The Supreme Court, in its recent ruling, held that spectrum allocated to Telecom Service Providers (TSPs), even if reflected in their books of account as an “asset”, cannot be subjected to proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The judgment has significant implications for assets that arise from a concession, grant, privilege, or licence by the State.
The Rationale
Spectrum is not an asset under the IBC
Telecom spectrum is a sovereign resource. Licensees enjoy only a regulated and conditional right of use; they do not enjoy legal ownership. The recognition of spectrum as an intangible asset in the books of the corporate debtor is merely an accounting treatment in accordance with applicable accounting standards and is not determinative of ownership.Accordingly, spectrum cannot be treated as an “asset” forming part of the insolvency estate under either the corporate insolvency resolution process or liquidation. In this context, reference may be made to the Explanation to Section 18 and Section 36(4) of the IBC, which exclude from the insolvency estate assets owned by third parties and held by the corporate debtor under trust or contractual arrangements.
The IBC cannot undermine the telecom regulatory regime
The IBC cannot be invoked to override the legal and regulatory framework governing the telecom sector, including the administration, allocation, use, and transfer of spectrum. This reasoning is consistent with the Supreme Court’s decision in the Embassy Property matter, where the Court held that the IBC cannot be used to usurp or neutralise statutory powers vested in the State under special legislation.
Lenders’ rights of transfer are conditional
Tripartite arrangements among lenders, the Department of Telecommunications (DoT), and the TSP typically permit the licence to be treated as part of the security interest of the lenders, enabling transfer of the licence along with related assets to a third party in certain circumstances. However, such transfer remains subject at all times to the DoT’s paramount regulatory authority and approval.
Impact on Project Financing
Project finance is founded on the principle that lenders must have the ability to step in, substitute the developer or operator, and preserve project continuity. Substitution rights are standard across infrastructure sectors—roads, ports, airports, and power—where concessions are granted by the State. Although such concessions originate as sovereign grants, they are structured to permit transfer to a substitute entity with governmental approval, thereby creating bankability.The IBC framework similarly contemplates substitution of ownership through a resolution applicant selected pursuant to a statutory process. However, the judgment brings into sharp focus a critical question: whether conditions attached to substitution rights under sectoral statutes and licence frameworks are duly satisfied as part of the IBC process.
If spectrum and similar sovereign grants are to be dealt with under the IBC, the State authority that granted the concession must be clearly involved in the process, and all regulatory conditions must be satisfied. Any restructuring involving waiver, deferment, or alteration of sovereign dues would necessarily require express State consent. The IBC cannot be used as a mechanism to dilute the control and authority of the State over licensed resources.
The Takeaway
For lenders, predictability of enforcement is central to risk allocation, credit decision-making, and pricing. Financing of spectrum-backed businesses will now require closer scrutiny of substitution mechanics, regulatory approvals, and sovereign payment obligations.
Clarity from the State on the treatment of licensed assets in insolvency scenarios is imperative. Structured guidelines addressing approval-based substitution within the IBC framework would significantly enhance certainty and investor confidence.
The judgment may have direct implications for 5G rollouts, rural connectivity initiatives, satellite spectrum, private networks, and future digital infrastructure. If credit conditions tighten as a result of increased regulatory risk, the ultimate impact may be felt by consumers through higher tariffs or slower network expansion.
(Views are personal)
