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IBC cannot be the guiding principle for restructuring the ownership and control of spectrum

WHAT HAS HAPPENED?

In a significant decision on the interplay between insolvency and telecom laws, the Supreme Court in State Bank of India v Union of India[1] (“Aircel judgment”), has held that the spectrum allocated to Telecom Service Providers (“TSPs”) and shown in their books of account as an ‘asset’ cannot be subjected to proceedings under the Insolvency and Bankruptcy Code, 2016 (“Code”/ “IBC”).

BACKGROUND

  • The TSPs Aircel Limited, Aircel Cellular Limited and Dishnet Wireless Limited (collectively, the “CDs”) were granted Unified Access Service Licences under the License Agreements by the Department of Telecommunications (“DoT”) under Section 4 of the Indian Telegraph Act, 1885. Each License was valid for a term of twenty years.

  • CDs acquired the right to use spectrum in various auctions conducted by DoT upon payment of ₹6249.27 crores. The CDs subsequently defaulted in payment of licence fee and spectrum usage charges to the DoT.

  • When DoT attempted to recover its dues, the CDs filed applications under Section 10 of the Code, voluntarily seeking initiation of corporate insolvency resolution process (“CIRP”). The National Company Law Tribunal, Mumbai (“NCLT”) admitted these applications in March 2018.

  • DoT filed its claims in respect of unpaid licence fee and spectrum usage charges as ‘other creditor’, which were admitted by the resolution professional of the respective CDs.

  • A resolution plan submitted by UV Asset Reconstruction Company was approved by the Committee of Creditors of the CDs and thereafter by the NCLT. The resolution plan treated the dues of DoT as ‘operational debt’ and did not provide for payment to DoT. Further, the plan allowed CDs to transfer spectrum.

  • Appeals were filed by DoT challenging the resolution plan and its treatment under the resolution plan.

  • During the pendency of CIRP of CDs, the Supreme Court delivered its judgment[2] affirming the definition of Adjusted Gross Revenue (“AGR”) under the UASL. In subsequent proceedings concerning payment of AGR dues, it was brought to the Court’s attention that certain TSPs, including the CDs were undergoing CIRP and that the DoT cannot take recovery actions against them pursuant to Section 14 of the Code.

  • Recognising the wider implications of the issue, the Supreme Court framed specific questions concerning the legal character of spectrum and its treatment under the Code and referred those questions to the NCLAT, which culminated in passing of the order dated 13 April 2021 by the NCLAT. The order was challenged by various stakeholders, including State Bank of India (lead financial creditor), the RP of CDs and DoT.

    • KEY OBSERVATIONS AND FINDINGS OF SC

    Spectrum is a Natural Resource Held in Public Trust

    ·      Spectrum has consistently been recognized as a public resource, and it is precious also since it is finite and limited.  The SC reaffirmed the doctrine of “public trust” in the context of allocation and distribution of spectrum, as recognised in CPIL Judgement[3].

    ·      The Constitutional framework mandates that the ownership and control of this material resource of the community be distributed so as to best subserve the common good and to ensure that access and use of such resource is regulated in a transparent, non-discriminatory manner, for the benefit of the nation rather than being treated as objects of private ownership or unfettered commercial exploitation.

    Nature of Telecom License and Spectrum – no proprietary interest in TSPs

     

    ·      Section 4 of Telegraph Act vests exclusive privilege in the Central Government to grant License subject to terms and conditions, which includes payments towards the Universal Service Obligations.

    ·      The grant of a Licence including the right to use spectrum is in the nature of State largesse and does not translate into a transfer of ownership or proprietary interest in favour of Licensee but confers a limited, conditional and revocable privilege to use spectrum for specified purposes and for a defined duration.

    ·      SC traced the evolution of laws/ policies relating to spectrum allocation and trading and held that spectrum trading is not a private commercial arrangement, but part of privilege vested in the Government. The Government, as Licensor has retained comprehensive supervisory and corrective control over spectrum trading and access, even after spectrum being unbundled with license and private enterprise permitted to develop spectrum.

    ·      Whilst the License has contractual attributes, the Licensor's powers and obligations do not arise solely from contract but flow concurrently from the Constitution and the statute, and in the event of conflict, obligations flowing from constitutional and statutory mandate necessarily prevail over contractual stipulations.

    ·      After referring to various provisions of the License Agreement, SC noted the effective and pervasive control of the Licensor (DoT) and held that ownership, particularly as a trustee of natural resource by the Licensor, coupled with power to suspend or terminate license, negates any claim of proprietary ownership in the Licensee. Where Licensee has defaulted in payments or performance, the very substratum of right to use spectrum stands impaired.

