1967); or (d) use of any other officially valid document or modes ofidentification as may be notified by the Central Government inthis behalf.

(4) If any person who is granted a license under the first provisoto sub-section (1) to establish, maintain or work a telegraph withinany part of India is using authentication under clause (a) of sub-section (3) to identify any person to whom it provides its services,it shall make the other modes of identification under clauses (b) to (d) of sub-section (3) also available to such person.

(5) The use of modes of identification under sub-section (3) shallbe a voluntary choice of the person who is sought to be identifiedand no person shall be denied any service for not having an Aadhaarnumber.

(6) If, for identification of a person, authentication under clause(a) of sub-section (3) is used, neither his core biometric informationnor the Aadhaar number of the person shall be stored.

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A(7) Nothing contained in sub-sections (3), (4) and (5) shall preventthe Central Government from specifying further safeguards andconditions for compliance by any person who is granted a licenseunder the first proviso to sub-section (1) in respect of identificationof person to whom it provides its services.

BExplanation.—The expressions “Aadhaar number” and “corebiometric information” shall have the same meanings as arerespectively assigned to them in clauses (a) and (j) of Section 2 ofthe Aadhaar (Targeted Delivery of Financial and Other Subsidies,Benefits and Services) Act, 2016 (18 of 2016).”

C17. Section 3(10) defines ‘creditor’. The term ‘debt is defined inSection 3(11). The expression ‘property’ is defined in Section 3(27).‘Operational creditor’ is defined in Section 5(20) in Part II under thehead Insolvency Resolution and Liquidation for Corporate Persons.Section 5(21) defines ‘operational debt’.

D18. A question has been raised concerning ownership. WhetherTSPs can be said to be the owner based on the right to use the spectrumunder licence granted to them? Whether a licence is a contractualarrangement? Whether ownership belongs to the Government of India?Whether spectrum being under contract can be subjected to proceedingsunder Section 18 of the Code? The question also arises whether theEspectrum can be said to be in possession, which arises from ownership.What is the distinction between possession and occupation? Whetherpossession correlates with the ownership right? A question also arisesconcerning the difference between trading and insolvency proceedings.Whether a licence can be transferred under the insolvency proceedings,Fparticularly when the trading is subjected to clearance of dues by selleror buyer, as the case may be, as provided in Guideline Nos.10 and 11;whereas in insolvency proceedings dues are wiped off. Guideline No.12is also assumed to be of significance in case spectrum is subjected toinsolvency proceedings, which must be considered.

G19. It is also required to be examined that when Government hasdeclined the permission to trade and has not issued NOC for trading onthe ground of non-fulfilment of the conditions as stipulated in the LicenceAgreement, the spectrum can be subjected to resolution proceedingswhich will have the effect of wiping off the dues of the Government,which are more than Rs.40,000 crores. Whereas the dues of the BanksHare much less. Whether obtaining the DoT’s permission and its approval to the resolution plan would be a substitute for Trading Guideline Nos.10,11, and 12 ?

20. A question also arises of bona fide nature of the proceedingsunder the Code. In the backdrop facts of the cases, question also ariseswhether spectrum licence subjected to proceedings under the Code, andit overrides the provisions contained in the Indian Telegraph Act, 1885,Indian Wireless Telegraphy Act, 1933, and Telecom Regulatory Authorityof India Act, 1997.

21. In view of the fact that the licence contained an agreementbetween the licensor, licensee, and the lenders, whether on the basis ofthat, spectrum can be treated as a security interest and what is the modeof its enforcement. Whether the Banks can enforce it in the proceedingsunder the Code or by the procedure as per the law of enforcement ofsecurity interest under theSecuritisation and Reconstruction of FinancialAssets and Enforcement of Securities Interest Act, 2002 (SARFAESIAct) or under any other law.

22. A question of seminal significance also arises whether thespectrum is a natural resource, the Government is holding the same ascestuique trust. In view of the nature of the resource, it can be subjectedto insolvency/liquidation proceedings. Earlier licence was obtained onthe payment of fees in advance that was not beneficial to the TSPs, assuch a new revenue sharing regime was devised in 1999, and the CentralGovernment has an exclusive right under section 4 of the Telegraph Act,1885 in use of spectrum, it can part with on certain statutory guidelines,its use is not permissible without the payment of requisite fee.

