The Supreme Court of India ruled that telecom companies cannot defer spectrum and licence dues to the Department of Telecommunications, rejecting spectrum as assets. A bench of P. S. Narasimha and Alok Aradhe stressed good, and telecom dues recovery.
NEW DELHI: The Supreme Court ruled that telecom service providers cannot invoke the moratorium under the Insolvency and Bankruptcy Code, 2016 (IBC) to restructure or defer payment of licence and spectrum dues owed to the Department of Telecommunications (DoT) by categorizing spectrum as a corporate asset.
A Bench comprising Justices P.S. Narasimha and Alok Aradhe asserted that material resources should be managed in a way that serves the common good.
Thus, the ownership and control of spectrum, along with the economic benefits derived from it, cannot be solely assessed through the lens of corporate restructuring. A detailed copy of the judgment is forthcoming.
The case stemmed from insolvency proceedings involving Aircel Ltd., Dishnet Wireless Ltd., and Aircel Cellular Ltd. These companies had initiated a voluntary corporate insolvency resolution process (CIRP) under Section 10 of the IBC after obtaining telecom licences in 2006 via Unified Access Service Licence (UASL) agreements and acquiring spectrum through government auctions.
During the CIRP, the right to utilize the spectrum was classified as part of the corporate debtor’s assets, a position contested by the Union of India. The government argued that spectrum is a sovereign natural resource held in trust for the public and should not be treated as a corporate asset eligible for restructuring under the IBC.
This dispute reached the National Company Law Appellate Tribunal (NCLAT), which determined that while the spectrum is owned by the nation, the right to use it is an intangible asset of the licensee. The NCLAT concluded that such rights could be included in insolvency proceedings, adding that licence dues and deferred spectrum payments qualify as operational debt under the IBC. However, it clarified that spectrum cannot be utilized without settling dues and that CIRP cannot be initiated to eliminate government liabilities.
The Supreme Court subsequently addressed the matter, framing the key question: whether telecom service providers, required to pay licence dues, could invoke the moratorium under Section 14 of the IBC to restructure their assets, specifically the spectrum allocated through auctions.
The Court emphasized that this issue hinges on the legal nature of spectrum, declaring it a “material resource of the community.”
It contextualized its analysis within the constitutional framework that governs the distribution of material resources for the common good, asserting that ownership and control of such resources should align with public interest.
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The Bench structured its decision into three parts:
- It explored the legal ramifications of spectrum under telecom law.
- It identified the legal question of whether insolvency law could alter ownership or control of spectrum.
- It assessed the treatment of assets under the IBC and their interaction with telecom statutes.
The Court concluded that the IBC cannot serve as a framework for restructuring ownership and control of spectrum, emphasizing that insolvency law cannot supersede the statutory principles governing natural resources.
The Bench clarified that spectrum should not be regarded as a freely transferable asset simply because a company has entered CIRP.
Case Title: Union of India Vs State Bank of India
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