Introduction:
In a constitutionally significant ruling, the Supreme Court of India has decisively held that the ownership and control of telecom spectrum cannot be determined or restructured under the Insolvency and Bankruptcy Code, 2016 (IBC), as spectrum is a material resource of the community and a common good held in trust for citizens. The judgment was delivered by a Bench comprising Justice P.S. Narasimha and Justice Atul Chandurkar while deciding a batch of civil appeals arising from insolvency proceedings involving major telecom operators. At the heart of the dispute was whether telecom service providers undergoing corporate insolvency resolution could invoke the moratorium under the IBC to stall payment of licence and spectrum dues owed to the Government, and whether the “right to use spectrum” could be treated as an intangible asset of the corporate debtor forming part of the insolvency estate. The appeals arose from a ruling of the National Company Law Appellate Tribunal, which had taken the view that although spectrum belongs to the Union and is a public resource, the right to use it is an intangible asset that could be dealt with during the insolvency resolution process, subject to clearance of past dues. Challenging this approach, the Union of India urged the Supreme Court to reaffirm constitutional principles governing natural resources and to clarify that the IBC, being a procedural and economic legislation, cannot override statutory and constitutional controls over spectrum. Accepting this submission, the Supreme Court held in clear terms that “IBC cannot be the guiding principle for restructuring the ownership and control of spectrum,” thereby placing constitutional policy and public trust doctrine above insolvency mechanisms.
Arguments of the Union of India:
The Union Government, represented by the Attorney General, mounted a constitutional and statutory challenge to the approach adopted by the NCLAT. It was argued that telecom spectrum is not a commodity or asset that can be equated with land, machinery, or other commercial intangibles of a corporate debtor. Instead, spectrum is a natural and national resource vested in the Union under Article 297 of the Constitution and Section 4 of the Telegraph Act. The Government emphasized that spectrum is held by the State in trust for the people and must be allocated and regulated strictly in accordance with public interest, national security, and sovereign policy considerations.
The Attorney General contended that the Insolvency and Bankruptcy Code is essentially a procedural statute designed to resolve corporate distress and maximize value for creditors, and its overriding clause under Section 238 cannot be interpreted so expansively as to displace constitutional mandates or special statutes governing natural resources. It was argued that the IBC does not create or transfer proprietary rights; it only provides a framework for resolution of debts. Therefore, it cannot be used as a tool to restructure ownership or control of spectrum, which remains firmly with the Union at all times.
Placing reliance on Sections 18 and 36 of the IBC, the Union submitted that the insolvency estate expressly excludes third-party property held by the corporate debtor. Since ownership of spectrum never vests in the telecom licensee, but only a conditional and limited right to use is granted under a licence, spectrum cannot be treated as an “asset” of the corporate debtor in the true sense. The Government further argued that even the so-called “right to use spectrum” is inseparable from the licence conditions, including payment of dues, compliance with regulatory norms, and adherence to public policy objectives. Consequently, once a licensee defaults on its obligations, it cannot invoke insolvency law to freeze or dilute the Government’s sovereign claims.
The Union also questioned the classification of spectrum and licence dues as “operational debt” under the IBC. It was submitted that these dues arise not from any supply of goods or services, but from sovereign functions and statutory licences. Treating the Government as just another operational creditor, it was argued, would distort the priority structure under the IBC and undermine the State’s ability to manage and regulate essential public resources. According to the Union, insolvency proceedings cannot be permitted to become a backdoor mechanism to reduce or restructure government dues, particularly in sectors involving public infrastructure and national resources.
Arguments of the Committee of Creditors and Resolution Professionals:
On the other side, the Committee of Creditors and the resolution professionals representing the corporate debtors advanced a commercially oriented interpretation of the law. They accepted that ownership of spectrum remains with the Government, but argued that the licence granted to telecom operators confers a valuable, transferable right to use spectrum, subject to regulatory approval. This right, they contended, is recognised as an intangible asset under established accounting standards and is routinely relied upon by lenders while extending large-scale credit to telecom companies.
The respondents emphasized that the Insolvency and Bankruptcy Code is designed to preserve the corporate debtor as a going concern and to maximize the value of its assets. They relied on Section 14 of the IBC, which provides for a moratorium during the corporate insolvency resolution process, to argue that termination or suspension of spectrum licences during CIRP would destroy the very business of a telecom operator and frustrate the objective of resolution. Without access to spectrum, a telecom company cannot function, and any resolution plan would become meaningless.
It was further argued that the Department of Telecommunications itself had submitted claims in insolvency proceedings as an operational creditor, thereby implicitly acknowledging that spectrum dues fall within the framework of the IBC. Relying on Section 5(21) of the Code, the respondents contended that dues payable to statutory authorities can qualify as operational debt. Once the Government participates in the insolvency process, it cannot selectively assert sovereign immunity to defeat the moratorium or the resolution mechanism.
The respondents also supported the NCLAT’s nuanced position that while the right to use spectrum can form part of the insolvency estate, it cannot be transferred unless all past dues are cleared. According to them, this approach struck a balance between preserving the Government’s regulatory control and enabling effective resolution of distressed telecom companies. They cautioned that excluding spectrum usage rights entirely from the insolvency estate would render insolvency resolution in the telecom sector practically impossible, leading to liquidation and loss of value for all stakeholders, including employees, consumers, and lenders.
Court’s Judgment and Reasoning:
Delivering the judgment, Justice P.S. Narasimha adopted a constitutional lens to resolve the conflict between insolvency law and telecom regulation. The Court began by characterizing spectrum as a material resource of the community in the constitutional sense, drawing directly from the language and philosophy of Article 39(b), which mandates that material resources of the community be distributed to subserve the common good. Once spectrum is understood in this manner, the Court observed, its ownership, control, and allocation cannot be viewed through the narrow prism of private commercial law.
The Court categorically held that spectrum is not merely an economic asset but a national resource whose benefits must flow to citizens. For this reason, its ownership and, more importantly, its control must remain secured for the public. Insolvency law, the Bench emphasized, is ill-suited to decide questions of ownership and control over such resources. In a striking metaphor, Justice Narasimha remarked that the Court’s conclusion flowed “as naturally as water knows the slope,” underscoring the inevitability of prioritizing constitutional policy over insolvency mechanisms.
Structuring the judgment in three parts, the Court first examined the legal implications of spectrum, affirming that it is vested in the Union and governed by constitutional and statutory frameworks that emphasize public interest. In the second part, the Court identified the true legal province governing spectrum—namely, telecom laws and constitutional principles—rather than the IBC. In the third part, the Court analysed the treatment of assets under the IBC and concluded that while insolvency law can deal with assets belonging to the corporate debtor, it cannot be used to restructure ownership or control of spectrum, which never vests in the debtor.
The Court thus rejected the notion that the IBC’s overriding clause could trump telecom laws or constitutional mandates. While acknowledging that telecom companies may have limited rights to use spectrum under licence agreements, the Court clarified that such rights are conditional, regulated, and inseparable from sovereign control. They cannot be elevated to proprietary interests capable of being dealt with independently under insolvency proceedings.
By favouring the stand of the Union Government, the Supreme Court effectively overturned the broader implications of the NCLAT’s ruling. It held that insolvency proceedings cannot be used to invoke a moratorium to avoid payment of licence dues, nor can spectrum usage rights be treated as ordinary intangible assets for the purpose of resolution. The judgment reaffirms that public resources stand on a different constitutional footing from private assets and must be governed accordingly.