    Assignment/ transfer of License and Spectrum - subject to fulfilment of conditions

    ·      Guideline 11 of the Spectrum Trading Guidelines reinforce control of DoT by mandating that all outstanding dues of the seller be cleared prior to conclusion of any spectrum trading agreement and vesting discretion in the Government to recover any subsequently discovered dues from either or both parties, jointly or severally. Trading is conditional subject to adherence to financial and regulatory obligations owed to the State.

    ·      The Licensee has no independent right to assign or transfer the license under the License Agreement and Spectrum Trading Guidelines, without prior consent of the Licensor (DoT) and such assignment/ transfer is permissible only upon fulfilment of prescribed conditions including complete clearance of dues.

    ·      The obligation to clear dues prior to trading is absolute and default by either seller or buyer disqualifies them from effecting a valid transfer including under insolvency proceedings.

    ·      The Tripartite Agreement between the DoT, the TSP and the Bank is a contractual mechanism devised to enable TSPs to secure financial assistance and enables license to be treated as security. However, the Tripartite Agreement underscores that while the license may be conditionally transferable to a Selectee to safeguard lender interests, such transfer remains subject to the Licensor’s paramount authority and regulatory control.

    Is Spectrum an “Asset” of the CDs that can be restructured in IBC?

     

    ·      While spectrum licensing right are recognized as an “intangible asset” in the balance sheet of the TSPs under the Indian Accounting Standards - this only indicates control over future economic benefits flowing from the grant of the right to use spectrum - but is not determinative of recognition/ transfer of ownership of spectrum to TSPs.

    ·      Even if the right to use spectrum exhibits property-like features such as longer licensing terms, exclusivity and transferability, they merely represent different sticks in the bundle of rights and fall short of conferring complete ownership of the spectrum on TSPs.

    ·      Section 18(f), Section 36 (3) and 36 (4) of IBC specifically excludes from its scope, assets over which CD does not have ownership or that are owned by a third party in possession of the CD under trust or under other contractual arrangements. The IBC only includes those tangible and intangible assets within the insolvency framework over which CD has ownership rights including all rights and interests therein as recorded in the Balance Sheet.

    ·      Even assuming that licensing and spectrum rights is one among the bundle of rights, in the absence of transfer of title over the spectrum, no ownership rights are created in TSPs either in the spectrum or in its right to use as governed by licensing conditions. Under the IBC framework, spectrum licensing rights are therefore not part of the pool of assets for insolvency or liquidation.

     

    Harmonious Construction between IBC and Telecom Laws

     

    ·      Relying on Embassy Judgement[4], the SC held that where the dispute relates to the exercise of statutory or sovereign power by the State, particularly in matters involving public interest and natural resources, such issues fall outside the domain of the insolvency adjudicatory framework, and the Code cannot be invoked to usurp or neutralise powers vested in the State under special statutes.

    ·      Scope of IBC is to speed up process providing for insolvency and achieving maximization of assets – the focus is on the company. On the other hand, the Telegraph Act, Wireless Telegraphy Act and TRAI Act form a complete and exhaustive code for all matters relating to the telecom sector, including declaration of the nature of the rights and liabilities arising out of holding and using spectrum, and taken together, the Union as the owner and trustee of spectrum and TRAI as the regulator occupy the entire province of telecommunications.

    ·      The statutory regime under IBC cannot be permitted to make inroads into the telecom sector and re-write and restructure the rights and liabilities arising out of administration, usage, and transfers of spectrum which operate under an exclusive legal regime concerning telecommunications.

    ·      Merely because spectrum can be treated as an “asset” on the basis of certain attributes, the entirety of the telecom sector cannot be brought under the sweep of IBC. Constitutional courts must recognise the respective provinces of two laws and ensure that they operate in harmony and without conflict.

    PRACTICAL IMPLICATIONS

  • The judgment makes it clear that neither the telecom license nor the right to use spectrum are assets of the CDs which can be subject to the insolvency or liquidation process. These are in the nature of State largesse, which is granted subject to various terms and conditions, which must be followed for their transfer or assignment. Thus, a resolution plan for revival of a telecom company cannot deal with telecom license or spectrum as though it were an asset of the company. Any proposal in the plan involving transfer, assignment or continued use of license/ spectrum must independently satisfy the conditions imposed under the Licence and relevant guidelines, including clearance of dues and prior approval of the DoT. Approval of a resolution plan under Section 31 of IBC does not displace these requirements.