Whether dues under the licence can be said to be operationaldues? It is also to be examined whether deferred/default paymentinstalment/s of spectrum acquisition cost can be termed to be operationaldues besides AGR dues. Whether as per the revenue sharing regimeand the provisions of the Indian Telegraph Act, 1885, the dues can besaid to be operational dues? Whether natural resource would be availableto use without payment of requisite dues, whether such dues can bewiped off by resorting to the proceedings under the Code andcomparative dues of Government, and secured creditors and bona fidesof proceedings are also the questions to be considered.

23. We consider it appropriate that the aforesaid various questionsshould first be considered by the NCLT. Let the NCLT consider the ABC

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Aaforesaid aspects and pass a reasoned order after hearing all the parties.We make it clear that it being a jurisdictional question, it requires to begone into at this stage itself. Let the question be decided within the outerlimits of two months. We also make it clear that we have not observedon the merits of the case, and we have kept all the questions open to beexamined by the NCLT.B

In Re. Sharing

24. Coming to the question as to the liability of sharing operator,who is sharing the spectrum of the original licensee of the past AGRdues of the original licensee is concerned, that spectrum sharing isCpermitted and approved by the Sharing Guidelines dated 24.09.2015.The Parliament has approved spectrum sharing as part of “NationalTelecom Policy, 2012”. However, DOT issued and approved the finalguidelines in the year 2015. Spectrum sharing is a policy that permits thesharing of radio access network equipment of operators. Single radionetwork equipment is used to provide services by two operators usingDboth the entities’ spectrum. As per Spectrum Sharing Guidelines of DoT,(i) it is a prerequisite that both operators sharing spectrum need to havespectrum in the same band and the same licenced area; (ii) it is alsonecessary that both operators have a network in the same geographicalarea; and (iii) leasing of the spectrum is not permitted under the policy.EBy sharing the radio network equipment, two operators use their spectrumand create their respective businesses’ capacity. Liability to pay necessaryAGR and licence fee remains with the respective companies. Even theDoT in its affidavit and compliance of the order dated 14.08.2020, statedas under so far as the spectrum sharing is concerned:

F“4. It is respectfully submitted that as per the Guidelines issued byDoT in 2015, “Spectrum sharing” allows operators to pool theirrespective spectrum for usage in a specific geographical area(LSA) thus complementing each other’s spectrum needs andfacilitating more efficient utilization of the spectrum. The rationaleis to facilitate optimization of resources and to create a conduciveGenvironment for telecom growth. During the past period of 20years or more, some operators have been able to acquiresubscribers and grow at a faster rate as compared to otheroperators. This results in the spectrum lying unutilized with someof the players while other operators face spectrum crunch asHspectrum is a scare resource.

Thus, on the one hand spectrum, which is a limited naturalresource, may remain unutilized for some Telecom ServiceProviders (TSPs), while on the other hand, consumers suffer dueto poor quality of services on account of spectrum crunch withother TSPs. Moreover, spectrum is allocated to a service providerfor a service area which is a large geographical area, normallyco-terminus with the state boundaries. In different cities and ruralareas, the TSPs may have varying spectrum needs dependingupon their customer profile.

Spectrum sharing allows operators to pool their respectivespectrum for usage in a specific geographical area within an LSA.The pooling of the spectrum increases the capacity of TelecomService Providers to carry telecom traffic and may help inenhancing the quality of service.

5. It is submitted that the objective of spectrum sharing was toprovide an opportunity to the Telecom Service Providers to pooltheir spectrum holdings and thereby improve spectral efficiency.It is submitted that sharing can also provide additional networkcapacities in places where there is network congestion due toshortage of spectrum. It is submitted that these aspects wereconsidered by the Central Government while approving theGuidelines for Spectrum Sharing. It is submitted that TelecomRegulatory Authority of India (TRAI) made recommendations on‘Guidelines on Spectrum Sharing’ on July 21, 2014, which wasconsidered and approved by the Telecom Commission (TC) in itsmeeting held on 11.06.1025 and subsequently approved by theCentral Government. A copy of Spectrum Sharing Guidelines dated24.09.2015 is attached herewith and marked as ANNEXURE –T2.

6. In case of sharing of spectrum both the service providers[sharers] must be in the same band and in the same service area.To illustrate “it may be pointed out that if there are two serviceproviders holding 100 units of spectrum each in the same bandand in the same service area they can share spectrum of eachother mutually. The Spectrum Usage Charges [SUC] will beconsidered for 100 units for each of the TSPs and both will haveto pay SUC for their entire spectrum holding (100 units each) inthat band and in that service area.

