Insolvency, Sovereignty and Spectrum: Locating IBC Within Constitutional Order

The Supreme Court's recent decision in State Bank of India v. Union of India [2026 Livelaw (SC) 152] will inevitably be described as a telecom ruling. It is more than that. At its heart lies a question that goes to the architecture of the Insolvency and Bankruptcy Code, 2016 (IBC): when a corporate debtor enters the Corporate Insolvency Resolution Process (CIRP), what is the juridical character of the rights it holds, and which of those rights constitute part of the insolvency estate?

The controversy arose from the insolvency of telecom service providers whose spectrum usage rights were reflected on their balance sheets as intangible assets. The submission advanced was that spectrum had been acquired for consideration, capitalised, and commercially exploited; it ought therefore to fall within the resolution pool, with the Department of Telecommunications ranking in the waterfall as an operational creditor for its dues.

The Court declined that invitation. In doing so, it did not weaken the IBC; it defined its perimeter. By holding that IBC cannot be “the guiding principle for restructuring the ownership and control of spectrum” (para 1.2), the Court shifted the axis of the inquiry. The issue was never the commercial value of spectrum. The issue was whether the right to use it is of a character that permits it to be dealt with through a creditor-driven restructuring process.

Answering that question required the Court to look beyond accounting treatment and into constitutional ordering. Once spectrum was located within the framework of public trust and material resources of the community, the insolvency analysis could no longer proceed on the assumption that every economically valuable interest reflected in a balance sheet necessarily enters the insolvency estate.

Spectrum as a Constitutional Resource

A. Public Trust and Article 39(b)

The judgment situates spectrum within a settled line of authority that treats natural resources as belonging to the people, with the State holding them in trust. The Union of India does not hold spectrum as a commercial proprietor. It administers it as trustee for the community, subject to constitutional obligation.

This understanding draws sustenance from Article 39(b), which directs that the ownership and control of material resources of the community be distributed so as to subserve the common good. Though a Directive Principle, Article 39(b) has consistently informed judicial reasoning in matters of resource allocation. The characterisation of spectrum in the present case follows that constitutional lineage.

Against that constitutional backdrop, the proprietary analogy advanced on behalf of the lenders required careful examination. If a debtor holds a right capable of generating revenue, and if that right is recognised as an intangible asset in its financial statements, why should it not enter the insolvency estate? The Court approached that question by distinguishing between economic control and juridical entitlement.

B. Why the Proprietary Metaphor Fails

The lenders' case rested on a proprietary analogy. If the debtor holds a valuable right capable of generating revenue, and that right is recognised as an intangible asset under accounting standards, why should it not form part of the insolvency estate?

Accounting recognition turns upon control over future economic benefits. Insolvency law, however, concerns itself with rights that the debtor can transfer, restructure or deploy without being subject to superior sovereign claims. The right to use spectrum, though commercially valuable, remains a time-bound and conditional privilege carved out of sovereign authority and sustained by continued statutory compliance.

To treat such a privilege as indistinguishable from proprietary ownership would be to disregard the layered character of the entitlement. Beneficial use and sovereign control coexist, but they are not equivalent. The insolvency framework, as the Court understood it, cannot convert the former into the latter.

Which law speaks last?

Beneath the immediate dispute over accounting treatment and operational debt lay a question of statutory hierarchy. Section 238 of the IBC provides that the Code shall prevail notwithstanding anything inconsistent contained in any other law. That provision has often been invoked to secure the primacy of insolvency resolution over competing statutory and contractual claims.

The telecom framework, however, is anchored in section 4 of the Indian Telegraph Act, 1885, which vests in the Union the exclusive privilege of establishing and operating telecommunication systems. That statutory privilege is exercised within a constitutional setting shaped by Article 39(b). The question, therefore, was whether the non-obstante clause in the IBC could require outcomes inconsistent with a regime that gives effect to sovereign control over a public resource.

The Court's answer confines the reach of insolvency primacy. The Code operates with force within its domain, yet it does not redraw the boundaries of sovereign authority over allocation and continued control of spectrum. Once that ordering is accepted, the conclusion that spectrum does not enter the insolvency estate follows from the hierarchy the Court chose to adopt.

