Natural Resources – Spectrum – Public Trust Doctrine – Ownership and Control – Spectrum held by Union of India as trustee for the people – License confers only limited right to use – No proprietary or ownership interest created in favour of Telecom Service Providers (TSPs) – Spectrum remains material resource of the community within Article 39(b) – Paras 13–17, 20, 33–36, 69(A).
Telegraph Act, 1885 – Section 4 – Exclusive privilege of Union – Grant of licence is sovereign/statutory in character though contractual in form – License conditions govern use, transfer, revocation – Clearance of dues mandatory prior to trading – Regulatory supremacy preserved – Paras 18, 32–36, 26–30.
Spectrum Trading Guidelines, 2015 – Transfer conditional upon prior clearance of dues and approval of Licensor – Insolvency proceedings cannot bypass statutory regulatory conditions – Dues cannot be wiped out under Resolution Plan – Paras 26–30.
Insolvency and Bankruptcy Code, 2016 – Sections 18 and 36 – Insolvency estate includes only assets over which corporate debtor has ownership rights – Assets held under contractual arrangements without transfer of title excluded – Mere accounting recognition as intangible asset insufficient – Paras 59–63.
Accounting Standards – AS 26 / Ind AS 38 – Recognition of intangible asset based on control and future economic benefits – Ownership not necessary for accounting recognition – Accounting treatment not determinative of legal ownership – Paras 46–58.
Conflict of Statutes – Harmonious Construction – IBC cannot override special statutory regime governing telecom sector – Telegraph Act and TRAI Act constitute complete code for spectrum – Insolvency framework cannot re-write sovereign and regulatory control over natural resources – Paras 64–68.
IBC – Objective of revival and value maximisation – Cannot be invoked to restructure ownership/control of natural resources – Moratorium does not create new rights – Public law functions of State remain unaffected – Paras 40–42, 65–68.
Held – Spectrum allocated to TSPs cannot be subjected to insolvency/liquidation proceedings under IBC – Appeals by financial creditors and resolution professionals dismissed – Appeal by Union of India partly allowed – Para 69.
ANALYSIS OF FACTS
The controversy arose from insolvency proceedings initiated against telecom companies of the Aircel Group. These entities had acquired spectrum through auction conducted by the Department of Telecommunications (DoT) and had also borrowed substantial sums from financial institutions, including the State Bank of India.
Upon default in payment of licence fees and spectrum usage charges, the corporate debtors invoked voluntary Corporate Insolvency Resolution Process under Section 10 of the Insolvency and Bankruptcy Code, 2016. The Resolution Plans treated DoT as an operational creditor and proposed settlement of its dues under the statutory waterfall mechanism.
In parallel, this Court in earlier AGR litigation had determined that licence dues were payable as calculated by DoT. When recovery proceedings were sought to be enforced, TSPs contended that moratorium under Section 14 of IBC barred such recovery.
Given the magnitude of dues and the broader implications for spectrum ownership, this Court referred multiple fundamental questions to the National Company Law Appellate Tribunal (NCLAT). The NCLAT delivered a mixed verdict, holding spectrum to be a natural resource yet also an intangible asset of the corporate debtor, capable of insolvency treatment, though subject to payment of dues.
Appeals were filed by financial creditors, resolution professionals, and the Union of India challenging different portions of the NCLAT judgment. The central question before the Supreme Court was whether spectrum could be treated as an asset of the corporate debtor amenable to insolvency proceedings.
ANALYSIS OF LAW
The Court began by reaffirming the constitutional position declared in earlier decisions including Centre for Public Interest Litigation v. Union of India and Natural Resources Allocation, In re, that spectrum is a scarce and finite natural resource held by the State in public trust. Ownership vests in the people, with the Union acting as trustee.
Section 4 of the Telegraph Act vests exclusive privilege in the Central Government to establish and operate telecommunication systems. The licence issued thereunder, though contractual in form, emanates from sovereign authority. As explained in Bharti Airtel Ltd. v. Union of India, such licence is a form of State largesse and does not confer proprietary title.
The Court examined the Spectrum Trading Guidelines, 2015 and held that transfer of spectrum is conditional upon clearance of dues and prior governmental approval. These regulatory conditions are mandatory and cannot be bypassed by insolvency mechanisms.
A significant portion of the judgment addressed the argument that spectrum appears as an “intangible asset” in the balance sheet of TSPs under Accounting Standards. The Court carefully distinguished accounting recognition from legal ownership. AS 26 and Ind AS 38 recognise assets based on control over economic benefits, not ownership. Therefore, inclusion in the balance sheet does not establish proprietary rights.
Turning to IBC, Sections 18 and 36 were analysed. The insolvency estate includes only assets over which the corporate debtor has ownership rights. Assets held under contractual arrangements without transfer of title are expressly excluded. Since spectrum remains vested in the Union and only a conditional right to use is granted, it cannot form part of the insolvency estate.
The Court applied principles of harmonious construction between special statutes. The Telegraph Act and TRAI Act constitute a complete and special regime governing telecom. The IBC, though special in insolvency matters, cannot override sovereign control over natural resources. The Court held that applying IBC to spectrum would amount to permitting a general insolvency framework to rewrite a constitutional and statutory public trust regime.
The Court relied upon its reasoning in Embassy Property Developments Pvt. Ltd. v. State of Karnataka to reiterate that insolvency tribunals cannot adjudicate matters falling within sovereign and public law domains.
RATIO DECIDENDI
The decisive principle laid down is that spectrum, being a natural resource held by the Union in public trust under Section 4 of the Telegraph Act, does not vest ownership rights in Telecom Service Providers. The licence confers only a limited, conditional and revocable right to use. Mere accounting treatment as an intangible asset does not create proprietary interest.
Since the Insolvency and Bankruptcy Code applies only to assets over which the corporate debtor has ownership rights, spectrum and spectrum usage rights cannot be included in the insolvency estate. Consequently, spectrum cannot be subjected to insolvency or liquidation proceedings, nor can insolvency resolution plans restructure or extinguish statutory dues arising from telecom law.
The regulatory regime governing spectrum prevails, and IBC cannot be invoked to override sovereign control or public trust obligations.
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