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A7. With regard to AGR dues for two TSPs sharing spectrum, thefollowing scenario emerges:

i. In case of sharing, the Spectrum does not change hands. BothTSPs simultaneously use and have access to the spectrum heldby each.

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ii. As per the sharing arrangement, each of the TSPs will continueto make payment of AGR dues arising for the spectrum that eachholds.

iii. However, due to the additional spectrum which each TSP getsto use, the AGR based dues (SUC) are assessed at a higher rateCfor each of the TSPs. There is an addition/increase by 0.5% inthe Spectrum Usage Charge rate, applied separately on both TSPs.Thus if SUC rate of each TSP prior to sharing was 3%, then thiswill increase to 3.5% for both of them.

iv. The use of each others spectrum by means of sharing shouldDnormally lead to increase in AGR for both TSPs. This would leadto increased licensed fee and SUC to the Government as theseare based on share of AGR.

v. TSPs who share spectrum, continue to pay and are duty boundto pay, their AGR based dues arising from the use of spectrum.

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8. So far as the present case is concerned, in accordance with thespectrum sharing guidelines dated 24.09.2015, the requests of thefollowing TSPs for sharing of access spectrum have been takenon record:

i. For Reliance Jio Infocomm Limited (RJIL) and RelianceFCommunications Limited (RCL), spectrum in 800 MHz band in21 LSAs (all except Jammu and Kashmir LSA) as per thequantum mentioned in the annexure

ii. For Bharti Airtel Limited and Tata Teleservices Limited/TataTeleservices (Maharashtra) Limited, spectrum in 1800 MHz bandGin 3 LSAs (Andhra Pradesh, Maharashtra and Mumbai LSAs) asper the quantum mentioned in the annexure.

iii. For, Bharti Airtel Limited and Tata Teleservices Limited/TataTeleservices (Maharashtra) Limited, spectrum in 2100 MHz bandin 2 LSAs (Gujarat, Haryana, Karnataka, Kerala, Madhya H

Pradesh, Maharashtra and Uttar Pradesh (West) LSAs) as perthe quantum mentioned in the annexure.

iv. For Bharti Hexacom Limited and Tata Teleservices Limited,spectrum in Rajasthan LSA as per the quantum mentioned in theannexure.

12. It is respectfully submitted that the difference betweenSpectrum Sharing and Spectrum Trading, can therefore be culledout as under:

i. Spectrum sharing allows operators to pool their respectivespectrum for usage in a specific geographical area and thuscomplementing each other’s needs for more efficient utilizationof the spectrum. This facilitates optimization of resources as alsocreates conducive environment for the telecom growth.

ii. Spectrum trading allows parties to transfer their spectrum rightsand obligations to another party. This allows better spectrum usagesas the idle spectrum from the hands of one service provider getstransferred to the other service provider who may be facingspectrum crunch.

iii. In the case of spectrum sharing, the right to use spectrum asgranted by the DoT remains with the respective TSPs, whereasin the case of spectrum trading, the right to use gets transferredfrom the buyer to the seller.”

On going through the entire Sharing Guidelines, it does not stipulateanything about the past dues of the sharing operators. In the case ofsharing spectrum usage charges, the rate of each of the licensees postsharing shall increase by 0.5% of adjusted gross revenue. SharingGuidelines dated 24.09.2015 read as under:

“No. L-14006/04/2015-NTG

Government of India

Ministry of Communications & IT

Department of TelecommunicationsWPC Wing, 6[th] floor, Sanchar Bhawan, New Delhi Dated: the 24[th] September, 2015

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Subject: Guidelines for sharing of Access Spectrum byAccess Service Providers.

National Telecom Policy, 2012 envisage to move at theearliest towards liberalization of spectrum to enable use of spectrumin any band to provide any service in any technology as well as toBpermit spectrum pooling, sharing and later, trading to enable optimalutilization of spectrum through appropriate regulatory framework.After considering the recommendations of TRAI on spectrumsharing, the Government has decided to allow sharing of accessspectrum as per guidelines given below:

(1). Spectrum sharing shall be allowed only for the access serviceproviders holding Cellular Mobile Telephone Service (CMTS)/Unified Access Service License (UASL)/Unified License (AccessServices)(UL(AS)/Unified License (UL) with authorization ofAccess Service in a Licensed Service Area (LSA), where boththe licensees are having spectrum in the same band.

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(2). Spectrum sharing is permitted between two Telecom ServiceProviders utilizing the spectrum in the same band.

