Telecom spectrum not restructurable asset under IBC: Supreme Court in Aircel AGR insolvency dispute

The Supreme Court on Friday held that telecom service providers cannot invoke the moratorium under the Insolvency and Bankruptcy Code, 2016 (IBC) to restructure or defer payment of licence and spectrum dues owed to the Department of Telecommunications (DoT) by treating spectrum as a corporate asset [Union of India Vs State Bank of India]..A Bench of Justices PS Narasimha and Atul Chandurkar held that material resources must be managed in a manner that subserves the common good. Bench held "We hold that Spectrum allocated to TSPs and shown in their books of account as an “asset” cannot be subjected to proceedings under Insolvency and Bankruptcy Code, 2016.".The case arose from insolvency proceedings involving Aircel Limited, Aircel Cellular Limited and Dishnet Wireless Limited.The Aircel group was granted Unified Access Service Licences on December 5, 2006 for a 20-year term. It acquired spectrum in the 900 MHz, 1800 MHz and 2100 MHz bands in auctions conducted in 2010, 2014, 2015 and 2016, paying over ₹6,249 crore.State Bank of India and other lenders extended term loans aggregating ₹13,729 crore under a 2014 financing arrangement.The companies defaulted on licence fee and spectrum usage charges. In March 2018, they filed voluntary petitions under Section 10 of the IBC. The NCLT, Mumbai admitted the applications on March 12 and 19, 2018. The Department of Telecommunications filed claims of approximately ₹9,894 crore towards unpaid licence and spectrum dues.A resolution plan submitted by UV Asset Reconstruction Company was approved by the Committee of Creditors in May 2019 and sanctioned by the NCLT in June 2020.The Union of India challenged aspects of the resolution process before the National Company Law Appellate Tribunal (NCLAT). In 2020, the Supreme Court, while hearing AGR-related matters, framed specific questions regarding the treatment of spectrum under the IBC and directed the NCLAT to examine whether spectrum could be subjected to insolvency proceedings and whether government dues would qualify as operational debt.In its judgment, the NCLAT held that while spectrum is a natural resource owned by the nation, the right to use spectrum is an intangible asset of the licensee capable of being subjected to insolvency proceedings. It further held that licence dues and deferred spectrum payments fall within the ambit of operational debt under the IBC, though spectrum cannot be utilised without payment of requisite dues.The matter then returned to the Supreme Court for final determination.The Court said the issue turns on the legal character of spectrum. It described spectrum as a “material resource of the community.” Placing reliance on Article 39(b) of the Constitution, the Bench observed that material resources of the community must be distributed to subserve the common good and cannot be treated as private commercial assets divorced from public interest.The Bench structured its judgment in three parts. First, it examined the legal implications of spectrum under telecom law. Second, it identified the legal issue - whether insolvency law could be used to alter ownership or control of spectrum. Third, it examined the treatment of assets under the IBC and its interaction with telecom statutes.Referring to Section 4 of the Indian Telegraph Act, 1885, the Court noted that the Union enjoys exclusive privilege over telecommunication systems and grants licences on such terms and conditions as it thinks fit, underscoring that the right to use spectrum does not amount to proprietary ownership. The Court held that the IBC cannot be the guiding framework for restructuring ownership and control of spectrum. Insolvency law, it said, cannot override the statutory regime governing natural resources. The Bench made it clear that spectrum cannot be treated as a freely transferable asset merely because a company has entered CIRP..The Court observed that the case required a reconciliatory interpretation of the IBC and the telecom regulatory framework, holding that insolvency law cannot be interpreted in a manner that renders telecom statutes otiose..Reiterating the public trust principle, the Court observed that the Government holds spectrum as trustee for the people and its control cannot be diluted through insolvency proceedings..Aircel CoC was represented by Senior Advocate Rakesh Dwivedi with Advocates Raunak Dhillon, Aishwarya Gupta, Niharika Shukla, Anchit Jasuja, Eklavya Dwivedi and Yasir from Cyril Amarchand Mangaldas.Aircel's RP was represented by Senior Advocates Shyam Divan and Gopal Jain with Advocates Anoop Rawat, Misha, Vaijayant Paliwal, Saurav Panda, Charu Bansal, Mohana Nijhawan and Kirti Gupta from Shardul Amarchand Mangaldas..The Union of India was represented by Attorney General for India R Venkataramani and Additional Solicitor General KM Nataraj with Advocates Digvijay Dam, Balaji Srinivasan, Akshay Amritanshu, Kanu Agrawal, S. K. Singhania, Sansriti Pathak, Shashank Shekhar, Kartikay Aggarwal, Ameyavikrama Thanvi, Raman Yadav, Chitvan Singhal, Abhishek Kumar Pandey and Amrish Kumar, .Other party to the litigation was represented by Advocates Rohan Batra, Dhruv Dewan, Sanjukta Roy, Dhruv Sethi, Harsh Vardhan and Shailza Agarwal..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.