Mere Accounting Treatment Of Spectrum As 'Asset' Does Not Bring It Within IBC Framework: Supreme Court

The Supreme Court on Friday held that mere treatment of telecom spectrum as an “intangible asset” in the financial statements of telecom service providers (TSPs) does not bring it within the sweep of the Insolvency and Bankruptcy Code (IBC), observing that spectrum remains a natural resource held by the Union of India in public trust.

“Merely because spectrum can be treated as an 'asset' on the basis of certain attributes, such as possession and usage, lease and assignment, claim and liability or credit and debt, it does not follow that ownership vests in the licensee or that such rights can be dealt with under the IBC as assets of the corporate debtor,” the Court observed.

A Bench of Justices Pamidighantam Sri Narasimha and Atul S. Chandurkar was dealing with a batch of appeals arising from insolvency proceedings involving Aircel Ltd, Aircel Cellular Ltd and Dishnet Wireless Ltd.

The companies were admitted into the corporate insolvency resolution process (CIRP) in March 2018 by the NCLT Mumbai bench after defaulting on licence fee and spectrum usage charges payable to the Department of Telecommunications (DoT).

The Aircel group entities had acquired spectrum in various auctions between 2010 and 2016 upon payment of over ₹6,249 crore, while domestic lenders led by State Bank of India had extended loans aggregating to Rs. 13,729 crore.

On April 13, 2021, the National Company Law Appellate Tribunal (NCLAT) had held that although spectrum is a natural resource, the right to use spectrum could be treated as an intangible asset of the licensee for insolvency purposes. It further classified DoT dues as operational debt, while observing that spectrum could not be used without payment of requisite dues.

Reversing this approach, the Supreme Court held that recognition of spectrum usage rights as an intangible asset in financial statements reflects only control over “future economic benefits” and does not amount to transfer of title or creation of ownership rights.

The Court emphasised that ownership and control of spectrum vest exclusively with the Union under Section 4 of the Telegraph Act, and that licence holders acquire only a limited, conditional and revocable right to use spectrum, strictly subject to statutory and contractual conditions.

“In conclusion, the framework of IBC excludes assets over which the corporate debtor has no ownership rights. Mere recognition of spectrum licensing rights as an intangible asset by TSPs in their financial statements is not conclusive of ownership, as it only represents control over future economic benefits,” the bench held.

The Court clarified that in the absence of proprietary or ownership rights, spectrum licensing rights cannot form part of the asset pool available for insolvency resolution or liquidation under the IBC.

“Even assuming that licensing of spectrum rights forms part of a bundle of rights, in the absence of transfer of title over the spectrum, no ownership rights are created in TSPs either in the spectrum or in its right to use as governed by licensing conditions. Hence, under the IBC framework, spectrum licensing rights are not part of the pool of assets available for insolvency or liquidation,” the bench said.

Concluding that the IBC cannot be invoked to restructure ownership or control of spectrum, the Court held that spectrum cannot be treated as an asset capable of restructuring, transfer or distribution under a resolution plan in insolvency proceedings.