Aircel Spectrum Case: Supreme Court Rules Spectrum Cannot Enter the IBC Estate Due to Conditional Licensing

Background: A Telecom Giant’s Collapse and the Asset Question That Followed

The story of Aircel Limited’s financial collapse is not unusual in the Indian telecom sector, which has been battered by price wars, mounting debt, and unpaid regulatory dues. What made the Aircel insolvency legally extraordinary was not the default itself, but what the company’s lenders attempted to do in the aftermath. When Aircel Limited, Aircel Cellular Limited, and Dishnet Wireless Limited filed for voluntary Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) in March 2018, lenders led by State Bank of India had extended aggregate credit facilities of approximately ₹13,729 crore. The Department of Telecommunications (DoT) lodged claims of ₹9,894.13 crore in unpaid licence fees, spectrum usage charges, and Adjusted Gross Revenue (AGR) dues. As the insolvency machinery cranked into motion, a deceptively simple question was placed before the adjudicating authorities: could the spectrum — the very radio waves Aircel had licensed and used to run its network — be treated as an asset belonging to the corporate debtor, capable of being restructured, transferred, or monetised to repay creditors? [1]

On 13 February 2026, the Supreme Court of India answered that question emphatically in the negative. In State Bank of India v. Union of India & Ors. (Civil Appeal No. 1810 of 2021 and connected appeals), a bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar held that spectrum allocated to telecom service providers cannot be subjected to proceedings under the Insolvency and Bankruptcy Code, 2016. The court declared: “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, 2016.” [2] The ruling fundamentally redraws the boundaries between the law of insolvency and the law governing natural resources, and its implications extend well beyond the fate of Aircel.

The Regulatory Architecture: How Spectrum Is Licensed in India

To understand why the Supreme Court reached the conclusion it did, one must first understand how spectrum is governed in India. The Indian Telegraph Act, 1885 — the colonial-era legislation that served as the foundational law for all forms of telecommunication in the country — vests the exclusive privilege of establishing, maintaining, and working telegraphs in the Central Government. Section 4(1) of the Act reads: “Within India, the Central Government shall have the exclusive privilege of establishing, maintaining and working telegraphs: Provided that the Central Government may grant a license, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India.” [3] The expression “exclusive privilege” is not merely rhetorical — it is constitutive of the entire licensing regime. The government does not sell spectrum. It does not transfer ownership. It grants a revocable permission to use a finite, scarce public resource under conditions it prescribes.

When the Aircel group entities were granted Unified Access Service Licences (UASL) in December 2006 for a twenty-year term, and when they subsequently acquired spectrum usage rights in multiple frequency bands through auctions held between 2010 and 2016, what they received was a conditional, revocable right to use spectrum — not proprietary title to it. Spectrum usage charges (SUC) and licence fees remained payable to the DoT as ongoing obligations. The Telecom Regulatory Authority of India (TRAI), established under the Telecom Regulatory Authority of India Act, 1997, regulates tariffs, quality of service standards, and advises the government on the terms under which licences are issued and renewed. The DoT, functioning under the Ministry of Communications, administers the licensing process and enforces payment of dues. Crucially, the Telegraph Act also empowers the Central Government to revoke any licence granted under Section 4 “on the breach of any of the conditions therein contained, or in default of payment of any consideration payable thereunder” — a revocation power that the court would later rely upon in reinforcing the conditional character of spectrum rights. [3]

This entire regulatory framework is grounded in a deeper constitutional principle. Article 39(b) of the Constitution of India, which forms part of the Directive Principles of State Policy, mandates that the State shall direct its policy towards ensuring that “the ownership and control of the material resources of the community are so distributed as best to subserve the common good.” Spectrum, being finite and exhaustible, has been consistently recognised by Indian courts as a material resource of the community within the meaning of this provision. [4]

