The spectrum allocated to telecom service providers was not an asset to be subjected to proceedings under the Insolvency and Bankruptcy Code, the Supreme Court ruled on Friday.
The landmark verdict has wider ramifications for the telecommunication sector as telecom companies such as Aircel Group of Companies have invoked moratorium on the basis of voluntary corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC) for restructuring of their assets.
“We hold that spectrum allocated to telecom service providers (TSPs) and shown in their books of account as an ‘asset’ cannot be subjected to proceedings under the Insolvency and Bankruptcy Code, 2016,” a Bench of Justice PS Narasimha and Justice AS Chandurkar said.
It said the Centre is the owner and trustee of spectrum on the one hand, and the Telecom Regulatory Authority of India (TRAI) is the regulator on the other, and taken together, they occupy the “entire province of telecommunications”.
Allowing an appeal filed by the Department of Telecom, the top court dismissed the petitions of the State Bank of India and other telecom service providers aggrieved by certain aspects of a National Company Law Appellate Tribunal (NCLAT) verdict.
The NCLAT had 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.
However, the top court said, “Mere recognition of spectrum licensing rights as an intangible asset by TSPs in the financial statements is not conclusive of their ownership, as it only represents control over future economic benefits. Even assuming that licensing of spectrum rights is one among the bundle of rights, in the absence of transfer of title over the spectrum, no ownership rights are created in TSPs either in the spectrum or in its right to use as governed by the licensing conditions. Hence, under the IBC framework, spectrum licensing rights is not a part of the pool of assets for insolvency or liquidation,” it said.
The Bench said the regulatory jurisdiction for the telecommunication sector through TRAI extends to making recommendations to the Union government and discharging the functions under the TRAI Act.
“The statutory regime under the IBC cannot be permitted to make inroads into the telecom sector and re-write and restructure the rights and liabilities arising out of administration, usage, and transfers of spectrum which operate under the exclusive legal regime concerning telecommunications. The disharmony caused by applying IBC to the telecom sector, which operates under a different legal regime, was never intended by Parliament,” it said.
