Introduction

The Insolvency and Bankruptcy Code, 2016 (“IBC”) is intended to be sector agnostic and to provide a uniform framework for corporate insolvency resolution and liquidation for diverse businesses regardless of their industry sector. Nevertheless, there are challenges under the IBC framework for companies operating in certain industries, owing in large part to the nature of their value generating assets and the sector specific regulations governing their industry. One such sector is the telecom industry where the treatment of spectrum usage rights/licenses in case of a telecom service provider’s (“TSP”) insolvency was the subject of the Supreme Court’s (“SC” or the “Court”) recent decision in State Bank of India v. Union of India. After examining the interplay between the IBC and the telecom regulations governing spectrum allocation to TSPs, the Court held that spectrum usage rights allocated to TSPs and reflected in their balance sheets as an intangible ‘asset’ did not constitute assets of the TSP for purposes of the IBC and, therefore, could not be subjected to IBC proceedings.

The Court’s decision has far reaching implications for the interface between the IBC and the constitutional framework governing natural resources, the treatment of intangible assets in insolvency, and the principles guiding the interaction between overlapping statutory regimes.

Even more importantly, the decision significantly limits the potential for the IBC framework to facilitate a successful resolution for TSPs as well as companies in other sectors whose business operations are centred on their intangible rights over a natural resource.

This note analyzes the SC’s decision and its implications for stakeholders.

Background

Aircel Limited, Aircel Cellular Limited and Dishnet Wireless Limited (“Aircel entities”) were granted telecom licenses by the Department of Telecommunications (“DoT”) under a license agreement. However, they defaulted on payment of their license fees and spectrum usage charges, following which DoT initiated recovery actions. While the recovery actions were ongoing, the Aircel entities filed voluntary insolvency applications under Section 10 of the IBC, which were admitted by the National Company Law Tribunal (“NCLT”). The Aircel entities then underwent the corporate insolvency resolution process (“CIRP”) under the IBC, which ultimately led to a resolution plan that was approved by the NCLT.

The NCLT’s order approving the resolution plan was appealed by, among others, DoT which had filed a claim in the CIRP for unpaid license fees of over INR 90 billion, all of which were wiped out when the resolution plan was approved. On appeal, the National Company Law Appellate Tribunal (“NCLAT”), in Union of India v. Vijaykumar V. Iyer (“Vijaykumar Iyer”) made three critical observations. First, that spectrum constitutes an intangible asset of the licensee amenable to insolvency proceedings pursuant to Section 18(f) of the IBC. The tribunal relied on the accounting treatment of spectrum licensing rights as intangible assets under accounting standards and invoked the definition of an asset as “a present economic resource controlled by the entity as a result of past events” to hold that spectrum usage rights constitute intangible assets. Second, that the dues owed to DoT fell in the category of “operational debt” under the IBC and DoT was, accordingly, an operational creditor. Third, the NCLAT stated that the right to use spectrum could not be transferred pursuant to a resolution plan without payment of requisite dues. The NCLAT pointed out that the right to use a natural resource such as spectrum was subject to payment of dues by the licensee, which could not be extinguished by triggering CIRP.

However, the NCLAT’s order did not reconcile these observations, creating an internal inconsistency. If the right to use spectrum is indeed an asset of the corporate debtor, it would be available for acquisition by the successful resolution applicant in accordance with the IBC framework. This in turn would imply that, if the CIRP of the Aircel entities were to take its normal course, DoT, as an operational creditor would have to take a significant haircut on its unpaid license dues. Further, under the “clean slate” theory in Section 32A of the IBC, these unpaid dues would stand extinguished once all payments pursuant to an approved resolution plan are made. Thus, the NCLAT’s position that the right to use spectrum is an intangible asset for purposes of the IBC, but that DoT dues nevertheless survive the resolution plan despite DoT being an operational creditor is contradictory.

The NCLAT’s decision was challenged before the SC where the financial creditors, led by the State Bank of India, argued that the right to use spectrum was an asset of the corporate debtor that should be fully available for transfer to the successful resolution applicant. On the other hand, the Union of India argued that the right to use spectrum was not an asset in the hands of the corporate debtor and should not be available for use in a resolution plan. In its analysis, the SC discussed the constitutional and regulatory framework governing the right to use spectrum, the IBC framework and what constitutes an asset of the corporate debtor for purposes of the IBC, and the interplay between the two regulatory regimes.