(3). Spectrum sharing is not permitted when both the licenseesare having spectrum in different bands. Leasing of spectrum isnot permitted.

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(4). All access spectrum including traded spectrum shall beshareable provided that both the licensees are having spectrum inthe same band. Further, if more bands such as 700 MHz are addedfor allocation of spectrum to Access Service Providers throughauction process, the sharing of spectrum shall also be permitted inthat band.

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(5). The right to share the spectrum shall be subject to thefulfillment of the relevant license conditions and nay otherconditions that may be specified by the licensor/Government fromtime to time.

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(6) Both the licensees shall ensure that they fulfil the specifiedroll-out obligations and specified QoS norms.

(7) A licensee shall not be eligible to share its spectrum if it hasbeen established that it is in breach of terms and conditions of the H

licence and the licensor has ordered for revocation/termination ofits licence.

(8) Sharing is permitted in the following scenarios:

(i) . For the spectrum where both the Licensees who plan to share,possess the spectrum for which market price has been paid.Further, in respect of spectrum in 800 MHz acquired in the auctionheld in March 2013, sharing of spectrum shall be permitted only ifthe differential of the latest auction price and the March 2013auction price on pro-rate basis on the balance period of right touse the spectrum is paid.

(ii) In case both the Licensees who plan to share spectrum arehaving the administratively allotted spectrum in that band, thesharing of spectrum is permitted only when both the licenseeshave paid One time Spectrum Charges (OTSC) for their respectivespectrum holdings, above 4.4 MHz (GSM) / 2.5 MHz (CDMA)based on reserve price/auction determined price. However if thesaid amount is not paid due to judicial intervention in judicial forumsbarring any coercive action, in the interim, sharing of spectrum insuch cases will also be permitted subject to submission of a bankguarantee for an amount equal to the demand raised by thedepartment for one time spectrum charge pending final outcomeof the court case.

(iii) In case of proposed sharing where one Licensee has spectrumacquired through auction/trading or liberalized spectrum and theother has spectrum allotted administratively, sharing is permittedonly after the spectrum charges for liberalizing the administrativelyallocated spectrum are paid. Further, in case of spectrum acquiredin auction held in March 2013, differential amount as indicated inpara 7(i) above shall be payable in respect of 800 MHz band.

(9) The use of technology shall be governed by the terms andconditions of respective Notice Inviting Application (NIA)/license.

(10). Both the licensees will be individually and collectivelyresponsible for complying with the sharing guidelines, includinginterference norms.

(11). Spectrum sharing will be restricted to sharing by only twolicensees subject to the condition that there will be at least twoindependent networks provided in the same band.

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(12). For the purpose of charging Spectrum Usage Charges (SUC),it shall be considered that the licensees are sharing their entirespectrum holding in the particular band in the entire LSA.

(13). Spectrum Usage Charges (SUC) rate of each of the licenseespost-sharing shall increase 0.5% of Adjusted Gross Revenue(AGR). The sharing of spectrum for part of a month, full onemonth period shall be counted for the purpose of levying SUC.

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(14). The prescribed limits for spectrum cap shall be applicablefor both the licensees individually. Further, the spectrum holdingof any licensee post-sharing shall be counted after adding 50% ofthe spectrum held by the other licensee in the band being sharedbeing added as the additional spectrum to the original spectrumheld by the licensee in the band.

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(15). Spectrum sharing shall be available for upto the balanceperiod of the licence or upto the period of right to use spectrum,whichever is earlier.

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(16). Both the licensees sharing the spectrum shall jointly give aprior intimation for sharing the right to use the spectrum at least45 days before the proposed effective date of the sharing.Application format is attached along with these guidelines asAnnexure-I.

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(17). Both the licensees shall also give an undertaking that theyare in compliance with all the terms and conditions of guidelinesfor spectrum sharing and the licence conditions and will agreethat in the event, it is established at any stage in future that eitherof the licensee was not in conformance with the terms andFconditions of the guidelines for spectrum sharing or/and of thelicence at the time of giving intimation for sharing of right to usethe spectrum, the Government will have the right to take appropriateaction which inter-alia may include annulment of sharingarrangement. Appropriate modifications will be made in theirGrespective Service License and Wireless Operating License(WOL) to facilitate the spectrum sharing.

(18). A non refundable processing fee, as prescribed from time totime, shall be payable individually by each licensee for each servicearea at the time of intimation to WPC Wing. At present, processingfee of Rs.50,000/- is to be paid. The payment is to be made by H

draft in favor of Pay & Accounts Officer (HQ), DOT payable atNew Delhi.

