Authored By: Upasana Das
National Law University Meghalaya
Introduction
There is a revealing paradox at the heart of State Bank of India & Ors v Union of India & Ors,[1] decided by the Supreme Court of India in February 2026. The corporate debtors in that case had, for years, treated their spectrum usage rights as commercially valuable assets. Lenders had extended substantial credit against those rights, accountants had recognised them on balance sheets, and resolution professionals had identified them as among the most significant items available for distribution in insolvency. Yet when the question came squarely before the apex court, the answer was both clear and constitutionally grounded: spectrum is not property that any private party can claim as its own, restructure through a resolution plan, or transfer to a new operator without the continuing consent and supervision of the sovereign. The State had never parted with it, and no instrument of private commerce could make it otherwise.
The Aircel Group entities and entities associated with Reliance Communications had filed voluntary applications under s 10 of the Insolvency and Bankruptcy Code, 2016[2], at precisely the moment when the Department of Telecommunications was pressing for the recovery of unpaid licence fees and spectrum usage charges running into thousands of crores of rupees. The State Bank of India, leading the financial creditors, argued that spectrum usage rights were intangible assets of the corporate debtor recognisable under the IBC. The Union of India maintained that spectrum belongs to the people, that licences are no more than conditional regulatory permissions, and that the insolvency framework cannot override the sovereign’s continuing ownership of the resource. The Supreme Court agreed, and its reasoning carries implications well beyond the telecom sector.
What makes this judgment significant is the question it forces upon anyone reading it carefully. If a spectrum company cannot enter the insolvency estate, what exactly does a telecom company own when it wins a spectrum auction and pays thousands of crores for the right to use it? The answer that emerges from the Court’s reasoning is constitutionally consequential: a telecom operator holds a permission granted by the sovereign, conditioned on continued compliance with statutory obligations, and revocable if those obligations are not met. The commercial value attached to that permission by lenders and accountants reflects economic reality but creates no legal title. This article argues that the Court’s conclusion follows necessarily from this understanding, and that the structural gap it exposes is one Parliament must now repair. Section II examines the statutory framework. Section III analyses the judicial foundations of the reasoning. Section IV critically evaluates the judgment’s central holdings. Section V concludes with proposals for reform.
The Legal Framework
The architecture of Indian telecommunications law has, since the colonial period, placed the electromagnetic spectrum entirely within the sovereign’s domain. Section 4 of the Indian Telegraph Act 1885[3] vests in the Central Government an exclusive privilege over the establishment, maintenance, and working of telegraphs, a term that encompasses the use of radio frequencies for wireless communication. The Indian Wireless Telegraphy Act 1933[4] makes the possession of wireless equipment without a government licence a criminal offence. These provisions do not merely regulate spectrum use; they constitute the State as the exclusive gatekeeper of access to the resource. No entitlement to use any part of the spectrum exists independently of a licence granted by the sovereign, and that licence is an administrative act of permission rather than a sale of property.
When competitive auctions replaced the earlier first-come, first-served allocation method following the 2G Case, the method of distributing access changed, but the legal character of what was being distributed did not. A winning bidder acquires spectrum usage rights that are time-bound, condition-based, and revocable on statutory grounds. The Spectrum Trading Guidelines of 2015[5] introduced a secondary transfer mechanism, but one hedged at every point by the requirement of prior government approval and full satisfaction of outstanding dues. A resource that requires sovereign consent before it can change hands has never been privately owned. The Guidelines confirm this rather than undermine it.
The Insolvency and Bankruptcy Code 2016 anchors the insolvency estate in the concept of legal ownership. Section 18(1)(f)[6] requires the Interim Resolution Professional to take custody of assets over which the corporate debtor has ownership rights as recorded in its balance sheet, while s 36(4)[7] expressly excludes assets belonging to third parties from the liquidation estate, along with assets that cannot be transferred without third party consent. The Aircel entities had recognised the commercial value of their spectrum usage rights as intangible assets under Indian Accounting Standard 38,[8] which permits recognition wherever a company controls future economic benefits from a resource without requiring legal ownership of that resource. The financial creditors argued that this accounting recognition was sufficient to bring the spectrum within the estate. That argument asks a financial reporting standard to perform a function it was never designed to serve: to determine the legal boundaries of an insolvency estate.
III. Case Law Analysis
The constitutional bedrock of the Court’s reasoning is Art 39(b) of the Constitution,[9] which directs the State to distribute the ownership and control of the material resources of the community so as best to subserve the common good. Spectrum is paradigmatically such a resource: finite, essential to modern life, and incapable of private creation. In Secretary, Ministry of Information and Broadcasting v Cricket Association of Bengal,[10] the Supreme Court held that airwaves are public property to be regulated in the public interest, establishing that the State’s relationship with the electromagnetic spectrum is fiduciary rather than proprietary. In MC Mehta v Kamal Nath,[11] the Court formalised the public trust doctrine, holding that the State holds natural resources as a trustee for the public and that this trust cannot be defeated by transferring those resources to private parties on terms that compromise the public’s entitlement.