The 2G Precedent: Spectrum as Public Trust

The constitutional characterisation of spectrum as a public resource was not a discovery made in the Aircel spectrum case. It was cemented in the landmark 2012 ruling of the Supreme Court in Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1 — popularly known as the 2G Spectrum Case. [4] In that case, a bench of Justice G.S. Singhvi and Justice Asok Kumar Ganguly quashed 122 telecom licences that had been granted by the DoT in 2008 using a first-come, first-served policy, finding the process arbitrary and violative of Article 14 of the Constitution. More significantly for our purposes, the court articulated that the State, when dealing with natural resources like spectrum, acts as a trustee for the public. Natural resources cannot be disposed of or alienated at the discretion of the government without adherence to constitutional principles of fairness, transparency, and public interest.

The public trust doctrine embedded in the 2G ruling means that spectrum is not the government’s to sell as it pleases, nor is it a private asset that a licensee can deal with as its own. The licensee is a conditional occupant — permitted to use the resource so long as it complies with licence conditions and pays its dues. The 2026 Aircel judgment drew directly upon this precedent, observing that spectrum is “a material resource of the community” and that the State holds it as a cestui que trust — a beneficiary-trustee — for the people of India. “Natural resources belong to the people but the State legally owns them on behalf of its people and from that point of view natural resources are considered as national assets… The State is bound to act in consonance with the principles of equality and public trust,” the court noted, echoing the 2G ruling. [1]

The IBC Framework and the Asset Pool Problem

The Insolvency and Bankruptcy Code, 2016 was enacted to consolidate and amend laws relating to reorganisation and insolvency resolution of companies, partnership firms, and individuals. When a company enters the CIRP — as Aircel did under Section 10 (which allows voluntary filing by the corporate debtor itself) — the National Company Law Tribunal (NCLT) passes a moratorium order under Section 14. This moratorium prohibits, among other things, the institution or continuation of suits against the corporate debtor, transfer or disposal of its assets, and enforcement of security interests. The moratorium is intended to create a “calm period” — a breathing space during which the business can continue as a going concern while a resolution plan is formulated. [5]

The resolution professional, appointed upon admission of the CIRP application, is responsible under Section 18 of the IBC for taking custody and control of all assets of the corporate debtor, including business records, intellectual property rights, financial assets, and tangible and intangible assets. It was under this provision that the SBI-led lenders argued that spectrum usage rights — reflected as intangible assets in Aircel’s balance sheets — must form part of the insolvency estate and be made available for distribution among creditors or transferred to a resolution applicant.

The NCLT, Mumbai admitted the insolvency applications in March 2018. A resolution plan submitted by UV Asset Reconstruction Company was approved by the Committee of Creditors (CoC) and sanctioned by the NCLT in June 2020. The DoT challenged this before the National Company Law Appellate Tribunal (NCLAT). The NCLAT, in its impugned order, took a nuanced but internally inconsistent position: it held that spectrum is indeed a natural resource owned by the nation, and that the right to use spectrum is an intangible asset of the licensee capable of being subjected to insolvency proceedings — yet it simultaneously ruled that spectrum could not be used without clearance of government dues. This created a logical tension: how can an asset be dealt with in insolvency if it cannot be transferred or utilised without satisfying obligations that insolvency is supposed to temporarily relieve? [2]

It was against this backdrop that cross-appeals were filed before the Supreme Court — by the financial creditors and resolution professionals seeking to preserve the NCLAT’s treatment of spectrum as an insolvency asset, and by the DoT seeking to remove spectrum from the insolvency estate entirely.

The Supreme Court’s Analysis: Conditional Licensing Cannot Yield Proprietary Rights

The court’s reasoning in the Aircel judgment is structured around three interlocking arguments, each reinforcing the others.