(19). Licensor/Government reserves the right to modify theguidelines from time to time as it may deem fit.

Sd/-

(P S M Tripathi)

Assistant Wireless Adviser

for and on behalf of President of India.”

25. According to the DoT and so stated in the affidavit in complianceof order/directions dated 21.08.2020, AGR is not calculated bandwise,but from the total revenue earned by the TSP using the entire spectrum(both shared and not shared). According to DoT, in case of sharing ofspectrum, there is an increment of 0.5% in SUC rate, and both TSPspay this incremental SUC on their respective AGRs if they are sharingspectrum. Both the TSPs (sharers) are required to pay this SUC ontheir respective AGRs. Even in the case of sharing spectrum, the liabilityof the said operator would be to the extent of using the said spectrumonly, and the liability of the sharing operator would be to the extent of theremaining spectrum used by it. Therefore, there shall not be any liabilityof the said operator with respect to payment of the past dues (postshared) of the sharing operator – licensee. Even according to DoT also,both the TSPs (sharers) are required to pay the SUC on their respectiveAGRs. Learned counsel appearing on behalf of the Reliance Jio (sharedoperator), which has entered into the sharing between RCom/RTL hasstated at the Bar that Reliance Jio has paid the AGR post sharing includingthe difference of AGR as per the decision of this Court on their own andbased on self-assessment. It is stated at the Bar that still anything isfurther held to be due and payable and AGR for the period post sharingof the said spectrum originally allotted to RCom on the assessment beingdone, they will make the said payment. Similar is the ground of counselfor other TSPs. as to sharing arrangement.

26. That in the present case, only part of the spectrum of thelicensee has been shared with the case of some of TSPs., which hasbeen approved by the DoT under the Sharing Guidelines, 2015, and thereis no provision for the liability of the past dues on the shared operator.Even otherwise, the past dues of sharing operator/licensee covers AGR

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Afor the spectrum used by holder of licence, certain TSPs. such as Reliancecame into existence later on, and as observed hereinabove, the liabilityof such operator of the AGR, would only be to the extent it has used thesaid spectrum. Shared operator TSPs. cannot be saddled with the liabilityto pay the past dues of AGR of licensee, that have shared the spectrumwith the original licensees.B

In Re. Trading:

27. Coming to the question of liability of the telecom companieswhich are using spectrum under the Trading Guidelines with respect tothe AGR dues of the telecom company, Spectrum trading is governed byCthe Spectrum Trading Guidelines dated 12.10.2015 and under the saidTrading Guidelines, part of the spectrum of the telecom company facinginsolvency – the other telecom company is using original licensee. Thepurchaser and buyer’s liability shall be as per para 11 of the SpectrumTrading Guidelines dated 12.10.2015, which reads as under:

D“(10). Both the licensees shall also give an undertaking that theyare in compliance with all the terms and conditions of the guidelinesfor spectrum trading and the license conditions and will agree thatin the event, it is established at any stage in future that either ofthe licensee was not in conformance with the terms and conditionsof the guidelines for spectrum trading or/and of the license at theEtime of giving intimation for trading of right to use the spectrum,the Government will have the right to take appropriate action whichinter-alia may include annulment of trading arrangement.

D

(11). The seller shall clear all its dues prior to concluding anyagreement for spectrum trading. Thereafter, any dues recoverableFup to the effective date of trade shall be the liability of the buyer.The Government shall, at its discretion, be entitled to recover theamount, if any, found recoverable subsequent to the effective dateof the trade, which was not known to the parties at the time of theeffective date of trade, from the buyer or seller, jointly or severally.GThe demands, if any, relating to licenses of seller, stayed by theCourt of Law, shall be subject to outcome of decision of suchlitigation.

(12). Where an issue, pertaining to the spectrum proposed to betransferred is pending adjudication before any court of law, theseller shall ensure that its rights and liabilities are transferred toH

the buyer as per the procedure prescribed under the law and anysuch transfer of spectrum will be permitted only after the interestof the Licensor has been secured.”

Para 11 of the Spectrum Trading Guidelines was further clarifiedvide O.M. dated 12.05.2016. Certain telecom operators raised specificquestions on the Trading Guidelines dated 12.10.2015. Question No.2 inrespect of para 11, seeks a clarification as to whether the transfer ofspectrum is for a specific area and reference to the dues relate to onlythe spectrum being traded in the concerned area, and seeks clarificationwhether the buyer will be jointly or severally liable for only those dues iffound recoverable after the effective date of trading, which were notknown to the seller at the time of the effective trade date.