Section 14 and the moratorium: Shield, not sword

The dispute next turned upon the scope of the moratorium under section 14 of the IBC, particularly the Explanation protecting licences and similar grants from suspension or termination solely on the ground of insolvency. The telecom service providers contended that this protection ensured continuity of their spectrum licences during the CIRP.

The Court accepted that the moratorium preserves the status quo. It restrains termination merely because insolvency proceedings have commenced. It does not, however, enlarge the debtor's rights or compel renewal, waiver of pre-existing breaches, or alteration of statutory conditions attached to the licence.

In that sense, the moratorium functions as a protective restraint. It prevents precipitous action during the resolution process. It does not authorise the resolution professional or the Committee of Creditors to insist upon continuation of a licence in disregard of the regulatory framework that governs it.

The so-called “clean slate” principle operates upon liabilities among stakeholders once a resolution plan is approved. It does not erase the regulatory history of a licensee or neutralise conditions that define the scope of the privilege itself. The Court therefore treated section 14 as a restraint against disruption, not as a vehicle for altering the legal character of the licences. 

Section 18 and the insolvency estate

Section 18 authorises the resolution professional to take control of assets over which the corporate debtor has ownership rights as reflected in its records. The accompanying Explanation excludes assets owned by third parties but held in the debtor's possession under contractual arrangements. The classification of spectrum within this framework lay at the centre of the controversy.

A telecom licence is neither pure ownership nor a mere bailment. It is a hybrid entitlement: contractual in form, statutory in origin, commercially valuable in operation, yet bounded at every stage by sovereign control. It is granted for substantial consideration, recognised in financial statements as an intangible asset, and forms the commercial foundation of the enterprise. Yet ultimate control over the underlying resource remains vested in the sovereign, and continued use is conditioned upon statutory compliance.

The judgment resolves this hybridity by locating the licence within the exclusion contained in the Explanation. Emphasis is placed upon ultimate title and sovereign control, with the result that the debtor's interest is treated as insufficiently proprietary to enter the insolvency estate.

The Explanation was framed to prevent the Resolution Professional from appropriating property that belongs to another. A statutory licence does not fall neatly within that description. Though subject to sovereign control, it is not property belonging to a third party in the ordinary sense. It is a right conferred upon the licensee for consideration, enforceable in law and capable of commercial exploitation, albeit conditional and regulated.

By locating spectrum within the exclusion, the Court resolves the hybridity in favour of sovereign origin rather than commercial substance. The consequence is significant. Wherever enterprise value rests predominantly upon a state-conferred entitlement, insolvency cannot elevate beneficial use into transferable ownership. The boundary is drawn not by accounting recognition or commercial expectation, but by the constitutional character of the resource itself.

Continuity, Control and Constitutional Compulsion

The judgment proceeds on the footing that once spectrum is characterised as a material resource of the community held in trust, insolvency cannot operate upon it in any meaningful sense. That conclusion invites closer scrutiny.

The Constitution does not forbid the transfer of derived rights over public resources. It requires that such resources be allocated and regulated so as to subserve the common good. A spectrum licence, once granted for consideration within a statutory framework, creates enforceable rights in the licensee. Those rights are conditional and subject to regulatory oversight. They are not illusory.

The critical question was not whether the sovereign retains ultimate control over spectrum. That proposition is unexceptional. The question was whether permitting a resolution applicant to step into the shoes of an existing licensee, subject to mandatory regulatory approval and compliance with licence conditions, would in fact dilute that sovereign control.

A change in ownership of the corporate debtor is not identical to a transfer of the underlying resource. The juristic entity continues. The licence continues. What changes is control. If the telecom regime already requires prior approval for change in control, and if the regulator retains the authority to refuse such approval where public interest so demands, it is not immediately evident why insolvency resolution would necessarily subvert constitutional trust.