The first and most foundational argument concerns the legal character of a telecom licence. The court examined Section 4 of the Indian Telegraph Act, 1885 — now the Telecommunications Act, 2023 has replaced it, though the proceedings in question were governed by the 1885 Act — and held that what the government confers on a licensee is “a limited, conditional and revocable privilege” to use spectrum. [2] This language deliberately echoes the vocabulary of administrative law, not property law. A privilege is not a proprietary right. A licence is not a conveyance. The court was emphatic: “Recognition of spectrum licensing rights as an intangible asset in the balance sheet is not determinative of recognition or transfer of ownership of the spectrum to TSPs.” Accounting treatment does not change legal character. A telecom company may record spectrum usage rights as an intangible asset in its financial statements for purposes of amortisation and depreciation, but that accountancy practice cannot transform a conditional government licence into private property. [1]

The second argument concerns the specific exclusions built into the IBC itself. Section 36(4) of the Code expressly excludes from the liquidation estate assets owned by a third party in possession of the corporate debtor, as well as contractual arrangements that confer only a right of use rather than transfer of title. The court read the explanation to Section 18 and Section 36(4)(a)(iv) together, concluding that since the TSPs do not have ownership title over spectrum, it cannot form part of the asset pool in either the CIRP or liquidation. As the court observed: “Under the IBC framework, spectrum licensing rights is not a part of the pool of assets for insolvency or liquidation.” [2] The insolvency estate, in other words, is bounded by ownership — and Aircel simply did not own the spectrum.

The third argument is structural: IBC cannot be used to override the specific statutory regime that governs telecommunications. The court held that insolvency law must be reconciled with, not permitted to override, sector-specific statutes governing natural resources. “IBC cannot be the guiding principle for restructuring the ownership and control of spectrum,” the court declared. [1] To allow otherwise would be to permit a private insolvency process to rewrite sovereign obligations, extinguish public dues, and transfer a national resource to private creditors without government approval — outcomes that are directly contrary to the public trust doctrine and the constitutional mandate under Article 39(b).

The Moratorium Question and Government Dues

One of the most practically significant aspects of the ruling is its treatment of the Section 14 moratorium. Under the IBC, once a moratorium is declared, no suits can be instituted against the corporate debtor and no recovery proceedings can be initiated. The telecom companies and their lenders had argued that the moratorium should protect against DoT’s recovery of licence fees, spectrum usage charges, and AGR dues during the CIRP period. The Supreme Court categorically rejected this position. Telecom companies in insolvency cannot invoke the Section 14 moratorium to stall payment of licence fees, spectrum usage charges, or AGR dues. Resolution plans must comply with the applicable telecom statutes and obtain government approval before any transfer of spectrum usage rights can be contemplated. [1]

This is a significant clarification because it places government dues in a privileged position that the moratorium cannot touch — at least insofar as they relate to the use of a sovereign resource. The DoT is not merely an operational creditor in the ordinary commercial sense; it is the licensor of a public resource, and its dues arise from the terms on which the State permitted a private party to exploit a community asset. Allowing the moratorium to freeze those dues would, in the court’s view, amount to allowing the IBC to recast the entire architecture of sovereign resource governance.

Implications: Credit Assessment, Recovery, and the Sector’s Future

The practical consequences of the judgment are already visible. The ruling clears the path for DoT to initiate licence cancellation and spectrum recovery proceedings against Aircel, Reliance Communications, and Videocon — all of which are currently in or approaching insolvency. As sources close to the DoT indicated in the days following the judgment, the department would examine the order, take legal advice, and begin proceedings to take back the spectrum once grounds for termination are determined. [1]

For financial creditors — banks and other lenders who had extended large credit facilities to telecom companies on the assumption that spectrum usage rights would function as quasi-security — the judgment is a sharp setback. Spectrum cannot be pledged, transferred, or monetised through insolvency to repay private debts if licence conditions and government dues are not met. The senior banker quoted anonymously in the aftermath of the ruling put it bluntly: “Whatever the prospect of recovering something was there, that is gone now.” [1] Going forward, credit assessment frameworks for telecom lending will need fundamental revision. Lenders will need to recalibrate the value of spectrum-backed security and account for the elevated priority of government dues in any distress scenario.

