Telecom spectrum can’t be treated as asset under IBC: Supreme Court | Industry News
The Supreme Court on Friday ruled that spectrum cannot be treated as a restructuring corporate asset under the Insolvency and Bankruptcy Code (IBC), keeping it out of the insolvency asset pool.
“We hold that Spectrum, which has been allocated to TSPs (Telecom Service Providers) and shown as an ‘asset’ in their books of accounts, cannot be subject to proceedings under the Insolvency and Bankruptcy Code, 2016,” Justice PS Narasimha and Justice AS Chandurkar said in their judgment. he said.
Framing the constitutional context, the court observed: “We can demystify the legal challenge by first understanding spectrum as a material resource, precisely what our Constitution refers to as the material resource of society.”
The decision resulted from the bankruptcy of Aircel Limited, Aircel Cellular Limited and Dishnet Wireless Limited. Companies that defaulted on license fees and spectrum usage fees entered voluntary bankruptcy in 2018. The Department of Telecommunications (DoT) has filed claims of around ₹ 9,900 crore towards outstanding dues. The lenders, led by State Bank of India, argued that spectrum usage rights reflected as intangible assets could be covered under the IBC framework.
Sources aware of the development said that the SC order paved the way for DoT to take back the airwaves allocated to Aircel and Reliance Communications and Videocon, adding that DoT was reviewing the apex court’s order and would soon begin the process of taking back the spectrum.
DoT will seek legal opinion before issuing formal notice to companies for termination of licenses and spectrum assignments.
One of the sources, who did not want to be named, said, “Since they have not paid any dues and there are other non-compliances, the reasons for termination will be determined, then the licenses will be canceled and the spectrum will be taken back.” It is possible to take one or more conditions into account when canceling licenses. Some circles’ previously expired licenses had been extended by the courts, meaning they would now be officially revoked.
However, sources said that the spectrum returned to the government will not be auctioned in the next round as the process for the next round has already started. Sources added that while the spectrum locked in the case has been released, the resolution of the entity will continue to be decided by the IRP and the DoT will not intervene in the matter.
Bankruptcy law cannot override telecom regime
In its judgment on Friday, the Supreme Court Bench warned that the IBC should not be allowed to reshape sovereign resource management, saying that the legal regime under the IBC cannot be allowed to penetrate the telecommunications sector and rewrite and restructure the rights and obligations arising from the management, use and transfers of spectrum operating under a special legal regime related to telecommunications.
“The mismatch caused by the application of IBC to the telecommunications sector operating under a different legal regime was never intended by Parliament,” the bench added.
The court reiterated that the Union has exclusive privilege over telecommunication systems, citing Section 4 of the Indian Telegraph Act, 1885.
The court explained that the granting of a telecommunications license, including the right to use spectrum, does not affect the transfer of ownership or property rights.
“What is being granted is a limited, conditional and revocable privilege to use the spectrum,” he said.
The Bench said accounting treatment does not determine legal nature.
“The recognition of spectrum licensing rights as an intangible asset in the balance sheet is not determinative of the recognition/transfer of ownership of the spectrum to TSPs,” the board said.
What does this mean?
The decision reinforces the view that spectrum, described by the court as a “material resource of the community,” belongs to the public and the government is acting as trustee. Bankruptcy proceedings cannot be used to reorganize ownership or control of such a resource in order to avoid legal dues.
Insolvent telcos cannot invoke IBC’s Chapter 14 moratorium to stop license fee, spectrum usage charge or AGR dues. Solution plans must comply with telecom legislation and receive government approval before any transfer of usage rights.
stakeholder impact
Legal experts said the decision will significantly reshape telecommunications resolution strategy.
Ankit Rajgarhia, associate partner at Bahuguna Law Associates, said the decision strengthens sovereign control over the spectrum and confirms that public resources regulation cannot be overridden by bankruptcy law. He noted that resolution plans must now be structured in line with telecommunications legislation and DoT approval requirements.
Shri Venkatesh, co-founder of SKV Law Firm, said lenders should stop taking on recoveries across the spectrum. With spectrum recoveries now off the table, banks are likely to face deeper cuts in distressed telecom cases, he said, adding that future loans to the sector could carry higher risk premiums, tighter covenants and stronger regulatory compliance triggers.
According to B. Shravanth Shanker, managing partner of B. Shanker Advocates LLP, the decision makes clear that the spectrum is a licensed right to use and not private property. “The bankruptcy process cannot override the government’s legal control over natural resources. Since telecommunications companies do not own the spectrum, they cannot hand it over to creditors to settle private debts if licensing conditions and government dues are not met,” he said.
Red line in the spectrum
- The Bench reaffirmed the Union’s exclusive prerogative over spectrum, holding that the IBC cannot override the telecom regime
- SC rules that spectrum is a public resource
- Apex Court Bench warns against allowing IBC to reform sovereign resource management
- SC verdict paved the way for DoT to take back airwaves allocated to Aircel and Reliance Communications and Videocon
