The Supreme Court on Friday ruled that telecom companies cannot use the Insolvency and Bankruptcy Code (IBC), 2016 to defer or restructure the payment of licence fees and spectrum dues payable to the Department of Telecommunications (DoT). The Court further held that spectrum cannot be treated as a corporate asset during insolvency proceedings.
Holding that spectrum is a public resource that must be managed in a manner serving the common good, and that Telecom Service Providers (TSPs) cannot opt for restructuring or deferring the payment of licence fees and spectrum dues to the DoT, a Bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S Chandurkar observed, “We hold that spectrum allocated to TSPs and shown in their books of account as an ‘asset’ cannot be subjected to proceedings under the Insolvency and Bankruptcy Code, 2016.”
In their judgment, Justice Narasimha and Justice Chandurkar stated, “The statutory regime under the IBC cannot be permitted to make inroads into the telecom sector and rewrite or restructure the rights and liabilities arising out of the administration, usage, and transfer of spectrum, which operate under an exclusive legal regime concerning telecommunications. The disharmony caused by applying the IBC to the telecom sector, which operates under a different legal regime, was never intended by Parliament.”
Terming spectrum a material resource as understood under the Constitution as a “material resource of the community,” the judgment said, “The constitutional framework reinforces this understanding by mandating that the ownership and control of this material resource of the community be so distributed as best to subserve the common good.”
Linking the usage of spectrum with the common good, the Court further observed, “The Constitution obligates the State to ensure that access to and use of such resources are regulated in a transparent and non-discriminatory manner, so that their benefits enure to the nation rather than being treated as objects of private ownership or unfettered commercial exploitation.”
Underscoring that merely mentioning spectrum as an asset in a company’s books of account does not make it a “corporate asset,” the Supreme Court remarked, “The statutory interpretation adopted by the corporate debtors for applying the IBC to the material resource of the nation—spectrum—by referring to it as an asset in their books of account, the Licence Agreement, the Tripartite Agreement, or the Spectrum Trading Guidelines, is like the tail wagging the dog.”
The Court added that statutory interpretation cannot be based on a myopic reading of definition clauses out of context. “Merely because spectrum can be treated as an ‘asset’ on the basis of certain attributes, such as possession and usage, lease and assignment, claim and liability, or credit and debt, the entirety of the telecom sector cannot be brought within the sweep of the IBC. The two statutes deal with different subjects, serve different purposes, abide by different legal frameworks, protect different rights, and create different liabilities,” it said.
The ruling came in a case arising from insolvency proceedings involving Aircel Ltd, Dishnet Wireless Ltd, and Aircel Cellular Ltd. The companies had initiated voluntary corporate insolvency resolution under Section 10 of the IBC. They were granted telecom licences in 2006 under Unified Access Service Licence agreements and had acquired spectrum through government auctions.
During the insolvency resolution process, the right to use spectrum was treated as part of the companies’ assets.
The Central Government challenged this classification, arguing that spectrum is a sovereign natural resource held in trust for the public and cannot be considered a company asset capable of restructuring under insolvency law.
The National Company Law Appellate Tribunal (NCLAT) had earlier held that while ownership of spectrum vests in the nation, the right to use it is an intangible asset of the licensee. It ruled that such rights could be included in insolvency proceedings and that licence dues and deferred spectrum payments qualify as operational debt under the IBC. At the same time, it clarified that spectrum could not be used without clearing outstanding dues and that insolvency proceedings could not extinguish government claims.
The Supreme Court examined whether telecom companies could rely on the moratorium under Section 14 of the IBC to reorganise their assets, including auctioned spectrum. It held that the answer depended on the legal nature of spectrum, which it described as a “material resource of the community.”
Concluding the matter, the Bench held that the IBC cannot override the statutory framework governing natural resources and that insolvency proceedings do not convert spectrum into a freely transferable corporate asset.