Draft Telecommunication Bill: Insolvent Businesses At Risk Of Losing Their Most Valuable Asset

The central government can reassign spectrum, the most valuable asset of a telecom operator, if it fails to provide services during insolvency, according to a draft telecommunication bill. This is to ensure efficient management and use of the spectrum.

The Department of Telecommunications has published the draft Telecommunication Bill, 2022 for public consultation. When enacted, it would replace the 137-year-old Telegraph Act, Wireless Telegraphy Act, Telegraph Wires (Unlawful Possession) Act and amend few provisions of the Telecom Regulatory Authority of India Act.

The draft bill provides for a variety of provisions for optimum utilisation of spectrum, including reassignment of spectrum during insolvency.

This could be problematic for a telecommunication company that has no value without spectrum, said Piyush Mishra, partner at Luthra and Luthra

A company in insolvency, according to the draft bill, is expected to continue providing the services and make no default in the payment of any dues under such licence, or assignment, including any fees, charges, and other amounts payable under such licence or assignment of spectrum.

“An elaboration is required on the implementation of these provisions,” said Tony Verghese, partner at JSA Advocates & Solicitors.

Any failure from the part of the company in complying with these conditions would result in the spectrum reverting to central government who shall have the power to reassign the spectrum, according to the draft bill. The government is also free to allow the company to continue using the spectrum as long as the revenue is deposited in a separate account and which shall be used for payment of licence fees and other dues, it said.

The separate account requirement disturbs the payment priority provided in the insolvency code, Mishra said.

“This conditionality puts government dues above the priority ascribed to it in the code. Moreover, the code doesn’t provide clarity on the dues that needs to be met. If it’s referring to dues prior to insolvency, it might put the company in a difficult position as they might not have sufficient funds for fulfilling the same but might have funds to meet the bare minimum licence requirements,” Mishra said.

The duty is cast upon the insolvency professional to ensure that the requirements are met or otherwise intimate central government suspension or shut down of telecommunication services 30 days in advance so that the spectrum can be reassigned to some other entity for management. This means a telecom company in insolvency is at the risk of losing its key asset, Mishra said.

Despite the concerns, the bill provides for reassignment only in dire situations. The central government empowered by bill can allow deferment of dues to be paid by the company, write off such dues or grant any kind of relief from the payment of dues. This can be done in extraordinary circumstances for consumer interest or maintaining competition in the market.