Telecom firms can't use IBC moratorium to defer spectrum dues, says SC

The Supreme Court ruled that telecom companies cannot use insolvency law to delay or restructure licence and spectrum dues, saying spectrum is a public resource, not a company asset

The Supreme Court on Friday ruled that telecom companies cannot use the moratorium under the Insolvency and Bankruptcy Code (IBC), 2016, to delay or restructure payments of licence fees and spectrum dues owed to the Department of Telecommunications (DoT), Bar and Bench reported. 

The top court said that spectrum cannot be treated as a corporate asset during insolvency proceedings. 

A Bench of Justices PS Narasimha and Alok Aradhe said that material resources must be managed in a way that serves the public good. It stressed that ownership and control of spectrum -- along with any economic benefit from it -- cannot be decided purely from a corporate restructuring perspective.

Case linked to Aircel insolvency

The dispute arose from insolvency cases involving Aircel Ltd, Dishnet Wireless Ltd, and Aircel Cellular Ltd. These companies had entered voluntary corporate insolvency resolution proceedings under Section 10 of the IBC. They had received telecom licences in 2006 under Unified Access Service Licence agreements and had also obtained spectrum through government auctions. 

During the insolvency process, the right to use spectrum was treated as part of the companies’ assets.   

Government challenges ‘asset’ classification

The Union government opposed this view, arguing that spectrum is a sovereign natural resource held in trust for citizens. It said that spectrum cannot be treated as a company asset that can be restructured under insolvency law, the news report said. 

The issue reached the National Company Law Appellate Tribunal (NCLAT), which ruled that while the nation owns spectrum, the right to use it is an intangible asset of the telecom licensee. 

NCLAT held that such rights could be part of insolvency proceedings and that licence dues and deferred spectrum payments qualify as operational debt under the IBC. However, it clarified that the spectrum cannot be used without clearing dues, and insolvency cannot erase government liabilities.

Key question before the top court

The apex court examined whether telecom companies asked to pay licence dues could rely on the IBC moratorium under Section 14 to restructure their assets, particularly spectrum allocated through auctions. 

The top court said the answer depended on the legal nature of the spectrum. It described the spectrum as a “material resource of the community”. It added that under constitutional principles, such resources must be distributed and managed to serve the common good, keeping public interest at the centre.

IBC cannot override telecom law

The court concluded that the IBC cannot be used to change ownership or control of spectrum. It said insolvency law cannot override the legal framework governing natural resources, the news report said. 

The judges made it clear that spectrum cannot be treated as a freely transferable asset simply because a telecom company enters insolvency proceedings.