For the broader jurisprudence of insolvency law, the judgment represents an important step in defining the limits of the IBC. Insolvency proceedings are designed to resolve private commercial distress — they are not instruments for reorganising the ownership and control of natural resources held in public trust. The court’s reliance on the principles articulated in Embassy Property Developments Pvt. Ltd. v. State of Karnataka — which established that NCLT, as a creature of statute, cannot exercise jurisdiction over matters governed by public law — reinforces this boundary between the domain of insolvency and the domain of sovereign resource management. [2]

Conclusion

The Aircel spectrum case is, at its core, a case about the limits of contract and the persistence of sovereignty. When Aircel received its Unified Access Service Licences in 2006 and acquired spectrum through auctions over the following decade, it entered a relationship with the State that was contractual in form but sovereign in substance. The government never intended to, and legally could not, divest itself of ownership over the airwaves. What it granted was access — conditional, temporary, and revocable. When Aircel’s financial position collapsed, its lenders discovered that the most valuable resource on the company’s balance sheet — its spectrum rights — belonged to someone else all along. The Supreme Court, in drawing this line with clarity, has done more than settle a dispute between SBI and the DoT. It has re-established the principle that some resources are held in trust for the public, that IBC is not a tool to privatise sovereign assets through the back door of insolvency, and that the accounting treatment of a right tells us nothing about its true legal character. [1][2][3][4]

References

[1] Business Standard, “Spectrum a public resource, not IBC asset, says Supreme Court”, 13 February 2026 — https://www.business-standard.com/industry/news/spectrum-public-resource-not-ibc-asset-supreme-court-126021301828_1.html

[2] Law Trend, “Spectrum Allocation Cannot Be Subjected to Insolvency Proceedings Under IBC: Supreme Court”, 13 February 2026 — https://lawtrend.in/spectrum-allocation-cannot-be-subjected-to-insolvency-proceedings-under-ibc-supreme-court/

[3] Indian Kanoon, Indian Telegraph Act, 1885, Section 4 — https://indiankanoon.org/doc/1927191/

[4] Law Article, “Case Analysis: 2G Spectrum Scam – Centre for Public Interest Litigation & Ors. v. Union of India & Ors., (2012) 3 SCC 1” — https://lawarticle.in/case-analysis-2g-spectrum-scam-centre-for-public-interest-litigation-ors-v-union-of-india-ors/

[5] Bar and Bench, “Scope of Moratorium under Section 14 and 33(5) of the Insolvency and Bankruptcy Code, 2016” — https://www.barandbench.com/view-point/scope-of-moratorium-under-section-14-and-33-5-of-the-insolvency-and-bankruptcy-code-2016

[6] IBC Laws, Section 14 – Moratorium, Insolvency and Bankruptcy Code, 2016 — https://ibclaw.in/section-14-moratorium-chapter-ii-corporate-insolvency-resolution-processcirp-part-ii-insolvency-resolution-and-liquidation-for-corporate-persons-the-insolvency-and-bankruptcy-code-2016-ibc-sec/

[7] IBC Laws, Section 36 – Liquidation Estate, Insolvency and Bankruptcy Code, 2016 — https://ibclaw.in/section-36-liquidation-estate/

[8] Bar and Bench, “Telecom spectrum not restructurable asset under IBC: Supreme Court in Aircel AGR insolvency dispute”, 13 February 2026 — https://www.barandbench.com/amp/story/news/litigation/telecom-spectrum-not-restructurable-asset-under-ibc-supreme-court-in-aircel-agr-insolvency-dispute

[9] The Indian Lawyer, “Supreme Court Holds Insolvency and Bankruptcy Code Cannot Be Guiding Principle for Restructuring Ownership and Control of Telecom Spectrum”, February 2026 — https://theindianlawyer.in/supreme-court-holds-insolvency-and-bankruptcy-code-cannot-be-guiding-principle-for-restructuring-ownership-and-control-of-telecom-spectrum/