Supreme Court Says IBC Cannot Determine Ownership Of Telecom Spectrum, Calls It Material Resource Of Community

A bench of Justices PS Narasimha and Atul S. Chandurkar held that the spectrum is a material resource of the community in the constitutional sense. It said the spectrum must benefit the common good, so its control has to be secured for the citizens.

“IBC cannot be the guiding principle for restructuring the ownership and control of spectrum," the court observed.

The issue before the court was whether telecom service providers, called upon to pay license dues by the Department of Telecommunications, can invoke a moratorium on the basis of a voluntary corporate insolvency resolution process under the IBC.

The Court favoured the stand of the Union Government. Pronouncing the judgment, Justice Narasimha said :

"We must understand the spectrum as a material resource of the community precisely as what our Constitution refers as the material resource of the community. If that be so, it is easy to find the path by simply following the State policy to ensure that spectrum and its benefits subserves the common good and not the uncommon good. But for this purpose, its ownership and more importantly its control, with all its attributes, including benefits have to be secured for the citizens. Our judgment, therefore, is in three parts.”

“In the first part we define the legal implications of spectrum. In the second part, we identify the legal problems. In the third part, we examine treatment of asset under IBC, and in this context, its application to telecommunication laws that govern ownership of spectrum. Finally, we could reach our conclusion as naturally as water knows the slope. IBC cannot be the guiding principle for restructuring the ownership and control of spectrum.”

The Court was hearing appeals challenging a decision of the National Company Law Appellate Tribunal, which held that although spectrum remains the property of the Union as a public resource, the right to use spectrum granted to a telecom licensee amounts to an intangible asset forming part of the corporate debtor's estate.

A detailed copy of the judgment is yet to be uploaded.

Background

The Union of India approached the National Company Law Appellate Tribunal (NCLAT) challenging the approval of the resolution plans of Aircel Limited and its group companies, contending that telecom spectrum and statutory dues could not be dealt with under the Insolvency and Bankruptcy Code, in the manner permitted by the Adjudicating Authority

A bench of the NCLAT examined whether the right to use spectrum granted under licence agreements could be treated as an asset of the corporate debtor and whether Government dues could be compromised under a resolution plan.

The dispute arose following the Supreme Court's judgment dated September 1, 2020 on Adjusted Gross Revenue (AGR) dues which held telecom service providers liable to pay substantial statutory dues to the Department of Telecommunications (DoT). In subsequent proceedings, questions relating to the treatment of spectrum and licence rights in insolvency were left open for consideration by the NCLT and NCLAT

The Union of India argued that spectrum is a natural resource held by the Government in public trust under Section 4 of the Telegraph Act, 1885 and that the right to use spectrum is only a limited contractual privilege subject to compliance with licence conditions, including payment of AGR and licence fee dues. It argued that such dues could not be extinguished or diluted through a resolution plan.

The Resolution Professional and lenders, however maintained that the right to use spectrum is an intangible asset reflected in the books of the corporate debtor and forms part of the insolvency estate, capable of being dealt with under a resolution plan to ensure revival of the company.

The NCLAT on April 13, 2021 held that while spectrum remains the property of the Government, the right to use spectrum is a valuable asset of the corporate debtor and can be dealt with under the IBC, subject to compliance with applicable licence conditions and payment of statutory dues as determined in accordance with law

Aggrieved by these findings, the Union of India carried the matter further, raising substantial questions on the interplay between telecom regulation and the insolvency regime.