  • The judgment does not delve into the issue of nature of ‘dues’ owed to DoT. However, classification of DoT dues as “Operational Debt” or “Financial Debt” or “Other Debt” under the resolution plan becomes secondary – these dues would nevertheless be required to be paid in full to DoT as a condition for continued use or transfer of license/ spectrum. Section 30 (2) of IBC or the waterfall under Section 53 of IBC cannot be invoked to restructure or reduce such dues. Further, while the judgment does not specifically deal with priority of payment of DoT dues in case of liquidation (without sale of license/ spectrum), it notes that under the Tripartite Agreement, if the license stands terminated and assets of the Licensee are to be disposed-off, the Licensor (DoT) enjoys first charge over the proceeds, followed by adjustment of Lenders’ due.

  • The judgment will have a massive impact on the resolution of insolvency of telecom companies. Without the ability to restructure dues to DoT (if owed), it is unlikely that telecom companies would be seen as attractive targets by resolution applicants. The insolvency resolution of these companies is only possible where the resolution applicant is willing to abide by all conditions of the License (contractual or statutory), pays all dues to the DoT and further, gets approval of the DoT as an assignee/ transferee of the license/ spectrum.

  • Further, the implications of the judgment are not confined to telecom sector alone but may extend to insolvency of all companies that are either regulated or that have critical licenses or right to use from the Government such as petroleum exploration licenses, mining licenses and even leases given by the Government/ authority. However – the interplay of the judgment, in the context of proposed amendments in the IBC[5] remains to be seen.

    • Interplay with the proposed IBC amendments

    The amendments to the IBC propose insertion of Section 31 (5) to provide that once NCLT approves a resolution plan, any license, permit, registration, quota, concession, clearance or similar right granted by the Central Government, State Government, local authority, sectoral regulator or any other authority, which forms part of the resolution plan, shall not be suspended or terminated for the remainder of its validity period, provided the company continues to comply with its obligations during such period. Further, the amendments also propose insertion of Section 31 (6) in the IBC to clarify that the claims not dealt with under the resolution plan shall be deemed to be extinguished.

    From a reading of the Select Committee Report[6] on the IBC amendments, it is evident that the amendments will clarify that the obligations of the CD in respect of the pre-CIRP/ past debts of Government/ authorities under such license, permit etc. can be dealt with under the resolution plan. Notably, there are other proposed amendments to the IBC for clarifying that government dues fall under the fifth order of priority under Section 53 of IBC in support of the legislative intent to assign a lower priority to government dues.

    At the same time, as far as compliance with other technical terms of license, permit etc. is concerned, the Select Committee Report acknowledges that the scope of IBC does not extend to interfering with the powers of the Government/ regulator to ensure compliance with other technical requirements and that the right of the government/ regulator to examine the new parent company's capability to fulfil its obligations under the license/agreement are requirements specific to law governing that sector and do not fall under the domain of IBC.

    Thus, while the amendments acknowledge Government/ regulator’s role in ensuring compliance with laws specific to the sector, they also note that past dues of the Government/ regulator can be dealt with under the resolution plan and so long as there is compliance with “remainder” of the validity period, the licenses, permits etc. cannot be terminated or suspended for non-payment of past dues.

    Given the Aircel judgment, interesting questions are likely to arise in cases where CD has a critical license, permit etc. and where change in control of the CD or transfer of the license, permit etc. is linked to payment of the past dues of the Government/ regulator. The questions will range from “what is meant by asset” to “is the asset a material national resource” to what is meant by “compliance with the remainder of the validity period of an asset” and whether past dues linked with license, permit etc. can be extinguished at all, if the relevant contract, law or policy mandates payment of such dues as a condition.

    It may also be added that the Aircel judgment proceeds on the fundamental assumption of spectrum being a scarce and finite resource covered under the public trust policy. Hence, eventually, given the proposed amendments to the IBC, the application of Aircel judgment may depend on specific facts of the case including the nature of asset, the nature of license/ permit and the provisions of the relevant contract, law or policy applicable to the sector.

    Pooja Mahajan

    Partner, Head of Insolvency and Restructuring

    Savar Mahajan

    Managing Associate, Insolvency and Restructuring

    Srivatsav Reddy Beerapalli

    Associate, Insolvency and Restructuring

     

    ©2026 Chandhiok & Mahajan, Advocates and Solicitors

    This alert is for information purposes only and does not constitute legal advice.

    [1] Civil Appeal No. 1810 of 2021

    [2] Union of India v Association of Unified Telecom Service Providers of India, (2020) 3 SCC 525

    [3] Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1

    [4] Embassy Property Developments (P) Ltd. v. State of Karnataka, 2020 (13) SCC 308

    [5] https://ibbi.gov.in/uploads/publication/3694d8874ee2ac5802de48d293ad5802.pdf.

    [6] https://prsindia.org/files/bills_acts/bills_parliament/2025/IBC_Select_Comm_Report.pdf