In a landmark verdict that settles the conflict between India’s insolvency framework and the sovereign regulation of natural resources, the Supreme Court has ruled that spectrum allocated to Telecom Service Providers (TSPs) cannot be subjected to proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The Apex Court held that spectrum is a natural resource held by the government in public trust, and while it may be recorded as an “intangible asset” in a company’s books for accounting purposes, TSPs do not possess the necessary ownership title to subject it to insolvency resolution or liquidation.
The Division Bench, comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar, delivered the judgment in a batch of appeals led by the State Bank of India v. Union of India, setting aside the contrary view that spectrum could be treated as an asset of the corporate debtor under the IBC.
The primary legal question before the Supreme Court was whether TSPs, upon defaulting on license dues and invoking the IBC for voluntary corporate insolvency, could claim the moratorium under the Code to restructure their assets, specifically the spectrum allocated to them. The Court had to determine if the rights to use spectrum constituted an “asset” belonging to the corporate debtor under Section 18 of the IBC, thereby allowing it to be part of the resolution process, or if it remained a sovereign resource governed exclusively by telecommunication laws.
In its verdict, the Court concluded that “IBC cannot be the guiding principle for restructuring the ownership and control of spectrum.” It held that the statutory regime of the IBC cannot make inroads into the exclusive legal regime concerning telecommunications.
Background of the Case
The litigation stems from the insolvency proceedings of the Aircel Group entities—Aircel Limited, Aircel Cellular Limited, and Dishnet Wireless Limited. These entities were granted Unified Access Service Licences (UASL) by the Department of Telecommunications (DoT) and had acquired rights to use spectrum in various bands (900 MHz, 1800 MHz, and 2100 MHz) through auctions.
When the TSPs failed to pay substantial license fees and the DoT attempted recovery, the companies filed for voluntary corporate insolvency under Section 10 of the IBC. The National Company Law Tribunal (NCLT), Mumbai Bench, admitted the applications in March 2018, imposing a moratorium that stalled the government’s recovery efforts. The DoT submitted a claim of ₹9,894.13 crores.
Subsequently, a resolution plan was approved by the Committee of Creditors (CoC) and sanctioned by the NCLT. The DoT challenged this before the National Company Law Appellate Tribunal (NCLAT). The NCLAT, in its impugned order, held that while spectrum is a natural resource, the right to use it constitutes an “intangible asset” of the TSP subject to insolvency proceedings. However, the NCLAT also ruled that spectrum trading guidelines required the clearance of government dues, effectively creating a conflict. This led to cross-appeals before the Supreme Court by the lenders (State Bank of India), the Resolution Professionals, and the Union of India.
Arguments of the Parties
Submissions on behalf of TSPs and Financial Institutions: Represented by Senior Counsels for the State Bank of India and various Resolution Professionals, the appellants argued that:
- Telecom licenses and the right to use spectrum constitute valuable “intangible assets” of the corporate debtor.
- Once recognized as assets, they fall within the exclusive domain of the IBC framework.
- Under Section 238 of the IBC, the Code prevails over inconsistent statutes or contractual arrangements, including the license agreements and Tripartite Agreements.
- The DoT is merely an “operational creditor,” and its dues should be settled as per the resolution plan. Conditioning the use of spectrum on the payment of past dues violates the statutory waterfall mechanism under Section 53 of the IBC.
Submissions on behalf of Union of India: The Attorney General, representing the DoT, contended that:
- Spectrum is a scarce, finite natural resource owned by the people of India, with the Union acting as a trustee (Public Trust Doctrine).
- The grant of a license under Section 4 of the Indian Telegraph Act, 1885, is a “limited, conditional and revocable privilege” and does not transfer proprietary rights or title to the licensee.
- Spectrum cannot be considered an “asset” under Section 18 of the IBC because the corporate debtor does not “own” it.
- Insolvency proceedings cannot be used to bypass statutory mandates or wipe off sovereign dues attached to the use of natural resources.
Court’s Analysis and Observations
Spectrum as a Natural Resource: The Court began by analyzing the nature of spectrum, reiterating principles from the 2G Case (CPIL v. Union of India) and Natural Resources Allocation, In Re. The Bench observed that spectrum is a “material resource of the community” and the State holds it as a cestui que trust (beneficiary of the trust) for the public.
“Natural resources belong to the people but the State legally owns them on behalf of its people and from that point of view natural resources are considered as national assets… The State is bound to act in consonance with the principles of equality and public trust.”
Nature of License: No Transfer of Ownership: The Court examined Section 4 of the Indian Telegraph Act, 1885, which vests the “exclusive privilege” of establishing telecommunication systems in the Central Government. The Bench clarified that a license is a contract but one that emanates from sovereign power.
Referring to the Bharti Airtel Ltd. case, the Court noted that licenses are in the nature of “largesse from the State.” It held that while TSPs record spectrum as an “intangible asset” in their balance sheets under Accounting Standard 26 (AS 26), this is merely to indicate control over future economic benefits and does not confer legal ownership required for the IBC.
“Mere recognition of spectrum licensing rights as an intangible asset by TSPs in the Financial Statements is not conclusive of their ownership… Even if the right to use spectrum exhibits property-like features… they merely represent different sticks in the bundle of rights and falls short of conferring complete ownership of the spectrum on TSPs.”
Inapplicability of IBC: The Court scrutinized Section 18(f) and Section 36(4) of the IBC, noting that the Code explicitly excludes assets owned by a third party in possession of the corporate debtor from the insolvency and liquidation estate. Since the TSPs do not have ownership title over the spectrum, the Court held it cannot be subjected to the IBC.
“Under the IBC framework, spectrum licensing rights is not a part of the pool of assets for insolvency or liquidation.”
Conflict of Statutes: Addressing the conflict between the IBC and telecommunication laws (Telegraph Act, TRAI Act), the Court applied the principle of harmonious construction. It observed that the telecom laws form a complete and exhaustive code. The Court remarked that applying the IBC to spectrum based on its accounting treatment would be legally flawed.
“Statutory interpretation adopted by the corporate debtors for applying IBC to the material resource of the nation… is like the tail wagging the dog… 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.”
Decision
The Supreme Court allowed the appeal filed by the Union of India (Civil Appeal No. 6546 of 2021) in part and dismissed the appeals filed by the State Bank of India and the Resolution Professionals.
The Court held:
“(A) 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 judgment definitively establishes that the commercial insolvency framework cannot override the sovereign’s right to control and regulate natural resources held in public trust.
Case Details:
- Case Title: State Bank of India v. Union of India & Ors. (and connected matters)
- Case Number: Civil Appeal No. 1810 of 2021
- Coram: Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar
