Supreme Court Holds Telecom Spectrum Beyond Insolvency Process; Sets Aside NCLAT’s Treatment Of Spectrum As Corporate Asset

Legal Background

The Supreme Court of India has delivered a landmark ruling clarifying that telecom spectrum, though reflected as an intangible asset in the books of telecom companies, cannot be subjected to insolvency or liquidation proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The judgment arose from a batch of appeals led by State Bank of India against the Union of India concerning the insolvency of Aircel Group entities and the status of spectrum usage rights during Corporate Insolvency Resolution Process (CIRP). Aircel entities had entered CIRP after defaulting on substantial licence fees and spectrum usage charges payable to the Department of Telecommunications. Lenders sought to treat spectrum usage rights as assets capable of resolution or transfer under IBC. The NCLAT had held that while spectrum remained a natural resource held in public trust by the Government, the right to use it constituted an intangible asset of the corporate debtor and that government dues were “operational debts”.

Court’s Analysis

The Supreme Court undertook an extensive examination of constitutional principles governing natural resources, telecom statutes, licence conditions, accounting standards and the structure of IBC. It reaffirmed that spectrum is a finite natural resource vested in the Union as trustee for the public and that telecom licences merely confer a conditional and revocable right to use spectrum, not ownership. While acknowledging that spectrum rights may appear as intangible assets for accounting purposes, the Court emphasised that IBC only applies to assets over which a corporate debtor holds ownership rights. Statutory exclusions under Sections 18 and 36 of IBC expressly remove assets held under contractual arrangements involving mere right of use from the insolvency estate.

Crucially, the Court held that insolvency law cannot override the specialised telecom regulatory framework governing spectrum allocation, transfer and recovery of dues.