Telecom Spectrum Not A Restructurable Asset Under IBC: Supreme Court

The Supreme Court on Friday held that telecom service providers cannot use the moratorium provision under the Insolvency and Bankruptcy Code (IBC), 2016, to restructure or defer payment of licence and spectrum dues owed to the Department of Telecommunications (DoT) by treating spectrum as a corporate asset.

In Union of India vs State Bank of India, a Bench of Justices PS Narasimha and Atul Chandurkar ruled that material resources must be managed in a manner that serves the common good. The Court said that ownership and control of spectrum including the economic benefits derived from it, cannot be determined solely through the lens of corporate restructuring. A detailed copy of the judgment is awaited.

Spectrum Is Public Resource, Not Corporate Property

The case arose from insolvency proceedings involving Aircel Ltd., Dishnet Wireless Ltd. and Aircel Cellular Ltd., which had entered the voluntary corporate insolvency resolution process (CIRP) under Section 10 of the IBC.

The companies had acquired telecom licences in 2006 under Unified Access Service Licence (UASL) agreements and had also obtained spectrum through government auctions. During the CIRP, the right to use spectrum was treated as part of the corporate debtor’s assets, Bar & Bench reports.

The Union of India challenged this position. It argued that spectrum is a sovereign natural resource held by the government in trust for the people and cannot be treated as a corporate asset capable of restructuring under the IBC.

The dispute first reached the National Company Law Appellate Tribunal (NCLAT). The tribunal held that while spectrum is owned by the nation, the right to use it is an intangible asset of the licensee. It ruled that such rights could be subjected to insolvency proceedings and that licence dues and deferred spectrum payments qualify as operational debt under the IBC. However, it clarified that the spectrum cannot be used without payment of dues and that CIRP cannot be triggered to wipe out government liabilities.

IBC Cannot Override Telecom Law

The matter then came before the Supreme Court, which framed the core issue clearly: can telecom service providers, who are called upon to pay licence dues, invoke the moratorium under Section 14 of the IBC to restructure their assets when the asset in question is spectrum allocated through auction?

The Court said the answer depends on the legal character of spectrum. It described spectrum as a “material resource of the community” and placed its analysis within the constitutional framework that governs how such resources must be distributed to subserve the common good. Ownership and control of such resources, the Bench observed, must remain aligned with public interest.

The judgment was structured in three parts. First, the Court examined the legal implications of spectrum under telecom law. Second, it identified the legal issue of whether insolvency law could be used to alter ownership or control of spectrum. Third, it examined how assets are treated under the IBC and how the Code interacts with telecom statutes.

The Bench ultimately held that the IBC cannot be the guiding framework for restructuring ownership and control of spectrum. Insolvency law, it said, cannot override the statutory regime governing natural resources. It made it clear that spectrum cannot be treated as a freely transferable asset merely because a company has entered CIRP.

In effect, the ruling draws a firm line between corporate distress and sovereign control over natural resources. At a time when telecom companies are grappling with heavy dues, the Court’s message is unambiguous: public resources cannot become bargaining chips in insolvency proceedings.