The SC’s decision in SBI v. Union of India

The nature of spectrum and the regulatory framework governing its use

The SC first reiterated that spectrum is a natural resource held by the Union Government in public trust under Article 39(b) of the Constitution of India (“Constitution”), placing reliance on Centre for Public Interest Litigation v. Union of India, and Natural Resources Allocation, In Re. The SC also observed that, at a statutory level, the Indian Telegraph Act, 1885 (“Telegraph Act”) vests in the Union an “exclusive privilege of establishing, maintaining, and operating telecommunication systems, and of granting licences” and the monies received by the Union towards parting with the privilege of exploiting spectrum are intended to be ploughed back for serving the common good.

The SC then situated spectrum trading within this constitutional and statutory framework by tracing the evolution of spectrum allocation policies and observed that, despite changes in spectrum policies over the years, the Union’s sovereign role over spectrum allocation had remained unchanged. Building on this foundation, the SC held that the Spectrum Trading Guidelines, 2015 (“Spectrum Guidelines”), which permit transfer of the right to use spectrum between licensees, must be read in the same vein, i.e., that spectrum trading is not a private commercial arrangement, but part of the privilege vested in the Central Government under Section 4 of the Telegraph Act. The Court further observed such trading under the Spectrum Guidelines is conditional, and subject to adherence to financial and regulatory obligations owed to the State. Finally, relying on its decision in Bharti Airtel Limited. v. Union of India, the Court clarified the nature of the license itself. It pointed out that a spectrum license was a “limited, conditional and revocable privilege to use spectrum for specified purposes and for a defined duration”, subject to continuous compliance with license conditions. In addition, although a license itself carries contractual features, the licensor’s powers and obligations arise concurrently from the Constitution and the statutory framework under Section 4 of the Telegraph Act, with such public law obligations prevailing over any contractual terms.

Is a spectrum license an asset under the IBC?

The second prong of the Court’s analysis involved a discussion of the IBC framework and whether the right to use spectrum was an asset of the corporate debtor. Section 18(f) of the IBC requires the interim resolution professional to take control and custody of the “assets” of the corporate debtor, which is further clarified as those assets over which the corporate debtor has “ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets”. The Explanation to Section 18 also specifically excludes “assets owned by a third party in possession of the corporate debtor held under…contractual arrangements” and “other contractual arrangements which do not stipulate transfer of title but only use of the assets”. According to the SC, this signalled that while value-bearing interests and contractual usage rights can support a going concern during CIRP, they do not necessarily become realisable “assets” for estate purposes unless the corporate debtor holds ownership rights. Applying these principles to the case at hand, the Court stated that a spectrum license agreement and the Spectrum Guidelines are arrangements which confer a right of use, and not title. The Spectrum Guidelines expressly confirm that the DoT retains all elements of proprietorial and regulatory control over the spectrum throughout the license period. The Court, thus, concluded that spectrum and the license to use spectrum were not assets of the Aircel entities for purposes of the IBC.

The Court also distinguished between legal ownership of an asset and recognition of the asset from an accounting perspective. Under accounting principles, an asset may be recognized on the balance sheet of an entity based on control over the economic benefits from a resource and legal ownership was not a necessary condition for such recognition. The recognition of spectrum licensing rights as intangible assets on the Aircel entities’ balance sheets, therefore, did not mean that they would automatically constitute assets for purposes of the IBC. Accounting standards aim to present a true and fair financial position and reflect economic substance, not legal ownership. On the other hand, insolvency law focusses on enforceable legal rights and what the debtor can actually transfer. Where the State retains title under a public trust framework, and the arrangement confers only a conditional right of use without transfer of ownership, the Court held that such a right falls outside the scope of IBC.

The interplay between the IBC and Telecom Laws

The third and final prong of the Court’s analysis is the interplay between the two statutory regimes—the Telegraph Act, the Spectrum Guidelines, the Indian Wireless Telegraphy Act, 1933, and the Telecom Regulatory Authority of India Act, 1997 (collectively “Telecom Laws”), and the IBC—as they relate to spectrum licensing rights.

In Vijaykumar Iyer, the NCLAT had held that the right to use spectrum was an asset under Section 18 of the IBC and that the overriding provision in Section 238 meant that the IBC prevails over Telecom Laws in case of a TSP’s insolvency. In contrast, the SC first considered a question that the NCLAT had not squarely addressed, i.e., whether spectrum falls within the IBC’s domain in the first place. As spectrum usage rights were not owned assets within the meaning of Sections 18 and 36 of the IBC, the SC held that regulation of spectrum usage rights did not fall within the IBC’s purview at all. As a consequence, given that the IBC and Telecom Laws operated in separate spheres, the overriding provision of the IBC was not triggered as there was no inconsistency or conflict.

