SBI moves SC seeking review of spectrum ruling, cites IBC misread

SBI seeks Supreme Court review of spectrum ruling, warning it may undermine lender rights and disrupt financing across telecom and other regulated sectors

State Bank of India (SBI) has approached the Supreme Court (SC), seeking a review of its February 13 judgment that held telecommunications (telecom) spectrum cannot be treated as an asset under insolvency proceedings.

 

The review petition challenges the court’s conclusion that spectrum, though reflected as an asset in company books, cannot be subjected to proceedings under the Insolvency and Bankruptcy Code (IBC), 2016.

 

In its petition, the country’s largest lender said the judgment would have far-reaching consequences for lenders and the telecom sector.

 

Acting on behalf of the committee of creditors of Aircel group entities, SBI contended that the ruling suffers from “errors apparent on the face of the record” and has resulted in “manifest injustice” to stakeholders.

 

The bank argued that the judgment failed to address several key questions originally framed for adjudication, including whether lenders have a valid security interest over spectrum and whether government dues qualify as operational debt.

 

According to the petition, the court narrowed the dispute to a single issue — whether telecom companies could invoke insolvency to avoid licence dues — while overlooking broader legal questions central to the case.

 

SBI also disputed the court’s observations on the nature of insolvency proceedings initiated by telecom companies, particularly the suggestion that such processes were triggered to evade government payments.

 

In its petition, the bank maintained that insolvency proceedings involving Aircel entities were initiated in good faith and duly admitted by the National Company Law Tribunal after establishing financial distress.

 

The petition also pointed to loan agreements and mortgage documents that created enforceable security interests over spectrum usage rights.

 

By failing to consider these, the judgment has effectively undermined creditor protections and could force banks to reassess lending to sectors dependent on state-granted rights, such as telecom, mining, and infrastructure.

 

The plea said the judgment “effectively nullifies and undermines the legitimate security interest created in favour of lenders”, going “to the very heart of the determination of lenders’ rights under IBC, especially for telecom companies”.

 

It further argued that the ruling draws an artificial distinction between voluntary and creditor-driven insolvency processes — one not recognised under the IBC framework. It also faulted the court for not considering that the Department of Telecommunications (DoT) had participated in the insolvency process as a creditor, including filing claims and engaging with resolution plans.

 

Highlighting broader implications, SBI cautioned that the judgment could disrupt financing across regulated sectors and weaken the insolvency regime’s objective of value maximisation. The bank urged the court to revisit the findings in open court, warning of “grave and irreversible” consequences for creditors and the economy.

 

The review petition arises from a batch of appeals involving Aircel and other telecom companies, where the court examined whether spectrum — a natural resource allocated by the state — could be treated as part of a corporate debtor’s assets during insolvency.

 

In February, the SC held that spectrum cannot be treated as a corporate asset capable of being restructured under IBC, placing it beyond the insolvency asset pool.

 

“We hold that spectrum allocated to telecom service providers and shown in their books of account as an ‘asset’ cannot be subjected to proceedings under IBC, 2016,” a Bench of Justices P S Narasimha and A S Chandurkar said.

“We could demystify the legal challenge by first understanding spectrum as a material resource, precisely as what our Constitution refers to as the material resource of the community,” the court observed.

 

The judgment arose from the insolvency of Aircel, Aircel Cellular, and Dishnet Wireless. After defaulting on licence fees and spectrum usage charges, the companies entered voluntary insolvency in 2018. DoT filed claims of nearly ₹9,900 crore towards unpaid dues. Lenders, led by SBI, argued that spectrum usage rights — reflected as intangible assets — could be dealt with under the IBC framework.

 

The ruling has cleared the path for DoT to take back airwaves allocated to Aircel, Reliance Communications, and Videocon, sources said. The department is examining the order and is likely to begin proceedings soon.

 

DoT will seek legal opinion before issuing formal communication to terminate licences and spectrum assignments. “Since dues remain unpaid and there are other non-compliances, the grounds for termination will be determined. Licences will then be cancelled and spectrum taken back,” a source said. Licences in some circles that had earlier expired but were extended by courts will now be formally cancelled.

 

However, the spectrum returning to the government will not be auctioned in the upcoming round, as preparations are already underway, the sources added. While the spectrum locked in litigation has been freed, resolution of the legal entities will continue under the insolvency resolution professional, with no interference from DoT.

 

The Bench also cautioned against allowing the IBC to recast sovereign resource governance, saying the code cannot be used to rewrite rights and liabilities arising from spectrum administration, which operates under a separate legal regime.

 

“The disharmony caused by applying IBC to the telecom sector, which operates under a different legal regime, was never intended by Parliament,” the Bench said.

 

Referring to Section 4 of the Indian Telegraph Act, 1885, the court reiterated that the Union retains exclusive privilege over telecom systems. 

It clarified that a telecom licence, including the right to use spectrum, does not transfer ownership or proprietary interest.

 

“What is conferred is a limited, conditional, and revocable privilege to use spectrum,” the court said. The Bench added that accounting treatment does not determine legal character.

“Recognition of spectrum licensing rights as an intangible asset in the balance sheet is not determinative of ownership,” it said.

 

The ruling cements the position that spectrum — described as a “material resource of the community” — belongs to the public, with the government acting as trustee. Insolvency proceedings cannot be used to reorganise ownership or control of such resources to avoid statutory dues.

 

Telecom companies in insolvency cannot invoke the Section 14 moratorium under IBC to stall licence fees, spectrum usage charges or adjusted gross revenue dues. Resolution plans must comply with telecom laws and secure government approval before any transfer of usage rights.