New Delhi, February 13 In a landmark decision, the Supreme Court on Friday ruled that the spectrum allocated to telecom service providers is not an asset subject to proceedings under the Insolvency and Bankruptcy Code.
This decision will have implications for the telecommunications sector, where companies like Aircel Group have invoked the Insolvency and Bankruptcy Code (IBC) to restructure their assets, based on a voluntary corporate insolvency resolution process.
A bench of Justices P S Narasimha and A S Chandurkar ruled that the Union government is the owner and trustee of the spectrum, while the Telecom Regulatory Authority of India (TRAI) is the regulator. Together, they control the "entire telecommunications landscape."
The court stated that while a license and spectrum allocation may, in theory, constitute an intangible asset, they are always subject to national telecommunications laws, such as the Telegraph Act of 1885, the Wireless Telegraphy Act of 1993, and the TRAI Act of 1997, along with their associated rules and regulations.
"We hold that the spectrum allocated to telecom service providers (TSPs) and shown in their accounts as an 'asset' cannot be subject to proceedings under the Insolvency and Bankruptcy Code of 2016," the Supreme Court ruled.
The bench said that TRAI's regulatory jurisdiction extends to making recommendations to the Union government and performing functions under the TRAI Act.
"The statutory regime under the IBC cannot be used to interfere with the telecommunications sector or to rewrite and restructure the rights and liabilities arising from the administration, use, and transfer of spectrum, which operates under a specific legal regime governing telecommunications."
The bench noted that the application of IBC to the telecommunications sector, which operates under a different legal regime, was never the intention of Parliament.
It added that the interpretation of the IBC by corporate debtors, such as the Aircel Group, for applying IBC to the nation's resources – the spectrum – as an "asset" in their accounts, the license agreement, the tripartite agreement (between the Department of Telecommunications, banks, and TSPs), or the spectrum trading guidelines of 2015, is akin to "tail wagging the dog."
"Statutory interpretation cannot be based on a narrow view of reading the definition clauses out of context. Simply because spectrum can be treated as an 'asset' based on certain attributes, such as possession and usage, lease and assignment, claim and liability, or credit and debt, the entire telecommunications sector cannot be brought under the scope of IBC," the Supreme Court said, overruling the view taken by the National Company Law Appellate Tribunal (NCLAT) that spectrum could be subject to IBC proceedings.
The Supreme Court stated that the scope and ambit of IBC is to expedite the insolvency process, achieve the maximum value of the asset of the entity undergoing corporate insolvency resolution process (CIRP), and focus on the company.
It further stated that the Telegraph Act, the Wireless Telegraphy Act, and the TRAI Act form a comprehensive and exhaustive code for all matters relating to the telecommunications sector.
The bench said that the framework of IBC includes only those tangible or intangible assets within the insolvency framework over which the corporate debtor has ownership rights, including all rights and interests therein as recorded in the balance sheet.
"The mere recognition of spectrum licensing rights as an intangible asset by TSPs in their financial statements is not conclusive of their ownership, as it only represents control over future economic benefits."
"Even if 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.
Referring to its 2020 verdict in the embassy property case, the bench said that this court has emphasised that IBC cannot be invoked to usurp or neutralise powers vested in the state under special statutes, nor can insolvency proceedings be used to compel the state to act contrary to its statutory obligations.
It added that the jurisdiction of the NCLT and NCLAT is confined to matters that arise purely within the insolvency framework and does not extend to adjudicating the legality of sovereign actions.
The Supreme Court allowed the appeal filed by the Centre through the Department of Telecom and dismissed the pleas of the State Bank of India and other telecom service providers who were aggrieved by certain aspects of the NCLAT judgement.
The Aircel Group entities – Aircel Limited, Aircel Cellular Limited, and Dishnet Wireless Limited – were granted telecom licenses by the DoT under the Unified Access Service Licences (UASL) pursuant to license agreements dated December 5, 2006, for a term of 20 years.
The firms failed to pay the license fee and when the DoT attempted to recover these amounts, they invoked IBC by filing an application for the voluntary corporate insolvency resolution process.
The application was admitted by the NCLT’s Mumbai bench in 2018 and an interim resolution professional was appointed.