Further, the SC held that the exercise of sovereign and statutory powers lie outside the IBC framework and the IBC cannot be relied on to enforce a right that falls outside its purview. Considering that DoT's power to enforce license conditions, withhold consent for spectrum trading, and suspend or terminate a license for non-payment of dues were exercises of its sovereign power under the Telegraph Act, a resolution plan sanctioned by the NCLT could not override it. To this end, the Court drew directly on its decision in Embassy Property Developments Private Ltd v. State of Karnataka, which established that sovereign statutory decisions fall outside the NCLT’s jurisdiction.

Implications of the Decision

The Court’s conclusion that spectrum licensing rights do not form part of “the pool of assets for insolvency or liquidation” is a significant departure from the accepted norm that licenses, rights of use and other contractual rights of a corporate debtor constitute intangible assets that can be acquired in insolvency. The judgment has several concerning implications for the insolvency resolution of TSPs and beyond.

First, the SC has effectively prohibited TSPs from transferring their most valuable intangible asset (and one that is essential for the continued business operations of the TSP) though a resolution plan. Going forward, any resolution plan for a TSP must be constructed on the basis that spectrum usage rights remain subject to the DoT’s regulatory control and their transfer under a resolution plan is conditional on the satisfaction of conditions under the Spectrum Guidelines, including clearance of all outstanding dues. This constitutes not just a procedural hurdle, but also makes the resolution of a TSP economically and financially unviable. Without being able to freely transfer spectrum usage rights to a successful resolution applicant in accordance with the IBC, liquidation is likely to be the only outcome for many troubled TSPs.

Second, lenders are likely to place far less value on the security provided by spectrum usage rights when lending to TSPs as the Court’s judgment makes clear that a license to spectrum is neither a readily realisable security nor a proprietary asset of the corporate debtor’s estate. The judgment also places a qualification on the commercial wisdom of the CoC: where the subject matter of resolution involves a scarce natural resource held by the State in public trust, creditor consensus cannot override the statutory and constitutional obligations governing its use, and value maximization under the IBC remains subordinate to the preservation of sovereign control.

Third, in contrast to the NCLAT’s ruling, the SC did not address the question of whether unpaid dues to DoT constituted financial debt or operational debt. To a certain extent, the Court did not have to engage with this issue given its conclusion that spectrum usage rights are excluded from the asset pool altogether. However, the classification question remains material to the distribution of value realized from the debtor’s other assets and to DoT’s standing and voting rights on the CoC. Further, by not addressing this question, the judgment fails to distinguish between DoT’s role as a regulator and a creditor. While DoT may have certain powers as a regulator, it is unclear why it should be treated any differently from other government creditors whose dues are treated as operational debt under the IBC.

Fourth, the judgment has implications for insolvencies in other sectors where the primary economic value of the business is derived from intangible rights over natural resources. The Court’s reasoning on spectrum usage rights could just as easily apply to mining licenses, offshore drilling permits, toll road concessions, or any other State-granted right to exploit a public resource for a defined period subject to ongoing compliance with statutory conditions. In such cases, the Court seems to suggest that the determinative inquiry is not a balance sheet classification or economic value, but the nature of the legal interest held. The decision also reinforces the primacy of sectoral regulation over insolvency processes and could limit the asset base available for resolution of corporate debtors in certain industry sectors.

A final question is whether the amendments brought about through the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (“Amendment Act”) (which received the President’s assent on April 6, 2026, and will come into effect on such date as the Central Government may appoint through gazette notification) may have a bearing on the SC’s judgment or on the insolvency resolution of other TSPs. The Amendment Act introduces subsection (5) to Section 31 of the IBC, which provides that, upon approval of a resolution plan, licenses, permits and similar rights granted by governmental authorities “shall not be suspended or terminated for the remaining period of such grant or rights, if the corporate debtor, or, if applicable, the person whose resolution plan is approved under subsection (1), complies with the obligations in respect of the remaining period of such grant or rights.” Further, a new subsection (6) provides that, upon approval of a resolution plan, all claims against the corporate debtor and its assets prior to the date of approval of the plan, shall be extinguished.

These amended provisions, which bolster the “clean slate” principle, suggest that a corporate debtor, or the successful resolution applicant, as the case may be, is required to comply with the license terms only for the remainder of the license period (i.e., going forward) and may not be required to satisfy past unpaid dues. However, given the SC’s overarching conclusion that spectrum usage rights cannot be subject to IBC proceedings and that insolvency laws and Telecom Laws operate in parallel spheres, the interplay between this judgment on spectrum usage rights and the amendments to Section 31 of the IBC remain to be seen.

This insight has been authored by Rajat Sethi, Aparna Ravi and Akshay Dhekane from S&R Associates. They can be reached at [email protected], [email protected] and [email protected], respectively, for any questions. This insight is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.