Subscriber Deposits, Prepaid Balances Must Be Treated As Operational Debt In Dishnet CIRP: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has held that security deposits of post-paid subscribers and unspent balances of prepaid subscribers in the insolvency proceedings of Dishnet Wireless Ltd must be treated as operational debt under the Insolvency and Bankruptcy Code.

"We have no hesitation in holding that the amount of security deposit balances refundable to post paid subscribers and the amount of un-spent balances in prepaid plans are the money collected in excess of the rates prescribed by TRAI.”, a coram of Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt observed.

The tribunal also observed that financial disincentives imposed by the Telecom Regulatory Authority of India (TRAI) are in the nature of operational debt, though only liabilities existing on the insolvency commencement date can be admitted in the resolution process.

"As regards demand on account of financial disincentive levied by TRAI, we are of the considered view that the said amount is in the nature of Operational Debt other than Government dues, as these dues represent a sort of fine or penalty levied upon the Corporate Debtor for non-maintenance of quality standards. The disincentive imposed by the TRAI on the Corporate Debtor being in the nature of penalty for non-compliance of QoS Regulations, 2009, the said amount has to be dealt with in accordance with the Resolution Plan.” the tribunal observed.

The tribunal partly allowed an application filed by TRAI on 10 December 2019 seeking directions against the resolution professional of Dishnet.

Dishnet Wireless was admitted into the corporate insolvency resolution process under Section 10 of the Insolvency and Bankruptcy Code on 19 March 2018. The company is a wholly owned subsidiary of now-defunct Aircel Ltd. Vijaykumar V. Iyer was thereafter appointed as the resolution professional.

TRAI submitted that the corporate debtor had surrendered telecom licences in several service areas. It said that many subscribers were forced to port their mobile numbers to other operators. According to the regulator, this resulted in subscribers leaving behind unspent prepaid balances and refundable security deposits, which were required to be returned in accordance with telecom regulations.

TRAI also sought admission of Rs. 2.53 crore as statutory dues arising from financial disincentives imposed for violation of Quality of Service regulations. These penalties were imposed through orders passed between 19 December 2017 and 2 November 2018.

The resolution professional contended that such claims ought to have been filed during the insolvency claims process. He also argued that most of the penalties had been imposed after commencement of CIRP, when the moratorium under Section 14 of the Code was in force.

The Tribunal held that only liabilities existing on the insolvency commencement date can be recognised in CIRP. It further held that regulatory penalties imposed after the commencement of insolvency proceedings cannot be treated as valid claims for the purpose of the resolution process.

The tribunal accordingly partly allowed TRAI's application.