Telecom Spectrum as a Public Resource: Supreme Court Clarifies Limits of Insolvency Jurisdiction

Introduction

In State Bank of India v. Union of India & Ors.¹, the Supreme Court examined the legal character of telecom spectrum within the framework of the Insolvency and Bankruptcy Code, 2016 (IBC).

The Court addressed whether a telecom licensee’s right to use spectrum constitutes an asset forming part of the insolvency estate, and the extent to which the IBC can operate alongside the statutory and regulatory regime governing allocation and use of natural resources.

Factual Background

Telecom service providers were granted rights to use spectrum under licences issued pursuant to the Indian Telegraph Act, 1885 and the regulatory framework administered by the Department of Telecommunications (DoT).

Defaults in payment of licence fees, spectrum usage charges, and adjusted gross revenue (AGR)-related dues triggered insolvency proceedings under the IBC.

The National Company Law Appellate Tribunal (NCLAT) had held that the right to use spectrum could be treated as an intangible asset forming part of the insolvency estate, subject to necessary regulatory approvals. This position was challenged by the Union of India before the Supreme Court.

Issues

The Supreme Court considered the following key issues:

• Whether spectrum licences confer proprietary rights or merely conditional usage rights;
• Whether the right to use spectrum constitutes an “asset” within the meaning of Section 18 of the IBC;
• Whether telecom dues qualify as “operational debt” under Section 5(21) of the IBC;
• Whether an approved resolution plan can override statutory and regulatory restrictions governing spectrum.

Judgment

The Supreme Court held that:

• Spectrum is a public resource, and licences grant only a limited, conditional, and non-proprietary right to use it;
• The right to use spectrum does not amount to ownership, and remains subject to statutory and regulatory control;
• While such rights may have economic value, they cannot be treated as freely transferable assets in insolvency proceedings in disregard of governing law;
• The powers of the resolution professional under Section 18 are subject to applicable non-IBC law, and do not extend to overriding statutory restrictions on transfer or assignment;
• The IBC cannot be interpreted to supplant sectoral regulatory frameworks, particularly those governing allocation of natural resources.

Analysis

1. Legal Character of Spectrum

The Court relied on:

• Section 4 of the Indian Telegraph Act, 1885
• Article 297 of the Constitution of India

to affirm that spectrum is a sovereign-controlled public resource.

Licences confer:

• a restricted right of use spectrum,
• subject to conditions, duration, and regulatory oversight.

They do not confer proprietary or ownership rights.

2. Asset vs Regulatory Right

The Court drew a crucial distinction:

• Economic Perspective: Spectrum usage rights may be treated as intangible assets with commercial value;
• Legal Perspective: Such rights are statutorily regulated privileges, not freely alienable property.

Accordingly, their inclusion in the insolvency estate is limited and conditional, and cannot disregard the governing statutory framework

3. Interaction Between IBC and Sectoral Law

The Court harmonised:

• Section 238 of the Insolvency and Bankruptcy Code, 2016
• telecom regulatory framework

It held that:

• Section 238 does not override mandatory public law restrictions;
• Insolvency proceedings must operate within the confines of sector-specific statutes.

4. Role of the Resolution Professional

Under Section 18 of the IBC:

• The resolution professional takes control and custody of the assets of the corporate debtor;
• However, such control is subject to applicable laws.

Therefore:

• Spectrum usage rights cannot be transferred, assigned, or otherwise dealt with without compliance with licensing conditions and regulatory approvals.

5. Treatment of Telecom Dues

The Court clarified that classification of telecom dues (including licence fees and spectrum usage charges) depends on:

• Their statutory character; and
• The nature of the underlying obligation.

Such dues cannot be mechanically categorised as “operational debt” and require case-specific

6. Public Trust Doctrine

• The Court’s reasoning aligns with Centre for Public Interest Litigation v. Union of India, which recognises that:
• Natural resources are held by the State in public trust; and
• Their allocation and use must serve the public interest.
• This doctrine reinforces limits on private claims over spectrum.

Implications

• For lenders: Security interests over spectrum-based businesses must factor in regulatory limitations
• For resolution professionals: Resolution plans must ensure compliance with telecom licensing conditions
• For telecom operators: Insolvency cannot be used to bypass statutory obligations or spectrum conditions
• For regulators: Reinforces primacy of sectoral control over natural resources

Conclusion

The Supreme Court has reaffirmed that spectrum usage rights, while economically valuable, remain statutory privileges governed by public law.

The ruling clarifies that the IBC cannot be applied in a manner that converts such regulated rights into freely transferable insolvency assets, thereby reinforcing the primacy of sectoral regulation in matters involving public resources.

1. Civil Appeal No. 1810 of 2021. ↩︎