“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 (IBC), 2016,” the judgment said. TSPs are telecom service providers, and in this case, Aircel and Rcom went bankrupt in 2018 and 2019, respectively.
A bench comprising Justice PS Narasimha and Justice Atul Chandurkar held that “spectrum is a scarce and finite natural resource owned by the people of India, with legal title vesting exclusively in the Union of India, which holds it in trust for the public. Licensees acquire no proprietary interest in spectrum”.
In an over 60-page judgment, the court ruled that telecom spectrum cannot be treated as an asset under the IBC and cannot be sold or restructured during insolvency to repay lenders. The bench clarified that the IBC applies only to assets that a company actually owns. Since spectrum remains government property, it cannot form part of the insolvency or liquidation estate. The ruling made it clear that insolvency law cannot override telecom law.
“The future of these two telcos is over and there is a possibility that the committee of creditors may apply for liquidation,” said an industry executive, who did not want to be named.
The apex court was hearing the case regarding the tussle between Aircel and the telecom department on the back of petitions filed by State Bank of India (SBI) and the two insolvent telecom operators who had challenged a 2021 order of an appellate court that had ruled that spectrum could be transferred or sold under a resolution plan only after clearing all outstanding government dues.
Friday’s order noted that RCom and its unit Reliance Telecom Ltd. had also filed an appeal against the appellate court’s order.
SBI, UVARCL, the department of telecommunications (DoT) and the resolution professionals (RPs) of Aircel and Rcom did not respond to mint‘s queries emailed on Friday. Anish Nanavaty of Deloitte is the resolution professional for Rcom, while Vijaykumar V. Iyer is Aircel’s.
In this case, the government stands to gain. But according to a government official, who did not want to be identified, it will take a legal view to figure out if the airwaves can be put in the upcoming spectrum auction. “It seems the department can get the spectrum back from the companies under insolvency and put that into auction. However, the process would involve sending show cause notices to the companies citing the court order,” the official said.
DoT will also have to work out how to claim statutory dues such as adjusted gross revenue (AGR) from these two telcos and it would have to go through the IBC process.
As per the Supreme Court order of 2020, the AGR dues for Aircel and Reliance Communications were at ₹12,389 crore and ₹25,195 crore, respectively.
Legal possibilities
Legal experts weighed the impact of the ruling.
“In practical terms, once the license is treated as terminated or lapsed in accordance with the unified license conditions, the spectrum reverts to the DoT and can be re-farmed for future auctions under the existing policy framework,” said Arpit Choudhary, partner at King Stubb & Kasiva, Advocates and Attorneys.
“The government does not have to wait for the IBC value distribution because spectrum is no longer part of the insolvency estate,” he added.
According to Choudhary, the corporate insolvency process for the telecom company may continue separately for its other assets; so, there will be some procedural overlap but not a legal bar on the DoT planning future auctions.
The context
Aircel and its subsidiaries were granted 20-year licenses in 2006 and acquired spectrum in auctions between 2010 and 2016 for ₹6,249.27 crore. In 2014, lenders including SBI extended loans of ₹Rs 13,729 crore. After defaults, insolvency proceedings began in 2018, and the government filed claims of ₹₹9,894.13 crore. RCom owes around ₹26,000 crore to Indian banks and financial institutions, according to a PTI report of 2020.
Other telecom operators also wanted the government to bring the spectrum stuck in insolvency for the auction.
In its submission to the Telecom Regulatory Authority of India (Trai) in November last year, Bharti Airtel had said that spectrum currently locked in insolvency proceedings before the National Company Law Tribunal (NCLT) or its Appellate Tribunal (NCLAT) remains an unproductive national asset.
“Its prompt inclusion in upcoming auctions will prevent further value erosion, ensure transparent access for all service providers, and enable efficient, demand-driven utilization,” Airtel had said.
The battle between operators and the government started when RCom, Aircel and Videocon went bankrupt in 2018-2019, leaving behind unpaid statutory dues of over ₹40,000 crores. As an operational creditor, DoT was in a long queue since as per thee IBC rules, it is the financial creditors—basically banks—who get the first preference if any amount is recovered.
What’s at stake
According to Aircel’s resolution plan, approved by an insolvency court in June 2020, operational creditors—including the DoT—were provided just ₹28.50 crore, a mere 0.16% of the ₹17,462 crore they had claimed. This is why the department has refused to budget from its stance.
The top court’s latest order will now hit the financial lenders. SBI, one of the biggest lenders to both RCom and Aircel, has a total exposure of ₹12,000 crore in the two firms.
Financial creditors, who had claimed dues of ₹58,795 crore from Aircel and its entities Dishnet Wireless and Aircel Cellular Ltd, were to get ₹6,630 crore under the UVARCL resolution plan, implying a haircut of 89%.
SBI is not the only bank to be hit. When RCom went bust in 2019, more than 53 financial lenders had raised claims of about ₹Rs 57,382 crore.
UVARCL had originally estimated it would generate ₹800-1,300 crore by selling Aircel’s spectrum in the 1,800 MHz and 2,100 MHz bands. But these estimates went awry after the DoT made it clear that airwaves had only been leased by the government and not sold.
