SBI seeks review of SC verdict that 'spectrum' does not count as an asset in IBC proceedings

The Supreme Court of India ruling centers on the nature of 'spectrum' and who owns it. The court reaffirmed that spectrum is a finite public resource held in trust by the government on behalf of the people, invoking the Public Trust Doctrine. Telecom service providers (TSPs) only hold the right to use the spectrum for a specified period, not the absolute ownership of it. Therefore, when a TSP enters proceedings under the Insolvency and Bankruptcy Code, the spectrum cannot be liquidated as a tangible asset to pay off creditors. This creates a conflict between the government's right to reclaim unpaid public resources and the creditors' right to maximize recovery from a defaulting company.

The judgment has profound implications for the banking sector and the implementation of the Insolvency and Bankruptcy Code (IBC). The primary goal of the IBC is the timely resolution of stressed assets and maximizing value for creditors. If spectrum, which is often a telecom company's most valuable right, is excluded from the insolvency process, the recovery rate for lenders (like the State Bank of India) plummets. This creates a significant moral hazard and increases the risk profile of lending to the capital-intensive telecom sector. Banks may become hesitant to finance infrastructure projects if they cannot rely on the underlying licenses or usage rights as collateral, potentially stymieing growth in critical sectors like telecommunications.

This issue highlights a regulatory clash between the Department of Telecommunications (DoT) and the Insolvency and Bankruptcy Board of India. The DoT argues that spectrum is sovereign property, and unpaid dues to the government (such as Adjusted Gross Revenue or AGR dues) must be settled before any spectrum rights are transferred. This prioritizes the government's claim over financial creditors. Conversely, the IBC framework generally places secured financial creditors higher in the waterfall mechanism (the order in which creditors are paid during liquidation). The Supreme Court of India's decision prioritizes the sovereign nature of the resource over the commercial interests of lenders, creating a precedent that could affect other sectors where private companies operate using government licenses or concessions, such as mining or aviation.