Supreme Court Rules Spectrum Is Not A Corporate Asset Under IBC; Says Accounting Entry Cannot Confer Ownership On Telecom Operators
Supreme Court Rules Spectrum Is Not A Corporate Asset Under IBC; Says Accounting Entry Cannot Confer Ownership On Telecom Operators
Introduction
The Supreme Court has held that mere accounting treatment of telecom spectrum as an “intangible asset” in the financial statements of telecom service providers (TSPs) does not bring such rights within the framework of the Insolvency and Bankruptcy Code, 2016 (IBC). The Court ruled that spectrum remains a natural resource held by the Union of India in public trust, and licence holders do not acquire ownership rights capable of being dealt with under insolvency proceedings.
Factual Background
The matter arose out of insolvency proceedings involving Aircel Ltd., Aircel Cellular Ltd. and Dishnet Wireless Ltd., which were admitted into Corporate Insolvency Resolution Process (CIRP) in March 2018 by the NCLT Mumbai bench. The admission followed defaults in payment of licence fees and spectrum usage charges payable to the Department of Telecommunications (DoT).
The Aircel group entities had acquired spectrum through auctions conducted between 2010 and 2016, paying approximately ₹6,249 crore. Domestic lenders led by the State Bank of India had extended loans aggregating to ₹13,729 crore.
On 13 April 2021, the National Company Law Appellate Tribunal (NCLAT) held that although spectrum is a natural resource, the right to use spectrum could be treated as an intangible asset of the licensee for insolvency purposes. The NCLAT further classified DoT dues as operational debt while observing that spectrum could not be used without payment of requisite dues.
Procedural Background
Aggrieved by the NCLAT’s findings, the Union of India challenged the decision before the Supreme Court. The primary issue before the Court was whether spectrum usage rights, reflected as intangible assets in financial statements, could be treated as assets of the corporate debtor under the IBC and form part of the insolvency resolution or liquidation estate.
The Supreme Court examined the statutory scheme under the Telegraph Act, 1885, the terms of spectrum licences, and the objectives of the IBC.
Issues
1. Whether recognition of spectrum usage rights as an “intangible asset” in financial statements confers ownership or proprietary rights upon telecom service providers.
2. Whether spectrum licensing rights can form part of the asset pool available for insolvency resolution or liquidation under the IBC.
3. Whether the IBC can be invoked to restructure, transfer or distribute spectrum rights under a resolution plan.
Contentions of the Parties
The telecom service providers and lenders contended that spectrum usage rights, though limited, possess attributes of property such as possession, usage, assignment, and economic value. It was argued that these rights, being treated as intangible assets in financial statements, should be recognised as part of the corporate debtor’s asset base under the IBC.
The Union of India, through the Department of Telecommunications, argued that spectrum is a sovereign natural resource vested in the Union under Section 4 of the Telegraph Act. It was submitted that licence holders acquire only a limited, conditional and revocable right to use spectrum, subject strictly to statutory and contractual terms. Such rights do not amount to ownership or transferable proprietary interests capable of being dealt with under insolvency proceedings.
Reasoning and Analysis
The Supreme Court held that recognition of spectrum usage rights as an intangible asset in financial statements reflects only control over “future economic benefits” and does not confer ownership. The Court observed that mere accounting treatment cannot determine proprietary character.
The Bench of Justices Pamidighantam Sri Narasimha and Atul S. Chandurkar emphasised that ownership and control of spectrum vest exclusively with the Union of India under Section 4 of the Telegraph Act. Telecom service providers acquire only a limited right to use spectrum, subject to compliance with licensing conditions. There is no transfer of title in favour of the licensee.
The Court clarified that even if spectrum usage rights are seen as forming part of a bundle of rights, in the absence of transfer of title, no ownership rights are created in favour of telecom service providers. Consequently, under the IBC framework, assets over which the corporate debtor has no ownership rights cannot form part of the insolvency estate.
The Bench categorically held that the IBC cannot be used as a mechanism to restructure ownership or control of spectrum. Spectrum licensing rights, being conditional and statutory in nature, cannot be treated as assets capable of restructuring, transfer or distribution under a resolution plan.
Decision
The Supreme Court reversed the approach adopted by the NCLAT and held that spectrum licensing rights do not form part of the asset pool available for insolvency resolution or liquidation under the IBC. The Court concluded that mere accounting recognition of spectrum as an intangible asset does not vest ownership or proprietary rights in the licensee.