28. To the aforesaid questions, vide O.M. dated 12.05.2016, therewas a clarification or the answer relating to para 11 of the Guidelines,which reads as under:

“The Clarification or the answer relating to para 11 of theGuidelines states as follows:

“As per para 11 of the Guidelines, the seller must clear all its duespertaining to the LSA where trading is intended including OTSCdues for that band. In case where entire spectrum holding of theTSP in all LSAs is intended to be traded, the seller will have toclear all its pending dues including past dues. DoT will indicatestatus of Dues. However, the Buyer may perform due diligence.Further, the Government shall, as its own discretion, be entitled torecover the amount, if any, found recoverable subsequent to theeffective date of the trade, which was not known to the parties atthe time of the effective date of trade, from the buyer or seller,jointly or severally.”

Thus, as per para 11 of the Spectrum Trading Guidelines dated12.10.2015, read with the clarification vide O.M. dated 12.05.2016, incase of a part of the spectrum is under sale, the liability of the purchaser/buyer with respect to past dues of the seller shall not arise. In a casewhere the entire spectrum is under sale, in that case, the past dues ofthe seller shall be the liability of the buyer except the amount/dues, ifany, found recoverable after the effective date of the trade, which wasnot known to the parties at the time of the effective date of trade and insuch a situation the liability of such dues of the buyer and seller would be AB

C

DEF

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Ajointly or severally and the government at its discretion is entitled torecover such amount. In the present case, it is not in dispute that in somecases only part spectrum was traded, and the remaining spectrumcontinued with the seller. At the time of agreement for spectrum trading,the AGR dues of the seller were also known. Therefore, on a joint readingof para 11 of the Spectrum Trading Guidelines dated 12.10.2015 readBwith O.M. dated 12.05.2016, the seller’s dues prior to the concluding ofthe agreement/spectrum trading shall not be upon the buyer.

29. It is clear that in the case, which was decided by this Courtrelating to AGR dues, respondents were the parties, and they werelitigating with respect to the definition of AGR in the second round ofCappeal filed in 215 before this Court. Each of them was aware that thedispute as to the definition of AGR was pending in this Court. Thus, it isapparent that it was known to the parties that AGR dues to be finalisedas per the decision of this Court in a pending matter, and lis was pendingfor the last 20 years. The liability cannot be escaped as specified in theDTrading Guidelines to the extent that the seller or buyer is liable. Theyhave to pay the AGR as per the judgment rendered by this Court. Thepurchasers who are not seller or buyer, shall have to pay the dues to theextent they are liable under the Guidelines, as discussed above. It wasstated that they have paid dues as per the self-assessment or, in somecases, demands have not been raised. We direct DoT to complete theEassessment in such cases of trade and raise demand if it has not beenraised and to examine the correctness of self-assessment and raisedemand, if necessary, after due verification. In case demand notice hasnot been issued, let DoT raise the demand within six weeks from today.

Payment of dues of AGR :F

30. The Union of India has filed an application through theDepartment of Telecommunications (DoT) to modify the orderdated 24.10.2019 passed in C.A. Nos.6328-6399/2015 and a separateorder of even date passed in the abovesaid civil appeals. M.A. No.266/2020 was filed by the TSPs./licensees in which order dated 14.2.2020Gwas passed, and the contempt proceedings against the Desk Officerwere drawn. In view of the communication dated 23.1.2020, it waswithdrawn on 14.2.2020.

31. It is averred in the application that the sector of TSPs. has itsvaried features. The TSPs. who are required to make payment, are H

catering to the services of crores of consumers throughout India, andIndia’s Government has examined the issue in great detail. It has shownprompt alacrity to the sector’s market economy. The definition of ‘AGR’has been settled after about 20 years, as such, there are huge arrears. Inthe event, it is found that any major service provider is impacted resultinginto drastic consequences of such service providers facing proceedingsunder the Code. The following would be the inevitable adverse impact:

(a) Impact on telecom services for a large proportion of customers.

(i) Mobile Number Portability (MNP) process has capacitylimitations; this may lead to delays in porting numbers fromnon-operational to operational TSP, and consequent disruptionof services for customers.

(ii) TSPs. porting in customers from TSPs not able to provideservices will also need additional access (and backhaul)spectrum to maintain Quality of Service (QoS), Accessspectrum is acquired through auction.