It was therefore open to the Court equally to hold that the right to use spectrum, though rooted in sovereign grant, remains an asset of the licensee for the limited purposes of insolvency, with any continuation or transfer remaining fully subject to regulatory scrutiny. Such an approach would have preserved sovereign oversight while recognising that the Constitution does not require commercially conferred rights to become inert upon corporate distress. But it chose not to do so.

The reasoning does not establish that the path adopted was the only constitutionally coherent possibility. It establishes that the Court preferred a more categorical separation between insolvency and sovereign control. Whether that separation was constitutionally compelled or judicially chosen remains a question that the judgment leaves largely implicit.

Constitutional adjudication often requires selection among competing yet plausible constructions. In the present case, the Constitution did not dictate a single path. It required preservation of sovereign control over public resources. The manner in which that preservation interacts with insolvency was a matter of calibration. The judgment resolves that calibration in favour of insulation rather than accommodation.

The State's dual capacity: as Creditor and Trustee

The proceedings also reveal the State acting in more than one capacity. The Department of Telecommunications (DoT) filed its claims within the insolvency process as an operational creditor. In that posture, it invoked the mechanisms of the Code and sought recovery in accordance with the statutory waterfall. It attended meetings of the CoC from 06 June 2018 onwards. It did not raise any reservation regarding verification of claims, resolution plan process, conduct of the CIRP in general and the Resolution Plan itself.

Concurrently, it maintained that the spectrum licence and the dues attached to it arose from a sovereign privilege held in trust for the public and were therefore not amenable to compromise through insolvency resolution.

Public authorities frequently act in multiple capacities. Revenue collection, regulatory supervision and sovereign trusteeship may converge in a single institutional actor. Where those capacities intersect within one proceeding, however, consistency assumes importance.

If spectrum dues are treated as operational debt, they are susceptible to the discipline of the Code. If they are inseparable from sovereign control and incapable of compromise, their characterisation within the creditor hierarchy sits uneasily with that position. Participation in the insolvency process may not amount to a waiver of sovereign authority. It does, however, raise the question whether a public authority that invokes the Code's machinery as a claimant should also accept the discipline of that framework in relation to the asset from which its claim arises. Selective engagement with insolvency – embracing recovery while resisting its structural consequences – sits uneasily with the Code's integrated design.

The judgment accommodates this posture without extended analysis. Whether that accommodation reflects a pragmatic recognition of governmental complexity or leaves unresolved tension within the reasoning is a matter that invites further reflection.

Economic Consequence and the Common Good

There is an uncomfortable economic reality that cannot be ignored. A telecom company is not asset-heavy in the conventional sense. Its towers are frequently hived off. Its equipment is financed. Its land footprint is modest. What gives the enterprise life is spectrum. In commercial terms, it is the enterprise's crown jewel; in legal terms, it remains a privilege carved from sovereign authority.

If that operating right is treated as incapable of meaningful engagement within insolvency, the prospects of resolution narrow considerably. A bidder is not purchasing inventory or plant; it is seeking continuity of the licence that permits the business to function.

If that continuity is uncertain or contingent upon prior satisfaction of substantial regulatory arrears, the commercial incentive to propose a resolution plan diminishes sharply, and liquidation ceases to be merely theoretical and becomes foreseeable.

The constitutional inquiry does not end with characterisation of spectrum as a public resource. Article 39(b) directs that material resources be controlled so as to subserve the common good. The common good includes revenue to the State, but it also includes continuity of essential services, preservation of employment, stability of the financial system and the protection of public sector banks, which themselves are instrumentalities of the State.

It is therefore legitimate to ask whether rendering spectrum functionally immobile during insolvency necessarily advances that common good. The judgment secures sovereign control. Whether complete exclusion of the licence from the insolvency estate invariably serves the broader conception of collective welfare is a question that future experience may illuminate.

A further institutional question arises. Insolvency operates within strict timelines; regulatory approval for change of control does not. If continuation or transfer of a licence depends upon regulatory consent without corresponding statutory discipline as to time or criteria, the practical viability of resolution may depend less upon constitutional principle than upon administrative discretion. In such a setting, formal preservation of sovereign oversight may function, in effect, as a veto.

