India’s communication ministry today said that there was no possibility of an operator being asked to pay the dues of another operator simply because it has entered into a spectrum sharing agreement with the other.
This was clarified by Minister of State Sanjay Dhotre in reply to a question by MP K Subbarayan on whether the government plans to recover RCom’s dues, around Rs 25,000 cr, from Reliance Jio, which is still using a chunk of RCom’s spectrum.
The minister said such a possibility did not arise because AGR dues are calculated on the revenue generated by a firm (and is not a tax or levy on spectrum), the dues are not shared when the spectrum is shared.
“..the past dues of sharing operator/licensee [RCom] covers AGR (adjusted gross revenue) for the spectrum used by holder of licence. Certain TSPs (telecom service providers) such as Reliance [Jio] came into existence later on, and as observed herein above, the liability of such operator of the AGR, would only be to the extent it has used the said spectrum. Shared operator TSPs cannot be saddled with the liability to pay the past dues of AGR of licensee, that have shared the spectrum with the original licensees,” Dhotre said.
The stand is a positive for Reliance Jio, as well as for any other company that has entered or plans to enter into a spectrum sharing agreement with any other company.
If, on the contrary, the government had asserted that by using/sharing someone else’s spectrum, one ends up being liable to pay that company’s levies and dues, it would have been a major dampener for sharing agreements across the board.
While the government’s stand on spectrum sharing is logical, it still leaves open the question of what happens in case the spectrum is ‘sold’ and not ‘shared’.
Besides sharing spectrum with Jio, Anil Ambani’s RCom had also ‘sold’ (traded) some spectrum to Reliance Jio. The question of liability in this case was not specifically addressed by the minister.
During the hearing of the AGR case in the Supreme Court, for example, the court indicated that the buyer was on the hook for all of the seller’s dues.
“Trading guidelines say that seller of spectrum shall satisfy all pending dues, before sale of spectrum. Our understanding is that upon non-payment of dues by seller, the trading guidelines transfer the burden on the buyer,” the court had noted.
The court’s logic, however, could have unintended consequences. For example, can an equipment vendor like Ericsson also claim that Jio must now pay RCom’s dues to it, because Jio purchased some spectrum from RCom? Similarly, if the government can make such a claim, what stops banks from asking Jio to pay back all of RCom’s bank loans as well?
There is also the larger principle. Just because A purchased something (spectrum or towers or fiber) from B, does B automatically become liable to pay off all of A’s debts and liabilities? Does purchase of an asset equal the assumption of all the liabilities of the seller by the buyer?
A more common sense interpretation of the spectrum trading guideline could be that when spectrum is sold by A to B, B becomes liable to pay off all the dues linked to the asset being sold.
In other words, when it’s spectrum that is being sold, B becomes liable for paying off levies like the spectrum usage charges — including any arrears, but not all of A’s levies. If it’s a building that is being sold, then any property tax due on that building gets transferred and so on.
However, common sense and logic can often have little to do with how laws (and liabilities) are interpreted in India.
Today’s statement by Dhotre fails to address the issue of sale, possibly because MP Subbarayan referred to Jio continuing to use RCom’s spectrum and did not specifically refer to the sale.
The answer to the sale question will also have implications for Airtel, which has similarly purchased spectrum from two bankrupt operators, Videocon and Aircel.
On this topic too, the court seems to have made observations that somehow seems to conflict with common sense. During the hearing, the court is reported to have said that the government should take back the spectrum allocated to a company that has gone bankrupt if it can not clear its past dues.
While this is unlikely to cause much legal confusion when applied to spectrum that is still in the bankrupt company’s name (whether subjected to sharing or not), it becomes more complicated when applied to spectrum that has already been sold by the company to another player, with the approval of the government.
To use the building analogy: ‘A’ buys the lease on a building from ‘B’ with the approval of the owner and after paying the full price to B. But later, the owner realizes that B still owes it some money in the form of water charges and B is not to be found. Can the owner now ask A to settle B’s water dues and threaten to cancel the lease if he doesn’t?