The NCLAT ruling on clearing spectrum dues is full of contradictions
The National Company Law Appellate Tribunal’s (NCLAT’s) ruling on ownership of spectrum is a rather confused one. The tribunal has rightly said that the final ownership of spectrum lies with the Government. But it has muddled the issue when it comes to dealing with the waterfall mechanism for stressed assets. On the one hand, the NCLAT has stated that the Department of Telecom (DoT), the spectrum owner, will be treated as an operational creditor; on the other, it has said that operators have to first clear pending dues to DoT before filing for bankruptcy. This is not just contradictory but illogical. A company is unlikely to be insolvent if it clears DoT’s dues. The Ministry of Corporate Affairs has also stated previously that the DoT will be treated as an operational creditor. But the NCLAT order in effect puts DoT ahead of the financial creditors when it comes to telecom assets. This sends confused signals to banks and will derail the IBC process in the sector.
The Centre should reconcile the provisions of the telecom licence that makes DoT the final authority on spectrum ownership, and the IBC rules that give banks the top priority. In sectors such as mining or telecom, where the value of an entity is dependent on the natural resource, it is worth considering whether the government as the owner of the resource should be treated as just another operational creditor.