IBC vs Telecom Laws: Apex Court rules Spectrum control lies beyond Insolvency Process

The Supreme Court has ruled that the Insolvency and Bankruptcy Code cannot determine the ownership or control of telecom spectrum, holding it to be a constitutional “material resource of the community” that must remain secured for public benefit. The verdict settles a high-stakes clash between insolvency law and telecom regulation, with immediate consequences for bankrupt telecom operators and government recovery of licence dues.

The controversy arose from insolvency proceedings involving telecom companies where resolution professionals sought to treat spectrum usage rights as assets within the insolvency estate. The National Company Law Appellate Tribunal had earlier held that while spectrum belongs to the Union, the right to use it could be considered an intangible asset of the corporate debtor, though subject to clearance of government dues. Challenging this approach, the Union argued that spectrum, vested in the State under constitutional and statutory provisions, could not be subsumed under insolvency mechanics.

Creditors and resolution professionals countered that the right to use spectrum under a licence is transferable with regulatory approval and forms the commercial backbone of telecom lending.

Rejecting the insolvency centric approach, the Top Court underscored that spectrum stands on a different constitutional footing. Emphasising that it is a public resource meant to subserve the common good, the Bench observed that “IBC cannot be the guiding principle for restructuring the ownership and control of spectrum.” 

The Court clarified that while the IBC governs resolution of corporate distress, it cannot override telecom laws or convert State controlled natural resources into insolvency assets. Upholding the Union’s position, the Court set aside the view that spectrum control could be determined within the corporate insolvency resolution process.