As the Insolvency and Bankruptcy Code (IBC) matures, the friction it generates has moved beyond basic admission disputes into deeper structural conflicts with other sovereign and regulatory regimes. One of the most consequential of these frontiers concerns how commercial resolution of a corporate debtor interacts with statutory privileges granted by the state, particularly the sovereign's control over public natural resources.

Does the clean slate doctrine under Section 31 of the IBC extinguish historical, statutory, or regulatory dues owed to the sovereign for the commercial exploitation of natural resources? Or do sovereign public trust obligations take precedence over private creditor priorities and corporate reorganization?

For years, successful resolution applicants leaned on the clean slate principle to wipe out past liabilities, ensuring they inherited a debt free corporate vehicle. That assumption has now been tested. In State Bank of India v. Union of India (2026 INSC 153), the Supreme Court held that sovereign control over natural resources, spectrum being the case in point, cannot be made subordinate to corporate insolvency proceedings.

The Court found that telecom licensees and other resource extractors hold only a conditional, revocable privilege, with the State acting as a public trustee under constitutional mandates such as Article 39(b). Because natural resources are not owned by the corporate debtor in a strict proprietary sense, they fall outside the definition of divisible “assets” under the Code, creating serious tension for resolution applicants who had priced license continuity into their valuations.

1. Statutory dues excluded from “security interest”

Amendments to the IBC framework clarified the definition of “security interest”, expressly excluding interests created merely by operation of law or statute, including government and statutory dues. This strips tax authorities and statutory bodies of secured creditor status, pushing them further down the liquidation waterfall.

2. The spectrum versus asset dichotomy 

The judicial trend is now clear: regulatory dues tied to the use or grant of a public privilege cannot be written off by a simple Committee of Creditors (CoC) resolution. Unlike ordinary operational or financial debt, the State's right to condition a license transfer on clearance of past dues functions as a regulatory checkpoint that sits outside standard insolvency mechanics.

3. Commercial wisdom meets its limits

The Supreme Court continues to protect the CoC’s commercial wisdom when it comes to assessing financial viability, but that deference has a ceiling. It does not extend to public property held in trust by the State. Resolution applicants can no longer assume that acquiring an insolvent entity guarantees unencumbered transfer of its government conferred permits.

The cleanest way to see how unsettled this area still is comes from outside telecom altogether. In Avil Menezes (RP) v. Ministry of Coal (NCLAT, October 2024), the resolution professional for Topworth Urja and Metals, holder of a mining lease over the MM 1 coal block, sought to bring Annual Mine Closure Cost obligations into the CIRP pool. The Ministry of Coal resisted on almost the same footing the Union later used in the spectrum case: that these were public trust funds tied to a sovereign regulatory scheme and therefore stood outside the corporate debtor's estate.

The NCLAT reached the opposite conclusion. It found no dedicated trust account or separate statutory framework that would carve the mine closure dues out of the CIRP, and held that the IBC, as a later and more comprehensive code with its own non obstante clause, prevailed over the Mines and Minerals Development and Regulation Act. The public trust argument that would succeed at the Supreme Court roughly sixteen months later was rejected here.

That contrast is the real story for practitioners. Two tribunals, working from a similar public trust argument and a similar non obstante clash, reached opposite outcomes depending on whether the underlying resource was spectrum or a mining lease, and depending on whether the money in question was a security deposit already escrowed rather than an intangible right recorded as a balance sheet asset. The Supreme Court's spectrum ruling has not, on its own terms, overruled the coal mining reasoning. It leaves open a live question about whether sector specific statutory architecture, not just the abstract idea of a natural resource, is what actually decides these cases.

The lesson for a resolution applicant is not that natural resource dues are now uniformly untouchable. It is that the answer depends heavily on the specific statute and the specific instrument at stake, and that assuming spectrum reasoning travels automatically to mining, ports, or environmental clearances would be a mistake.

In telecom, a resolution applicant evaluating a distressed operator now has to treat the license and spectrum dues as a liability that survives the plan regardless of CoC approval, and price the deal on the assumption that continuity of spectrum use is contingent on satisfying the Department of Telecommunications directly rather than through the resolution plan.

In mining and coal, the AMCC ruling suggests the opposite starting position: dues tied to statutory obligations can still be swept into the CIRP unless the underlying regulator can point to a genuine trust structure, such as a dedicated escrow, rather than a general public interest argument. A resolution applicant here should not assume the spectrum precedent gives it comparable protection or comparable risk. Diligence has to trace whether the specific resource regime creates an actual segregated fund or merely a policy sounding claim.

In sectors still untested, such as port concessions, oil and gas exploration blocks, or environmental clearances bundled into an industrial asset, the honest answer is that neither precedent controls yet. Deal teams should treat these as open questions requiring a specific legal opinion tied to the enabling statute, not a generalized assumption drawn from the spectrum ruling.

The more useful question is no longer simply whether public trust beats the clean slate doctrine in the abstract. It is which structural features, a dedicated trust account, a non obstante clause in the sector specific statute, or the classification of the right as an intangible asset on the company's books, are actually doing the work in each ruling. Until the Supreme Court or Parliament draws that line explicitly, resolution applicants are left reconciling two lines of reasoning that point in different directions depending on the resource involved.

About the author: Parijat Singh Surendran is a Principal Associate at Foresight Law Offices India.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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