IBC Cannot Override Telecom Laws Governing Spectrum Trading and Licence Dues: Supreme Court

The Supreme Court of India on Friday held that the Insolvency and Bankruptcy Code cannot be invoked to override the statutory framework governing telecom spectrum, ruling that spectrum trading conditions and licence dues mandated under telecom laws must be honoured notwithstanding insolvency proceedings.

A bench of Justices PS Narasimha and Atul S. Chandurkar framing the key issue observed, “The question for our consideration is whether telecom service providers (TSPs), called upon to pay the license dues by the Department of Telecommunication (DoT) can invoke moratorium on the basis of voluntary corporate insolvency resolution process under Insolvency and Bankruptcy Code, 2016 (IBC) for restructuring of their assets. The asset in question is the Spectrum allocated to the TSPs through auction.”

The top court answered “The operation of the laws concerning telecommunications governing spectrum trading cannot be overridden or bypassed on the basis of an interpretation adopted to the expression 'asset' and its treatment as also Section 238 of IBC.”

The case arose from insolvency proceedings involving the Aircel group entities, including Aircel Limited, Aircel Cellular Limited and Dishnet Wireless Limited. The companies had been granted Unified Access Service Licences by the Department of Telecommunications under agreements dated December 5, 2006, and had acquired spectrum in auctions conducted in 2010, 2014, 2015 and 2016.

After defaulting on licence fee payments, they filed applications under Section 10 (voluntary plea) of the IBC and were admitted into the corporate insolvency resolution process by the National Company Law Tribunal, Mumbai, in March 2018.

A resolution plan approved by the Committee of Creditors was later sanctioned by the NCLT on June 9, 2020, prompting the Department of Telecommunications to challenge the treatment of its dues.

The Supreme Court later framed specific questions on the nature of spectrum, ownership, and whether it could be subjected to insolvency proceedings, and considered appeals against the findings returned by the National Company Law Appellate Tribunal.

Financial creditors led by the State Bank of India and the resolution professionals argued that spectrum usage rights constituted intangible assets of the corporate debtor and that the Department's dues were operational debts to be dealt with under the resolution plan.

They relied on Section 238 of the IBC to contend that the Code would prevail over inconsistent statutory or contractual provisions. The Union of India, through the Department of Telecommunications, maintained that spectrum is a natural resource held under a statutory regime, that licensees acquire only a limited right to use it, and that license conditions requiring clearance of dues prior to trading or transfer cannot be diluted by insolvency proceedings.

Rejecting the argument that spectrum could be treated as an asset free of telecom law constraints, the Court held, “The Spectrum Trading Guidelines cannot be overridden or substituted by the insolvency resolution framework. Dues payable to the Licensor, which must be cleared prior to spectrum trading, cannot be relegated to treatment under a Resolution Plan.”

It further clarified, “While a licence and allocation of spectrum may, in abstract terms, constitute an intangible asset, it is always subject to the telecommunication laws of the nation, viz. the Telegraph Act, 1885, Wireless Telegraphy Act, 1993 and the TRAI Act, 1997, followed by the rules, regulations, guidelines including contractual obligations arising thereunder.”

Concluding its analysis, the bench observed that “IBC cannot be the guiding principle for restructuring the ownership and control of spectrum.”