Telecom Spectrum Community Resource, IBC Can't Determine Its Ownership & Control : Supreme Court

The Supreme Court today held that the ownership and control of telecom spectrum cannot be determined by the Insolvency and Bankruptcy Code (IBC), since it is a common good. A bench of Justice PS Narasimha and Justice Atul Chandurkar held that the spectrum is a material resource of the community in the Constitutional sense. Hence, 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," Justice Narasimha observed during the pronouncement.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 true legal province. 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 concluded, "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 Court was dealing with appeals against a ruling of the National Company Law Appellate Tribunal that held that while spectrum belongs to the Union and is held as a public resource, the right to use spectrum granted to a telecom licensee constitutes an intangible asset of the corporate debtor. Factual Background The dispute before the Supreme Court arose from insolvency proceedings of Aircel and Reliance Communications and centres on the legal status of telecom spectrum under the Insolvency and Bankruptcy Code, 2016. NCLAT had held that such right can form part of the insolvency estate and be dealt with during the corporate insolvency resolution process. However, the Tribunal held that the right to use spectrum cannot be transferred during CIRP unless all past dues owed to the Government under the licence are cleared in full. The NCLAT reasoned that spectrum cannot be used without clearing such dues and that insolvency proceedings cannot be used to reduce the Government's recovery under the waterfall mechanism in Section 53 of the IBC. The Union of India challenged this finding. Attorney General R Venkataramani argued that spectrum is a natural resource vested in the Union under Section 4 of the Telegraph Act and Article 297 of the Constitution. He contended that the IBC is a procedural statute and its overriding clause under Section 238 cannot be read to displace statutory controls over natural resources. Relying on Sections 18 and 36 of the IBC, he argued that third-party property is excluded from the insolvency estate and that since ownership of spectrum remains with the Union, it cannot be treated as an asset of the corporate debtor. He also questioned the classification of spectrum dues as operational debt. On the other side, the Committee of Creditors and the resolution professionals argued that while ownership of spectrum remains with the Government, the licence grants a transferable right to use it, subject to regulatory approval. They contended that this right is recognised as an intangible asset in accounting standards and forms the basis on which lenders extend credit. They relied on Section 5(21) of the IBC and pointed out that the Department of Telecommunications had itself submitted claims as an operational creditor. They also invoked Section 14 of the IBC to argue that termination or disabling of the licence during CIRP would defeat the objective of preserving the corporate debtor as a going concern. The issue to be decided in the appeals was whether the right to use spectrum forms part of the insolvency estate under the IBC and whether spectrum dues can be treated as operational debt.Supreme Court VerdictInterpreting Section 4 of the Indian Telegraph Act, 1885, the Court held that the Central Government has exclusive privilege to establish, maintain and work telegraphs and may grant...

Telecom Spectrum Community Resource, IBC Can't Determine Its Ownership & Control : Supreme Court

Amisha Shrivastava

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Telecom Spectrum Community Resource, IBC Can't Determine Its Ownership & Control : Supreme Court

Amisha Shrivastava

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