(b) Adverse impact on competition in the Telecom Sector withadverse consequences for the consumers;

(c) Adverse impact on Quality of Service in the telecom sector.The closure of one or more TSPs and the gap being filled in byother remaining TSPs will not be seamless.

(d) Implications for the banking sector:

- A letter dated 15.2.2020 was received from the Indian BanksAssociation on the subject of distress in the Telecom Sectorand Ease of Business. The letter highlighted the issues affectingthe Telecom Sector and resultant implications on the bankslending to the Telecom Sector along with suggestions forconsideration.

(e) Disruption of tax and non-tax revenue on account of licencefee (LF), spectrum usage charges (SUC) and Goods and ServicesTax (GST) and loss of revenue on account of spectrum deferredinstalments; (f) Locking up of valuable spectrum in Corporate InsolvencyResolution Process (CIRP); (g) Major loss of direct and indirect employment; A

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A(h) Cascading negative impact on other sectors of the economy;(i) Foreign Direct Investment (FDI) sentiment will be adverselyaffected; (j) The closure of one or more TSPs also adversely impacts thedigital connectivity in the country. E-commerce, e-banking,Be-health, etc., all part of e-governance are affected; (k) This will have an adverse impact in rural areas, particularlyAspirational Districts, and the spread of digitization in backwardregions of India.

C32. In this regard, a letter dated 15.2.2020 had been written bythe Indian Banks Association, adumbrating the aforesaid aspects of thedistressed telecom sector. The issues affecting the telecom industry andcompanies and the resultant stress on bank lending in this sector werepointed out, culminating into a high incidence of tax and heavy burden,subdued operating matrix due to a steep fall in average revenue perDcustomer. The telecom services remained subdued due to the price wartriggered by a new entrant. There was a decline in revenue. The drasticcut in data tariffs has led to a spike in data usage for the last one year,primarily on the 4G network. The vicious circle would adversely affectthe capex spending of the service providers and, in turn, impact theErevenue earning capabilities. Banks’ approach to 5G financing was alsomentioned for which significant additional investment is required for 5Grelated infrastructure with the current leveraged financial position. Thetotal outstanding exposure to the telecom industry from the Indian Banksis huge. The modification in the bank guarantee mechanism pertainingto onerous clauses was also pointed out. Various other difficulties of theFtelecom sector were also highlighted.

33. The Union of India, after envisaging the larger interest,economic consequences on the nation and to ensure that the order ofthis Court is complied with in its letter and spirit, has taken a consciousdecision and sought approval of this Court to a formula for recovery ofGpast dues from the telecom service providers. The formula is placed forapproval of this Court, which is arrived at after detailed and long drawndeliberations at various levels in the administrative hierarchy, includingthe Cabinet, and keeping in view the vital issues related to financialhealth and viability of the telecom sector, need for ensuring competitionand a level-playing field in the interest of consumers. The followingHdecision has been taken with respect to the mode of recovery:

‘THE MODE OF RECOVERY FOR CONSIDERATION OFTHIS HON’BLE COURT

“1.1 All licensees impacted by the judgment of the Hon’ble SupremeCourt be allowed to pay the unpaid or remaining to be paid amountof past DoT assessed/calculated dues in annual instalments over20 years (or less if they so opt), duly protecting the net presentvalue of the said dues using a discount rate of 8% (based on OneYear Marginal Cost of Lending Rate of SBI which is currently7.75%). Interest on the unpaid amount, penalty, and interest onpenalty in relation to the past dues as on the date of the judgmentof the Hon’ble Supreme Court (arising due to the said judgmentof the Supreme Court) will not be levied beyond the date of thesaid judgment, and the NPV will be protected using the discountrate. However, the TSPs shall continue to be liable for interest,penalty, and interest on penalty for unpaid dues of LF and SUCwhich arise prospectively after the date of judgment of the Hon’bleSupreme Court (24.10.2019).

1.2 Change in amount of past dues arising from the AGR judgment(24.10.2019), if any, determined after reconciliation between TSPs’self-assessment and DoT’s assessment/calculation, be added to/adjusted against the payable instalment amounts of the TSP onthe same basis as given in paragraph 1.1 above.”

34. A prayer has also been made to pay the remaining dues throughannual installments spanning over 20 years. For any lapse, a provisionhas been made to protect the net present value as per the order passedby this Court up to the date of judgment and the dues thereafter, to berealised using the discounted rate of 8%, which is based on one marginalMCLR rate of SBI which is currently at 7.75%. The interest, penalty,and interest on penalty on the arrears as per agreement not to be leviedbeyond the date of judgment, and the NPV will be protected. However,for prospective arrears, if any, the TSPs. shall be liable to interest, penalty,and interest on penalty for unpaid dues as per agreement after the dateof judgment of this Court.