The interaction between insolvency timelines and regulatory processes therefore warrants careful attention if revival is to remain a meaningful objective in regulated sectors.

Section 238 and Statutory Primacy

Section 238 expresses Parliament's intention that the Code prevail in the event of inconsistency with other laws. The question in the present case was whether that overriding effect could extend to a statutory regime governing allocation and regulation of a natural resource held in constitutional trust.

Section 238 contains no express exception for statutes that give effect to sovereign control over material resources. The limitation recognised in the present case arises from interpretive harmonisation rather than textual carve-out. In effect, the non-obstante clause is read as yielding where enforcement of insolvency primacy would disturb a statutory regime that embodies constitutional trust obligations.

Many statutory regimes governing mining, petroleum, power distribution and infrastructure concessions are similarly rooted in sovereign control over public resources. The practical reach of section 238 will therefore depend upon the character of the entitlement in question. Insolvency primacy may not be uniform across sectors.

Parliament enacted the Code against an existing regulatory landscape. The possibility of accommodating insolvency resolution within that landscape, subject to regulatory approval and compliance with statutory conditions, remained available. The judgment adopts a more categorical boundary. Whether that boundary reflects constitutional necessity or a recalibration of statutory override is likely to remain part of the continuing evolution of insolvency jurisprudence.

Implications for regulated sectors

The reasoning is not confined to telecom. Wherever enterprise value depends substantially on a sovereign grant over a natural resource - mining leases, petroleum exploration rights, power distribution licences, port concessions - similar questions may arise.

This does not render such entities immune from insolvency. It means that the insolvency process cannot treat regulatory entitlements as freely alienable assets divorced from the statutory conditions that created them.

For resolution professionals and Committees of Creditors, the threshold inquiry in regulated sectors becomes unavoidable: what is the status of the debtor's regulatory compliance, and what approvals are required for any change in control or continuation of licence?

The going concern objective of the IBC remains vital. But revival cannot be achieved by disregarding the sovereign's continuing duty to ensure that public resources are held and used in accordance with law.

The need for clarity going forward

The judgment clarifies that insolvency does not sit above constitutional resource ordering. It also leaves open difficult questions.

The line between a statutory licence inseparable from sovereign control and other forms of regulatory permission may not always be clear. Future cases will require careful calibration to avoid uncertainty for lenders and resolution applicants.

There may be merit in legislative clarification on the treatment of statutory licences and concessions within insolvency, particularly in capital-intensive regulated sectors. Clear procedural frameworks for coordination between insolvency tribunals and sectoral regulators would enhance predictability without diluting constitutional safeguards.

Rescue and resource governance

The deeper unease, however, remains. The IBC was enacted to preserve value and prevent the premature burial of viable enterprises. In sectors where the principal operating right stands beyond the reach of restructuring, the rescue promise becomes fragile.

If spectrum cannot travel meaningfully through resolution without prior satisfaction of sovereign dues, bidders must either price in that burden or abstain altogether. Where arrears are substantial, the result may not be resolution but liquidation. The Code, designed as a revival statute, may in such cases function merely as an orderly path to exit. That is a sobering possibility for a statute conceived as an engine of rescue.

That outcome may well be justified in constitutional terms. Public resources cannot be diluted through financial engineering. Yet the tension is this: resource governance insists upon compliance and fair value. Insolvency law seeks continuity and preservation. Where the two intersect, Parliament may need to speak with greater clarity on how rescue and regulation are to be reconciled.

Insolvency within constitutional ordering

The decision marks an important moment in the evolution of Indian insolvency law. The IBC remains a transformative economic statute. But it does not exist in isolation.

Where corporate value is derived from rights carved out of public trust over material resources of the community, insolvency must yield to constitutional ordering. The commercial wisdom of creditors governs distribution among stakeholders; it does not govern the destiny of public resources.

That is the line the Court has drawn. It honours sovereign control. However, it was a line chosen rather than constitutionally compelled, and the consequences of that choice now fall to those who must operate within its boundaries. Whether that line can preserve both resource integrity and enterprise value in the years ahead is a question that now moves from the courtroom to the legislature.