The Supreme Court of India has reserved its verdict on whether insolvent telecom companies such as Reliance Communications (RCom) and Aircel may monetise their spectrum assets to repay creditors. During the hearing, key points of contention centred on the legal treatment and ownership of spectrum under Indian law.
The government, via the Department of Telecommunications (DoT), contends that spectrum is a public resource ultimately owned by the state. Accordingly, telcos undergoing insolvency are merely custodians or users rather than owners. Any transfer or sale of spectrum by such firms must therefore first satisfy outstanding statutory dues owed to the government. The state’s position is that spectrum sales cannot proceed unless its dues are cleared, even if creditors face losses.
Conversely, the financial institutions and lenders involved argue that spectrum is often the principal asset of distressed telcos, and permitting its sale is essential to maximise recoveries. If this is disallowed, lenders claim they risk significant losses on outstanding loans, and these companies could be pushed towards liquidation rather than resolution and revival. Resolution professionals have supported this view, stressing the need for clarity on whether spectrum forms part of the insolvency estate available to settle debts.
The legal complexity arises from various National Company Law Appellate Tribunal (NCLAT) precedents. These have generally held that spectrum may only be sold under India’s Insolvency and Bankruptcy Code (IBC) if all statutory government dues, particularly those linked to spectrum usage and licence fees, are paid beforehand. This interpretation could impede beleaguered telcos from attracting bidders or generating sufficient value from asset sales, given the large dues many owe the government.
If the Supreme Court ultimately endorses the government’s interpretation, lenders’ ability to recover funds through spectrum sales would be heavily constrained, with government interests as a creditor taking precedence. A verdict favourable to lenders could, by contrast, ease recoveries for banks and financial creditors in future telecom bankruptcy cases.
