The adjusted gross revenue (AGR) issue refuses to die in India.

The question of who should pay the AGR dues of the bankrupt service providers gained prominence recently when the National Company Law Appellate Tribunal (NCLAT) ruled last week that the spectrum can be transferred as part of insolvency resolution, but only after government dues are cleared.

The order was made regarding Aircel, in a case where NCLAT approved a INR66300 million (US$887 million) resolution plan by the UV Asset Reconstruction Company (UVARCL).

Figure 1: Hobson's choice: Operators have little room to maneuver when it comes to AGR, other than the Supreme Court.
(Source: Blogtrepreneur / CC BY.)

Aircel had to transfer all assets to UVARCL, including spectrum, as part of the company's bankruptcy proceedings.

However, this was challenged by the Department of Telecommunications (DoT), claiming spectrum is only leased to the service provider and can be taken back where dues are not paid.

Rock and a hard place

While this order is about Aircel's insolvency, it will affect Reliance Communications as well, which also has outstanding dues.

The ruling leaves little option other than liquidation for both companies – either that or mounting a challenge in the Supreme Court. Aircel and UVARCL have decided to approach the Apex Court to resolve this matter.

If Aircel and RCom go for liquidation, the banks owed will recover nothing – that is State Bank of India, China Development Bank, Bank of Baroda, Canara Bank, and other lenders.

Three defunct telcos – Aircel, Videocon and Reliance Communications – owe INR123.89 billion ($1.65 billion), INR13.760 billion ($183.88 million), and INR260 bn ($3.4 billion), respectively, as part of AGR payments.

Shifting responsibilities

The DoT is also demanding Airtel pay part of Videocon's dues for the spectrum it had purchased from the company.

However, Airtel has refused to make this payment, saying the fees came to light only after the completion of the deal, so the seller, Videocon, is liable to clear them.

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Confusing and complex regulatory requirements and never-ending charges are some of the major issues faced by Indian telcos.

The AGR ruling announced in 2019, which made it mandatory to include service providers' non-telecoms revenue in the profits, has led to massive litigation. There is a lack of clarity on the amount operators owe the government. Airtel and Vodafone Idea have raised these concerns, since their calculations are vastly different from those of the government.

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— Gagandeep Kaur, contributing editor, special to Light Reading