2024 (11) TMI 477 - AT - IBC

Acsertainment of unspent balance and security deposit payable to the subscribers and make provisions for the same in the resolution plan - payment of statutory dues - HELD THAT - It appears that it having not filed a claim a direction was sought that RP should ascertain the unspent balance and security deposit payable to the subscribers and make provisions for the same in the Resolution Plan and further direction was sought to allow the payment of statutory dues amounting to Rs.85, 10, 000/- to the Applicant. The above were the only two prayers made in the application. The RP has filed an affidavit in reply. The RP in the reply affidavit has pleaded that Resolution Plan has already been approved by the CoC. It is pleaded by the RP that the Applicant has not filed any claim inspite of letter written by the RP to the Applicant on 03.07.2019 asking the Appellant to file claim for any outstanding dues for period prior to CIRP. It was pleaded that Applicant cannot seek refund of any monies under an application filed before the Tribunal without following the due process prescribed under the Code. 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. The prayer of the Appellant as made in IA 88 of 2020 which is levied as disincentive dehors the IBC process cannot be accepted. The Adjudicating Authority has rightly treated the liabilities as operational debt . The learned Counsel for the Appellant has further contended that amount of security deposit balance of post-paid subscribers and unspent balance of prepaid subscribers of the company are held in trust by the Corporate Debtor and they are not part of the assets of the Corporate Debtor hence the said amount are to be returned. There are 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 learned Counsel for the Appellant has relied on judgment of the Gujarat High Court in Baroda Spg. Wvg. Mills Co. Ltd. vs. Baroda Spg. Wvg. Mills Co-operative Credit Society Ltd. Ors. 1975 (4) TMI 61 - HIGH COURT OF GUJARAT and a judgment of Madras High Court in Kodak Ltd. vs. South Indian Film Corporation 1937 (1) TMI 18 - MADRAS HIGH COURT in support of his submission that beneficial ownership in the balance security deposit and unspent balances of prepaid subscribers are the amounts held by the CD only under a constructive trust. In the above case the Gujarat High Court had occasion to consider Sections 456 511 and 530 of the Companies Act. In the facts of the above case the amount which was in the hands of the company which came to it by way of deductions from the wages and salary payable to its employees on the requisition of the society of which the employees were the members. 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. There is no foundation laid in the application which was filed by the Appellant before the Adjudicating Authority regarding the CIRP cost and the submissions which are sought to be advanced in these Appeal(s) cannot be accepted it being not founded on any relevant materials. There are no grounds have been made out to interfere with the impugned order in these Appeal - appeal dismissed.

Summary

Issues Involved:

1. Classification of security deposits and unspent balances as 'operational debt'.
2. The applicability and precedence of the Telecom Regulatory Authority of India (TRAI) Act over the Insolvency and Bankruptcy Code (IBC).
3. Treatment of financial disincentives imposed by TRAI as operational debt.
4. Whether the amounts held by the Corporate Debtor were under a trust or contractual arrangement.
5. The treatment of security deposits and unspent balances as CIRP costs.

Detailed Analysis:

1. Classification of Security Deposits and Unspent Balances as 'Operational Debt':

The Appellant argued that the security deposit balance of post-paid subscribers and unspent balances of pre-paid subscribers should not be treated as 'operational debt'. They contended that these amounts are held by the telecom service provider under a 'constructive trust' or 'contractual arrangement', with beneficial interest continuing to vest with the subscribers until services are rendered. The Adjudicating Authority, however, classified these amounts as 'operational debt', stating that they are liabilities outstanding in the books of the Corporate Debtor and should be paid into the Telecommunication Consumers Education and Protection Fund as per the applicable regulations. The Tribunal upheld this classification, noting that the amounts were not held in trust and were used in the business operations of the Corporate Debtor.

2. Applicability and Precedence of TRAI Act over IBC:

The Appellant claimed that the TRAI Act, being a special law governing telecommunications, should prevail over the IBC, a general law for insolvency. However, the Tribunal rejected this argument, citing Section 238 of the IBC, which provides that the IBC has an overriding effect over other laws. The Tribunal referred to the Supreme Court's judgment, which clarified that the IBC, as a special statute with a non-obstante clause, prevails in the event of conflict with other laws, including the TRAI Act.

3. Treatment of Financial Disincentives Imposed by TRAI as Operational Debt:

The Appellant sought priority payment of Rs.85,10,000/- imposed as financial disincentives for non-compliance with TRAI regulations. The Adjudicating Authority treated these disincentives as 'operational debt', noting that they are penalties for non-compliance and pertain to the pre-CIRP period. The Tribunal agreed with this classification, stating that the payment of such disincentives must be addressed within the Resolution Plan as per the IBC process.

4. Whether the Amounts Held by the Corporate Debtor Were Under a Trust or Contractual Arrangement:

The Appellant argued that the security deposits and unspent balances were held under a trust and should not be included in the CIRP process. The Tribunal, however, found no evidence of a trust arrangement, noting that the Corporate Debtor utilized these amounts in its business operations without any statutory restriction. The Tribunal emphasized that the amounts were liabilities recorded in the Corporate Debtor's financial statements and should be treated as operational debt.

5. Treatment of Security Deposits and Unspent Balances as CIRP Costs:

The Appellant alternatively argued that the amounts should be treated as CIRP costs under Section 5(13)(c) of the IBC. The Tribunal rejected this submission, stating there was no material evidence to support the claim that these amounts were incurred as costs in running the business during the CIRP. The Tribunal noted that the Appellant's application did not provide a foundation for treating these amounts as CIRP costs.

Conclusion:

The Tribunal dismissed the Appeals, affirming the Adjudicating Authority's decision to classify the security deposits, unspent balances, and financial disincentives as operational debt. The Tribunal upheld the precedence of the IBC over the TRAI Act and found no grounds to treat the amounts as trust funds or CIRP costs. The Appeals were dismissed with no order as to costs.