In what comes as a disappointment for Bharti Airtel, and more so for Vodafone Idea, Justice Arun Mishra-led bench of the Supreme Court has refused to allow telecom companies to make payment of AGR dues over 20 years. The court has instead allowed only a 10-year window for the telcos to repay.
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The government had sought 20 years for the telecom companies to make payment for the balance AGR dues, while Vodafone Idea and Bharti Airtel, the two most affected firms, had sought 15 years for the same.
Even the 10-year window provided by SC is subject to various riders. The SC has stipulated that 10 percent of the dues need to be paid upfront for the telcos to be eligible to benefit from the staggered payment schedule.
Meanwhile, lawyers for the telcos, including the likes of Abhishek Manu Singhvi appearing for Airtel confirmed that telcos will be seeking a review of this judgment. Interestingly, given that Justice Arun Mishra is due to retire on September 2, the review plea will be heard by a different bench.
The SC has also directed for managing directors of telcos to submit undertakings that the telcos will comply with the 10-year payment schedule. The court has warned that failure to meet payment will result in a levy of interest and penalty, other than contempt of court proceedings.
Meanwhile, reaffirming the quantum of the AGR dues, the SC has also clarified that there can be no more disputes raised over the revaluation of demand raised by the DOT.
As per SC order, the staggered payment timeline will begin from April 1, 2021.
Also, importantly, the court has referred the issue of whether spectrum sale can be allowed under IBC to be decided by the NCLT.
These directions come after SC had held in October of 2019 that all telecom and non-telecom revenues accruing to the telecom service provider would be included in the computation of Adjusted Gross Revenue (AGR).
This effectively meant that licence fee dues and spectrum usage charges, which are calculated as a percentage of AGR, would become significantly bloated. This became evident with the DOT raising demands of Rs 1.69 lakh crore against various service providers. Of the Rs 1.69 lakh crore, nearly Rs 1.4 lakh crore is yet to be paid.
It is due to the mammoth size of the AGR dues that the Department of Telecom (DOT), after Cabinet's approval, had decided to seek a staggered payment timeline stretching across 20 years. The DOT had provided for an interest rate of 8 percent for staggered payment. The likes of Bharti Airtel and Vodafone Idea had begun by pitching for the government's 20-year formula, but sought at least 15 years for the payment.
And there was good reason for seeking to pay in tranches. Bharti Airtel has so far paid Rs 18004 crore against a total demand of Rs 43989 crore, leaving the balance to be paid at Rs 25985 crore. The figures are bigger for Vodafone Idea. It has paid Rs 7854 crore against a demand of Rs 58,254 crore, leaving a balance of Rs 50400 crore that is yet to be paid.
As part of the AGR proceedings, SC had also raised concerns about nearly Rs 39000 crore of AGR dues recoverable from telcos under insolvency. Of particular concern to the SC were R.Comm, Aircel and Videocon. R.Comm’s AGR dues are Rs 25199 crore, while that of Aircel is Rs 12389 crore. AGR dues sought from Videocon are worth another Rs 1376 crore.
The Justice Arun Mishra-led bench had expressed concern that under the current IBC regime, the AGR dues would be “wiped out”. The fears stemmed from how under the IBC’s waterfall mechanism, AGR dues would be classified as operational dues, falling behind the banks, in the pecking order of getting paid. Even the RPs for R.Comm and Aircel had admitted in the SC, that the govt would get little beyond 1 percent of the AGR demand.
The SC had questioned the merit of consigning the AGR dues as operational debt under the waterfall mechanism of IBC. Justice Mishra had also noted that there was a need for dues payable upon the use of public assets like spectrum, to be the placed ahead of banks’ dues.
Justice Arun Mishra had also proposed, during the hearing, to make Jio and Airtel liable for AGR dues of insolvent telcos, with who they might have shared or traded spectrum.
Importantly, DOT also stated on affidavit, that it was in the “process” of ascertaining additional liabilities against Jio and Bharti, on account of the shared and traded spectrum. Telcos had clarified that no demand had been raised yet by the DOT, and that they would have the liberty to contest any additional demands before the TDSAT.
IN 2016, R.Comm shared over 60 MHz of spectrum in the 800 MHz band in 21 LSAs with Jio. In the same year, R.Comm traded 47.50 MHz (PAIRED) in 800 MHz band to RJio.
Meanwhile, Aircel had no spectrum sharing agreement. But, in 2016, Aircel traded 160 MHz of spectrum in 2300 MHz (20 MHz each in 8 LSAs) to Airtel.
Videocon traded 30 MHz quantum in 1800 MHz band, which is its entire spectrum holding, to Bharti Airtel in 2016.
In another concern, SC had also red-flagged the sale of spectrum under the IBC process. The SC had observed that spectrum was a public asset and cannot be owned and sold under the IBC process. The SC had noted that the spectrum trading guidelines may allow for the sale of the spectrum but questioned if the same was permissible under the IBC.
Banks of the insolvent telcos had responded to the SC’s fears by confirming that the telcos didn’t own the spectrum and were only looking to sell the right to use the spectrum. Banks also argued that the licence agreement clearly recognised spectrum as an asset and that any move to destabilize this understanding would lead to banks refusing to lend any more to telcos, crippling the sector.