35. Considering the various factors taken into account and theletters written by the Indian Banks Association, we are of the opinionthat the decision of the Cabinet is based on the various factors, and inthe interest of the economy and the consumers. The decision is taken A

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Aafter extensive deliberations and consultations, and till the date ofjudgment, the dues have been worked out as per the decision renderedby this Court. Only for the subsequent period, some relaxation has beengiven as to the rate of interest, penalty, and interest on penalty, which ispermissible. The arrears have accumulated for the last 20 years. It isalso to be noted that some of the companies are under insolvencyBproceedings, validity of which is to be examined, and they were havinghuge arrears of AGR dues against them. For protecting the telecomsector, a decision has been taken on various considerations mentionedabove, which cannot be objected to.

36. However, we consider that the period of 20 years fixed forCpayment is excessive. We feel that it is a revenue sharing regime, and itis grant of sovereign right to the TSPs. under the Telecom Policy. Wefeel that some reasonable time is to be granted, considering the financialstress and the banking sector’s involvement. We deem it appropriate togrant facility of time to make payment of dues in equal yearly instalments.DRest of the decision quoted above, taken by the Cabinet, shall standexcept the modifications concerning the time schedule for makingpayment of arrears. But, at the same time, it is to be ensured that thedues are paid in toto. The concession is granted only on the conditionthat the dues shall be paid punctually within the time stipulated by thisCourt. Even a single default will attract the dues along with interest,Epenalty and interest on penalty at the rate specified in the agreement.

37. We also place on record that the demand of AGR was raisedas against non-telecom PSUs. on the strength of the judgment passedby this Court. Pursuant to the Court’s directions, the matter has beenre-examined and considering the representations filed by PSUs. It isFstated in the affidavit dated 18.6.2020 that non- telecom public sectorundertakings are non-telecom entities involved in providing services suchas power transmission, oil and gas exploration, and refining, Metrorailservice, etc., and that they are not into the business of providing mobileservices to the general public. They are not holding Access ServiceGLicence (ASL). The revenue received by non-telecom public sectorundertakings under the head of ‘telecom services’ forms a very negligibleand a small portion and does not form part of the total revenue, e.g.,0.0002% for GAIL, 0.00028% for DMRC and 0.001% for Oil India,etc. DoT has decided to withdraw the demands raised for licence feebased on non-telecom revenue from the non-telecom public sectorH

undertakings, which are M/s. Powergrid, GAIL, Oil India Ltd., DMRC,which constitutes about 96% of the demand regarding non-telecom PSUs.In this regard orders have been issued on 13.7.2020 and 14.7.2020.

38. Resultantly, we issue following directions:

(i) That for the demand raised by the Department of Telecom inrespect of the AGR dues based on the judgment of this Court,there shall not be any dispute raised by any of the TelecomOperators and that there shall not be any re-assessment.

(ii) That, at the first instance, the respective Telecom Operatorsshall make the payment of 10% of the total dues as demanded byDoT by 31.3.2021.

(iii) TSPs. have to make payment in yearly instalmentscommencing from 1.4.2021 up to 31.3.2031 payable by 31[st] Marchof every succeeding financial year.

(iv) Various companies through Managing Director/Chairman orother 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 submittedregarding the spectrum shall be kept alive by TSPs. until thepayment is made.

(vi) In the event of any default in making payment of annualinstalments, interest would become payable as per the agreementalong with penalty and interest on penalty automatically withoutreference to Court. Besides, it would be punishable for contemptof Court.

(vii) Let compliance of order be reported by all TSPs. and DoTevery year by 7[th] April of each succeeding year.

In the Suo Motu Contempt Petition, in view of the reply filed andcompliance reported, and an unconditional apology tendered, which weaccept, we discharge notice issued to Shri Mandar Deshpande and dropthe proceedings.

Before parting with the proceedings, we place on record ourappreciation for the fair and able assistance provided by Shri TusharMehta, Solicitor General, and the respective senior counsel appearingon behalf of respective parties.

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AAccordingly, the pending interlocutory applications are disposed

of in terms of the aforesaid order/directions.

All the previous orders stand modified accordingly.

BDivya Pandey

Directions issued.

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