Supreme Court Says Bankrupt Telecom Spectrum Cannot Be Sold to Repay Lenders

In a significant ruling that could reshape telecom insolvency resolutions, the Supreme Court of India has held that spectrum of bankrupt telecom operators cannot be sold under the Insolvency and Bankruptcy Code (IBC) to repay lenders.

The Court declared that telecom spectrum is a “material resource of the community” and cannot be treated as a tradable commercial asset.

What Did the Supreme Court Decide?

A Bench of the Supreme Court of India comprising Justice P.S. Narasimha and Justice Atul Chandurkar ruled that:

• Spectrum belongs to the people of India.
• The government acts as a trustee of this public resource.
• Telecom companies do not “own” spectrum.
• Therefore, spectrum cannot form part of the insolvency estate under the Insolvency and Bankruptcy Code.

The Court categorically held that even if spectrum usage rights are shown as “intangible assets” in company balance sheets, they do not amount to ownership.

“As naturally as water knows the slope, the IBC cannot be the guiding principle for restructuring the ownership and control of spectrum,” the Bench observed.

Why Is Spectrum Different from Other Assets?

Telecom spectrum refers to radio frequencies used by mobile networks to transmit voice and data. The government allocates these frequencies through auctions for fixed periods, subject to licensing conditions.

The Court emphasized that:

• Spectrum is a natural resource.
• It is constitutionally recognized as belonging to citizens.
• Companies merely receive a limited right to use, not ownership.

Because of this, the IBC — which applies to assets owned by a company — cannot override telecom laws governing allocation, control and recovery of dues.

The Background: Aircel and RCom Insolvency

The ruling arose from insolvency proceedings involving:

• Aircel
• Reliance Communications (RCom)

Both companies entered insolvency between 2018 and 2019 with massive unpaid dues.

Aircel’s Case

• Licences granted in 2006 (20-year term)
• Spectrum acquired between 2010–2016 for ₹6,249.27 crore
• Loans of ₹13,729 crore led by State Bank of India
• Government dues claimed: ₹9,894.13 crore

Under Aircel’s resolution plan approved in 2020:

• Resolution applicant: UV Asset Reconstruction Co. Ltd (UVARCL)
• Total admitted dues: ₹58,670 crore
• Lenders to take 89% haircut
• Operational creditors (including government claims of ₹17,462 crore) to receive just ₹28.5 crore (0.16%)
• Expected spectrum sale value: ₹800–1,300 crore

RCom’s Case

• Claims from 53+ lenders: ₹57,382 crore
• Expected recovery: ₹20,000–23,000 crore
• SBI exposure across the two companies: about ₹12,000 crore

Lenders argued that spectrum should be treated as a monetizable intangible asset. The government disagreed.

What Was the Legal Dispute?

The central issue was:

Can spectrum usage rights be treated as assets under the IBC and sold under a resolution plan?

The National Company Law Appellate Tribunal (NCLAT) in 2021 had held that spectrum could be transferred only after clearing all outstanding government dues.

Lenders and telecom operators challenged this before the Supreme Court.

The Supreme Court has now:

• Endorsed the government’s position
• Rejected lenders’ pleas
• Set aside the 2021 NCLAT order
• Clarified that government dues cannot be subordinated in insolvency

Key Legal Findings

1. Spectrum Is Not an Insolvency Asset

The Court held that spectrum allocated to telecom service providers:

• Cannot form part of liquidation or insolvency estate
• Cannot be subjected to IBC proceedings

2. Government Dues Must Be Cleared First

The judgment stated:

“Dues payable to the Licensor… must be cleared prior to spectrum trading.”

This means spectrum cannot be transferred unless government liabilities, including statutory dues such as AGR, are fully settled.

3. IBC Cannot Override Sectoral Law

The Court made it clear that the IBC:

• Applies only to assets owned by a company
• Cannot override telecom licensing framework
• Cannot interfere with government’s regulatory control

Why This Ruling Matters

1. Impact on Banks and Lenders

For banks, spectrum was seen as key collateral. This ruling:

• Limits lenders’ recovery options
• Prevents spectrum monetization unless dues are cleared
• Weakens recovery prospects in telecom insolvencies

Legal experts say this changes the risk assessment of telecom lending significantly.

2. No “Clean Slate” Under IBC

Experts noted that the IBC cannot be used to bypass statutory dues like Adjusted Gross Revenue (AGR).

Ankita Singh, founder of Sarvaank Associates, observed that the ruling removes the possibility of using insolvency as a “clean slate” mechanism to avoid government liabilities.

3. Telecom Insolvency Must Align with Public Interest

Mukesh Chand, senior counsel at Economic Laws Practice, noted that telecom insolvencies cannot be resolved in isolation.

According to him:

• Resolution professionals
• Lenders
• Government (as licensor)

must act as joint stakeholders.

The Court’s approach reinforces that spectrum allocation is tied to public interest and regulatory continuity.

The Larger Constitutional Principle

The Court described spectrum as a “material resource of the community.” This phrase is rooted in constitutional principles governing distribution of resources for the common good.

The Bench stated that:

• Ownership and control must remain secured for citizens
• Benefits of spectrum must subserve “common good, not uncommon good”

In effect, the Court has reaffirmed that natural resources cannot be treated purely as commercial commodities.

What Happens Next?

The ruling:

• Strengthens government control over spectrum
• Reduces banks’ leverage in telecom insolvency cases
• Signals stricter alignment between IBC and sectoral regulation

Going forward, resolution plans in telecom insolvencies will likely focus on:

• Change in management
• Regulatory approvals
• Going-concern resolutions
• Full or negotiated settlement of government dues

Pure asset liquidation involving spectrum now appears legally untenable.

In Simple Terms

• Telecom companies do not own spectrum.
• They only have a licence to use it.
• If they go bankrupt, spectrum cannot be sold like land or machinery.
• Government dues must be cleared first.
• IBC cannot override telecom law.

The Bottom Line

The Supreme Court’s ruling firmly establishes that telecom spectrum is a public resource held in trust by the government and cannot be used as a private asset to repay lenders in insolvency.

The judgment may reshape the telecom lending landscape and reinforces a broader constitutional doctrine: natural resources must serve the common good, even in commercial disputes.

This decision is likely to have long-term implications for telecom financing, insolvency law, and public resource governance in India.