NCLT Mumbai: Unspent Balance And Refundable Security Deposit Of Prepaid And Postpaid Subscribers Constitutes 'Operational Debt' (Other Than Government Dues)

Background Facts

Reliance Telecom Ltd. ('Corporate Debtor') is engaged in the provision of Mobile Telephony Services in terms of the license granted by the Department of Telecommunications (DOT), Government of India. On 15.05.2018, the CIRP of the Corporate Debtor commenced and stayed for some time after its resumption on 7.5.2019 upon vacation of the stay. The Applicant was requested to file its claim before the Interim Resolution Professional on 09.05.2019 and by the Resolution Professional ('RP') on 3.7.2019. On 04.03.2020, the Resolution Plan was approved by the Committee of Creditors ('CoC') which is pending approval as per Section 30(2) of the IBC.

The Telecom Regulatory Authority of India ('TRAI'), the Applicant is a statutory body and has passed six Orders under the Standards of Quality of Service for Basic Telephone Service and Cellular Mobile Telephone Service Regulations, 2009 ('QoS Regulations'). These Orders were passed during the period from 26.12.2016 to 31.07.2018 against the Corporate Debtor to deposit sums as financial disincentives under the Orders, which aggregates to Rs. 81.50 Lakhs and remains unpaid on the Insolvency Commencement Date.

All these Orders, except the Order dated 31.07.2018, were passed before the Insolvency Commencement Date, and the Order dated 31.07.2018 levying financial disincentives amounting to Rs. 2 Lakhs was passed during the stay period when the CIRP was stayed.

The Corporate Debtor had also collected consideration from its subscribers under its “Prepaid Plans”, however, due to the termination of its licenses, it closed its operations in the Telecom Circle of Assam, Bihar, Himachal Pradesh, Kolkata, Madhya Pradesh, North East. Orissa, and West Bengal.

TRAI filed an application to direct the RP to refund the unspent balances under plans purchased by its subscribers which were either to be refunded as per the License Agreement with DoT, or in alternate to be contributed to the Telecommunications Consumers Education and Protection Fund. Further, it also prayed that the NCLT Mumbai must pass an order directing the RP to allow the payment of its Rs. 85.10 Lakhs statutory dues.

NCLT Verdict:

The NCLT Mumbai allowed the application and held that the unspent balance of Prepaid Subscribers and the Refundable Security Deposit of Postpaid Customers shall be treated as Operational Debt (other than Government dues) under IBC concerning telecom insolvency.

The Tribunal observed that the application was filed before the CoC approved the Resolution Plan. It observed that as per the RP, there was no claim filed by the Applicant, however, no dispute exists that the Security Deposit from Subscribers and Unspent Balance of Prepaid Customers are duly accounted for in the books of accounts as per the accrual system and recognition of liabilities principles.

The Tribunal, therefore, by placing reliance on Puneet Kaur vs. K V Developers Pvt. Ltd., observed that since these liabilities of Refundable Security Deposit, and unspent balance of Prepaid Subscribers were duly reflected in the books of account of the Corporate Debtor, and the only handicap pleaded by the RP is the unavailability of the subscriber wise details thereof, these liabilities can not be said to have extinguish till the Resolution Plan is approved by the Bench in terms of Section 30(2) of the IBC. Further, there is no dispute that these amounts were refundable on account of the sudden closure of the Corporate Debtor's operations before the CIRP commencement.

NCLT also held that these liabilities have been collected in excess of the rates prescribed by TRAI. Further, since these amounts remain payable as of the date of commencement of CIRP, and are outstanding on the books of the Corporate Debtor as liability in aggregate is liable to be paid into Telecommunication Consumers Education and Protection Fund following Regulation 3 of Telecommunication Consumers Education and Protection Fund Regulations, 2007. Accordingly, the amount of the Security Deposit, and the unspent balance of Prepaid Subscribers shall be admitted as 'Operational Debt'.

Sub-regulation (1) of Regulation 3 of the Telecommunication Consumers Education and Protection Fund Regulations, 2007 reads as:– “Without prejudice to any order or direction of the Appellate Tribunal or any court or other tribunal or any other provision of the Act or any other law for the time being in force, every service provider, who has collected from its subscribers any amount in excess of,---

i. The rates of telecommunication service determined under any regulation or order or direction made under the Act, in a case where the rates have been determined and notified under subsection (2) of section 11 of the Act; or

ii. The rates announced by the service providers, in a case where the rates have been notified as rates under market forbearance under sub-section (2) of section 11 of the Act which has not been refunded to the concerned subscribers and lying as unclaimed with the service providers, shall, ---

a) In a case where a direction has been made by the Authority under section 13 or any other provisions of the Act, within a period of thirty days, after being so directed, transfer the excess amount so collected to the credit of the Telecommunication Consumers Education and Protection Fund, or

b) In case where no direction has been made by the Authority under section 13 or any other provisions of the Act, within a period of thirty days, after expiry of twelve months from the date on which such amount became due for refund (including interest thereon, if any,) or after the expiry of the period of limitation specified under 3 any law for the time being in force for refund of such amount, whichever is later, transfer the excess amount so collected to the credit of the Telecommunication Consumers Education and Protection Fund.”

In conclusion, the Tribunal highlighted by placing reliance on the State Tax Officer vs. Rainbow Papers Ltd. that the amount demanded on account of financial disincentive levied by TRAI constitutes Operational Debt other than Government dues since the dues are in nature of fine for non-maintenance of quality standards only.

Case Title: Telecom Regulatory Authority of India Vs. Reliance Telecom Ltd.

Case No.: I.A. 88 of 2020 in C.P. (IB)No.1386/MB/2017

Counsel for the Applicant: Mr. Kanishk Khetan, Advocate

Counsel for the Respondent: Mr. Gaurav Joshi, Advocate

Click Here To Read/Download Order