Introduction
When a telecom service provider (TSP) enters insolvency, what exactly enters the insolvency estate with it? Its towers? Yes. Its receivables? Certainly. But what about the most valuable component of its business model the Spectrum allocated through auction?
In State Bank of India v. Union of India & Ors1, the Supreme Court of India confronted this precise constitutional commercial collision. The Court was not merely deciding a dispute between lenders and the Department of Telecommunications (DoT), It was identifying the “true legal province” of Spectrum and determining whether the Insolvency and Bankruptcy Code, 2016 (IBC) could be invoked to restructure rights flowing from a sovereign resource.
The answer, delivered with constitutional clarity, was that Spectrum allocated to TSPs and shown in their books of account as an “asset” cannot be subjected to proceedings under IBC.
The Public Trust Doctrine and Sovereign Ownership
The Court’s rationale was anchored in the Public Trust Doctrine2, a principle established in precedents such as M.C. Mehta v. Kamal Nath3 and the 2G Case. The Court reiterated that spectrum is a scarce, finite natural resource owned by the people of India, with legal title vesting in the Union of India as a trustee. Under Article 39(b) of the Constitution, material resources must be distributed to best subserve the common good; consequently, they cannot be treated as objects of unfettered private ownership or commercial exploitation.
A critical distinction was made between accounting practices and legal reality. While TSPs may record spectrum as an “asset” in their books to reflect control over future economic benefits for the purpose of raising loans, this does not confer a proprietary interest. Section 4 of the Indian Telegraph Act, 1885 vests the “exclusive privilege” of telecommunications in the Central Government. Any license granted is a limited, conditional, and revocable privilege rather than a transfer of title. The Court emphasized that a balance sheet entry is not determinative of ownership when it concerns a sovereign resource held in trust.
The Limits of the IBC Framework
Financial creditors argued that once spectrum usage rights are recognized as assets, they fall under the “commercial wisdom” of the Committee of Creditors (CoC) and the overriding effect of Section 238 of the IBC. However, the Supreme Court rejected this expansionist view of insolvency jurisdiction.
The Court noted that Sections 18 and 36(4)(a)(iv) of the IBC explicitly exclude assets not owned by the corporate debtor, including contractual arrangements that confer only a right of use without transferring title. Since spectrum usage rights do not create proprietary ownership, they cannot be liquidated or restructured to satisfy private debts. Furthermore, the Spectrum Trading Guidelines (2015)4 mandate the clearance of all past dues as an absolute precondition for any transfer,a regulatory mandate that the IBC cannot displace.
The judgment clarifies that while the IBC is a complete code for the insolvency resolution of corporate entities, it is not a mechanism for reconfiguring sovereign rights over natural resources. The Telegraph Act, the Wireless Telegraphy Act, and the TRAI Act5 constitute an exhaustive framework for the telecom sector that operates independently of the insolvency regime.
Conclusion
The Supreme Court has drawn a sharp line between commercial insolvency and constitutional trusteeship. By ruling that spectrum licensing rights are not part of the pool of assets for insolvency, the Court ensured that sovereign resources remain protected from being liquidated to settle private debts.
This decision does not dilute the IBC; rather, it defines its perimeter. It affirms that while insolvency law may reorganize corporate liabilities, it cannot rewrite the constitutional framework governing the material resources of the community. In this landmark synthesis of law, the Court has reaffirmed a vital principle: the insolvency estate ends where sovereign trusteeship begins.
Citations
Expositor(s): Adv. Jahnobi Paul
