The Supreme Court has ruled that telecom spectrum is a material resource of the community. Therefore, the Insolvency and Bankruptcy Code, 2016 (IBC) cannot determine its ownership or control.
A Bench of Justice P.S. Narasimha and Justice Atul Chandurkar delivered the judgment in appeals arising from insolvency proceedings involving Aircel and Reliance Communications. The Court held that spectrum allocated to telecom service providers (TSPs), even if shown as an “asset” in their books, cannot be subjected to insolvency proceedings under the IBC.
Justice Narasimha, while pronouncing the verdict, stated that spectrum must subserve the common good. He emphasised that ownership and control must remain secured for citizens. “IBC cannot be the guiding principle for restructuring the ownership and control of spectrum,” he observed.
Key Issue Before the Court
The Court examined whether telecom licensees, when asked by the Department of Telecommunications (DoT) to clear licence dues, could claim protection under the moratorium imposed during a corporate insolvency resolution process (CIRP).
The appeals challenged a ruling of the National Company Law Appellate Tribunal (NCLAT). NCLAT had held that although spectrum belongs to the Union as a public resource, the right to use it constitutes an intangible asset of the corporate debtor. It further held that such right forms part of the insolvency estate and may be dealt with during CIRP.
However, NCLAT clarified that transfer of spectrum usage rights cannot occur unless all past licence dues owed to the Government are cleared. It reasoned that insolvency proceedings cannot dilute the Government’s recovery under the waterfall mechanism in Section 53 of the IBC.
The Union of India challenged this interpretation before the Supreme Court.
Submissions of the Union Government
Attorney General R. Venkataramani argued that spectrum is a natural resource vested in the Union under Section 4 of the Indian Telegraph Act, 1885 and Article 297 of the Constitution.
He submitted that the IBC is procedural in nature. Therefore, Section 238 of the IBC cannot override statutory controls governing natural resources.
Referring to Sections 18 and 36 of the IBC, he contended that third-party property stands excluded from the insolvency estate. Since ownership of spectrum always remains with the Union, it cannot form part of the corporate debtor’s assets. He also disputed the classification of spectrum dues as operational debt.
Submissions of the Creditors and Resolution Professionals
On the other hand, the Committee of Creditors and the resolution professionals argued that although ownership remains with the Government, the licence grants a transferable right to use spectrum, subject to regulatory approval.
They maintained that this right qualifies as an intangible asset under accounting standards. Lenders extend credit on that basis. They relied on Section 5(21) of the IBC and pointed out that the DoT itself filed claims as an operational creditor.
They also invoked Section 14 of the IBC. According to them, termination or suspension of the licence during CIRP would defeat the objective of preserving the corporate debtor as a going concern.
Supreme Court’s Analysis
The Court interpreted Section 4 of the Indian Telegraph Act, 1885. It held that the Central Government enjoys exclusive privilege to establish, maintain and operate telegraphs. The Government may grant licences on terms it considers appropriate.
Although a telecom licence has contractual elements, it flows from sovereign statutory power. It also remains subject to constitutional limitations.
The Court clarified that a licence does not transfer ownership of spectrum. It grants only a limited, conditional and revocable right to use spectrum for a specific purpose and duration. This right remains subject to statutory compliance, licence conditions and public interest.
Importantly, the Bench held that the IBC cannot restructure or override the statutory framework governing natural resources.
“The statutory regime under IBC cannot be permitted to make inroads into telecom sector and re-write and restructure the rights and liabilities arising out of administration, usage, and transfers of spectrum which operate under exclusive legal regime concerning telecommunications. The disharmony caused by applying IBC to the telecom sector which operates under a different legal regime was never intended by the Parliament,” the Court observed.
Accounting Treatment Does Not Decide Ownership
The Court addressed the argument that spectrum appears as an intangible asset in company balance sheets.
It noted that accounting recognition under Indian Accounting Standards depends on control over economic benefits and measurable cost. However, such recognition does not determine legal ownership.
“Recognition of spectrum licensing rights as an intangible asset in the balance sheet is not determinative of recognition/transfer of ownership of the spectrum to TSPs. It only indicates control over the future economic benefits flowing from the grant of the right to use the spectrum,” the Court held.
No Control by Resolution Professional
The Court further ruled that a resolution professional cannot assume control or custody of spectrum under Section 18 of the IBC. Spectrum does not belong to the corporate debtor and is not transferable property.
It also rejected the argument that spectrum usage rights create a security interest in favour of lenders through a Tripartite Agreement. Even if such agreements allow conditional transfer upon default, any transfer remains subject to the licensor’s approval and regulatory oversight.
The Court emphasised that the licence remains a regulated privilege, not a freely alienable asset.
Final Conclusion
The Bench concluded:
“We hold that Spectrum allocated to TSPs and shown in their books of account as an ‘asset’ cannot be subjected to proceedings under Insolvency and Bankruptcy Code, 2016.”
The case is titled State Bank of India v. Union of India & Ors., along with connected matters.
