IBC Shall Prevail Over TRAI Act, Any Penalty Imposed By TRAI To Be Recovered As Per Scheme Of IBC: NCLAT

Brief Facts

The Appellant is a regulator constituted under Section 3 of the Telecom Regulatory Authority of India Act, 1997 (for short the “1997 Act”). The Appellant in exercise of jurisdiction under the 1997 Act has framed Regulations namely – Telecommunication Consumers Education and Protection Fund Regulations, 2007.

The Appellant on 10.08.2009 directed all cellular mobile service providers, to submit their compliance report in respect of parameters specified in Regulation 5 of Quality of Service Regulations on quarterly basis in the specified format.

The Appellant after giving opportunities and after issuing show cause notice, imposed financial disincentives totaling to Rs.85,10,000/-. The Respondent vide letter dated 29.11.2017 discontinued voice services to all existing subscribers w.e.f. 29.12.2017.

The Appellant issued direction on 19.01.2018 seeking refund of the unspent balance of the prepaid mobile subscribers who ported their numbers through the recipient operators, to whose network the subscriber have ported and process the refund subscribers, who do not wish to port out their mobile numbers or are not able to port out by 31.01.2018. The financial disincentive of Rs.1,60,000/- was further imposed on 17.04.2018.

The Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor – Reliance Telecom Ltd. commenced on 15.05.2018 on an application filed by Ericsson India Pvt. Ltd. During the CIRP of the Corporate Debtor, the Appellant filed an IA No.88 of 2020 with the NCLT, seeking a direction against the RP to ascertain the unspent balance and security deposit payable to the subscribers and make provisions for the same in the Resolution Plan and further direction against the RP to allow the payments of statutory dues amounting to Rs.85,10,000/- to the Appellant. The RP filed affidavit in reply to the IA, which IA was heard by the Adjudicating Authority and allowed by order dated 05.12.2023, which is under challenged in the Appeal.

Contentions

The appellant submitted that Adjudicating Authority committed error in treating security balance of post-paid subscribers and unspent balances of pre-paid subscribers of the company and financial disincentive levied by the Appellant as 'operational debt', which decision is not in accordance with law.

• That security deposit balance of postpaid subscribers and unspent balances of pre-paid subscribers of the Company are held by the telecom service provider, in which the beneficial interest therein continues to vest with the subscribers till the service is actually rendered.
• That As per Explanation to Section 18(1)(f) of the IBC the above amount cannot be appropriated by the Respondent and used in the CIRP as the beneficial interest therein never came to be vested in the Respondent and that in order to maintain its telecom license, the Respondent undertook to refund these amounts before and after commencement of CIRP. The amounts, therefore, ought to be treated as CIRP costs in terms of Section 5(13)(c) of the IBC.
• That TRAI is a special law governing all aspects of the provision of telecommunications services in the country, whereas the IBC is a general law governing insolvency and is not specific to telecom companies.

Per contra, the respondent submitted that security deposits and unspent balances of pre-paid subscribers were not held in trust by the CD. The obligation to refund under Regulation 14(2) of MNP Regulations is a debt in terms of clause 3(11) of the IBC, which defines 'debt' as a liability or obligation in respect of a claim, which is due from any person and includes the financial debt and operational debt. The above amounts never held by the CD in trust; no separate trust account was created or opened by the CD to keep the amounts collected from the subscribers.

• That financial disincentive is an operational debt in terms of the provisions of the Code. The submission of the Appellant that Act being a special law, would prevail over the provisions of IBC cannot be accepted. The Hon'ble Supreme Court has already held that Section 238 of the IBC has overriding effect over any other law. Hence, IBC shall prevail over the provisions of TRAI Act.
• That no claim was filed by the Appellant and the RP after looking into the books of accounts and financial statements has admitted the claims as 'operational debt'. The Appellant did not file any claim, but filed an application to recover the pre-CIRP dues to circumvent the process of IBC, which is not permissible.

NCLAT's Analysis

At the outset, the tribunal rejected the contention of the appellant that TRAI being a special statute must prevail over the IBC and referred to the Supreme Court judgment in A. Navinchandra Steels Pvt. Ltd. vs. SREI Equipment Finance Ltd. & ors. (2020) wherein it was held that IBC is a special statute, which must prevail in the event of conflict due to a non-obstante clause contained in Section 238.

The tribunal further observed that the disincentive, which has been imposed by the TRAI on the Corporate Debtor were in nature of penalty for non-compliance of Regulations 5A and 9A of Quality of Service Regulations 2009.

The tribunal further observed that the payment towards the disincentive as imposed by the Appellant was liability of the Corporate Debtor, which remained outstanding on the date of commencement of the CIRP. Hence, the said amount has to be paid as per the Resolution Plan, in accordance with the IBC process therefore the AA was right in treating this amount as an operational debt.

The tribunal further observed that the security deposit, which was given by post-paid subscribers, which remained unpaid is an outstanding liability of the Corporate Debtor. The Corporate Debtor, thus has accounted for liabilities, which includes security as well as statutory dues. It was held that there was no error in the order of the Adjudicating Authority, accepting the said outstanding dues as 'operational debt', to be paid as per the provisions of the Resolution Plan.

The tribunal further observed that there is no material on record to accept the submission of the Appellant that the said amount of security deposit balances of post-paid subscribers and unspent balances of prepaid subscribers be accepted as CIRP cost.

The tribunal concluded that no grounds have been made out to interfere with the impugned order in these Appeal(s). Accordingly, the Appeal(s) were dismissed.

Case Title: Telecom Regulatory Authority of India v. Reliance Communication Ltd. & Ors.

Case Reference: Company Appeal (AT) (Insolvency) No.355 of 2024

Judgment Date: 06/11/2024

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