Going forward, the ruling is also expected to alter credit assessment frameworks, with lenders likely to reassess the nature of security available while extending loans to telecom companies, bankers said.
A senior banker, speaking on condition of anonymity, said that with this ruling, the recovery from the two corporate insolvency cases — Aircel and Reliance Communications — will suffer. “Whatever the prospect of recovering something was there, that is gone now,” he said, adding that banks will now not be able to recover much.
Aircel had bank dues of over Rs 13,500 crore, while Reliance Communications had dues of over Rs 50,000 crore.
The person also said that for future funding towards telecom companies, this aspect (spectrum cannot be considered a corporate asset) will be a key consideration, as the most valuable security (spectrum) will no longer be available. “Lenders will have to assess what alternative security can be considered for the loan; otherwise, it will become an unsecured exposure,” the banker said.
This is likely to weigh on the fundraise of Vodafone Idea as well, which is looking to raise around Rs 35,000 crore in debt funding from banks and other sources. Banks are evaluating the company’s proposal and no final decision has been reached as far as fresh lending to the company is concerned.
The SC ruling will have some bearing on the company’s fund raise because security is an important part to some extent, said a senior banker, adding that nothing has been decided yet, as the numbers are getting crystallised. “The teams are talking to each other. So, we will let that happen and then talk to all the banks,” he said.
On Friday (February 13), a bench of Justice P S Narasimha and Justice A S Chandurkar, in its ruling, said that, “We hold that spectrum allocated to TSPs (telecom service providers) and shown in their books of account as an ‘asset’ cannot be subjected to proceedings under Insolvency and Bankruptcy Code, 2016.”
“We could demystify the legal challenge by first understanding spectrum as a material resource, precisely as what our Constitution refers to as the material resource of the community,” the two-judge bench ruling stated.
The decision came in the insolvency proceedings of Aircel and Reliance Communications (RCom), where lenders had sought to monetise spectrum to recover their dues. The verdict was delivered on a batch of petitions filed by State Bank of India and the two insolvent telecom operators, challenging a 2021 order of the National Company Law Appellate Tribunal (NCLAT), which had held that spectrum could be transferred or sold under a resolution plan only after clearing all outstanding government dues.
