SC | Spectrum cannot be part of bankruptcy proceedings India News

NEW DELHI: The Supreme Court on Friday ruled that telecom companies cannot claim ownership of the spectrum allocated to them by the government and natural resources cannot be subject to insolvency and liquidation proceedings against bankrupt telecom companies.A bench of Justices PS Narasimha and AS Chandurkar dismissed the plea of ​​banks, which had submitted that licensed spectrum could also be frozen to recover debts from bankrupt telecom companies. It quashed the NCLAT order in the Aircel group insolvency proceedings, which said spectrum usage rights can be treated as assets of the corporate debtor and can be transferred during insolvency or liquidation. The court order is a setback for banks that do business with telecom companies.“Recognition of spectrum license rights as intangible assets in the balance sheet does not determine whether the spectrum ownership is recognized/transferred to the telecom service provider (TSP). It only indicates control over the future economic benefits arising from the grant of spectrum usage rights. Therefore, even if the spectrum usage rights have property-like features such as longer license period, exclusivity, transferability, tradeability, etc., they simply represent different sticks in the bundle of rights and are not consistent with the granting of complete ownership of the spectrum to the TSP,” the bench said.Justice Narasimha, who wrote the judgment, said that just because spectrum can be considered an “asset” on the basis of certain attributes such as possession and use, lease and transfer, claims and liabilities or credit and debt, the entire telecom industry cannot come under the jurisdiction of the Insolvency and Bankruptcy Code (IBC).He said the granting of telecommunications licenses, including spectrum usage rights, would not affect the transfer of ownership or proprietary interests. “What is granted is a limited, conditional, revocable privilege to use the spectrum for specified purposes for a specified period,” the judge said.“In summary, the IBC’s framework specifically excludes assets over which the corporate debtor does not have ownership rights. The mere recognition of a spectrum license right as an intangible asset by a TSP in its financial statements does not determine its ownership, as it only represents control over future economic benefits. Even assuming that the spectrum rights license is one of a series of rights, in the absence of a transfer of spectrum ownership, no spectrum ownership or use rights subject to license conditions arise in the TSP. Therefore, spectrum license rights are not part of the asset pool in bankruptcy or liquidation under the IBC framework,” the judgment said.It said the license agreement left no doubt that the licensor (the government) exercised effective and pervasive control over the license and spectrum and that the rights of the licensee were subject to regulatory oversight, disclosure obligations, transfer restrictions and the ever-present power of the licensor to suspend or terminate the license due to breach, liquidation or dissolution of the licensee.