The most directly controlling authority on spectrum ownership is Centre for Public Interest Litigation v Union of India,[12] the 2G Case, in which the Court held that spectrum is a scarce national asset belonging to the people and held in trust by the Union of India. If the spectrum belongs to the people, no licensee acquires ownership at the point of allocation, however much it pays at auction, and no subsequent transaction, including an insolvency plan approved by private creditors, can transfer what was never privately held. The 2G Case did not address insolvency because that scenario was not before the Court, but the constitutional principle it articulated admits of only one answer when the insolvency question is posed. The Court in State Bank of India supplied that answer.
The jurisdictional boundary was mapped in Embassy Property Developments Pvt Ltd v State of Karnataka,[13] where a Full Bench held that the National Company Law Tribunal has no authority to override exercises of public law power by governmental authorities even where the corporate debtor has a financial interest in the outcome. The Court drew a distinction between the State acting as a commercial counterparty and the State exercising a statutory regulatory function in the public interest. The Department of Telecommunications, when it enforces licence obligations or pursues recovery of spectrum usage charges, does the latter. The moratorium under s 14 of the IBC was not designed to stay the exercise of sovereign regulatory authority, and the NCLT has no jurisdiction to subordinate that authority to the demands of an insolvency plan.
Critical Evaluation
The Balance Sheet Argument and the Limits of Accounting Authority
The financial creditors’ reliance on s 18(1)(f) and Ind AS 38 rests on a category error. The argument runs: the Code refers to assets as recorded in the balance sheet; the balance sheet records spectrum usage rights as intangible assets; therefore, spectrum usage rights are assets within the estate. Each step appears to follow from the one before it, but the argument breaks down because it assumes that the Code’s reference to the balance sheet is definitional rather than evidentiary. A definitional reading would mean that anything appearing on the balance sheet is, by virtue of appearing there, an asset of the estate. An evidentiary reading would mean that the balance sheet is a guide to what the corporate debtor claims to own, with the underlying question of legal ownership remaining governed by the law applicable to the specific right. The evidentiary reading is correct, and s 36(4) confirms it: assets belonging to third parties are excluded from the estate even where the corporate debtor has recognised their value in its accounts.
Ind AS 38 is a financial reporting standard serving investors and creditors who read financial statements. It was never intended to determine who owns what as a matter of property law, and it cannot be stretched to perform that function. If accounting recognition were determinative of estate composition, every petroleum exploration block, mining concession, and radio frequency band capitalised by any corporate debtor in India would become available for restructuring through insolvency, a result that Art 39(b) and the public trust doctrine together make constitutionally impermissible. The Code never conflates accounting recognition with legal ownership. Its structure, read as a whole, expressly distinguishes between them.
Section 238, Non-Obstante Clauses and Statutory Conflict
The argument that s 238 of the IBC, which gives the Code an overriding effect over inconsistent provisions of other laws, displaces the Telegraph Act framework and draws spectrum within the estate, misunderstands what a non-obstante clause does. Such a clause resolves inconsistencies between two statutory regimes operating on the same subject matter. It presupposes that both statutes address the same legal question and give incompatible answers. Section 238 was designed to resolve conflicts between the IBC and commercial statutes such as the Companies Act or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002,[14] statutes that address the rights of creditors and the disposition of corporate assets in ways that sometimes pull against the Code.
The Telegraph Act does not give an incompatible answer to any question the IBC poses about the composition of the insolvency estate. The IBC asks what assets the corporate debtor owns. The Telegraph Act answers, through the public trust doctrine and the licensing framework, that spectrum is not among them. These are not conflicting answers to the same question; they are sequential answers to two distinct questions. Once the law governing the specific right establishes that the corporate debtor holds no ownership in spectrum, s 238 has no residual work to do, because the IBC itself, properly construed, does not bring non-owned resources within the estate. A non-obstante clause cannot expand the estate by resolving a conflict that does not exist.
The Moratorium as a Strategic Instrument and the Case for Reform
The most troubling feature of the Aircel facts is not the legal argument the financial creditors advanced, but the sequence of events that made it necessary to advance it. The corporate debtors filed voluntary CIRP applications under s 10 of the IBC at the precise moment when the Department of Telecommunications was escalating recovery of approximately nine thousand eight hundred and ninety-four crore rupees in outstanding dues. The admission of those applications triggered the moratorium under s 14, which stayed all proceedings against the corporate debtors automatically and without any judicial consideration of whether the claims being stayed were commercial or sovereign in character. Section 10 was enacted to allow genuinely distressed companies to begin an orderly resolution process. It was not enacted as a mechanism for companies to shelter from sovereign enforcement by invoking the moratorium strategically.
The distinction matters because the moratorium under s 14 treats all proceedings against the corporate debtor identically: commercial recovery actions by banks and regulatory enforcement actions by the State are stayed on equal terms, regardless of whether the claim arises from a private contract or from the sovereign’s right to recover dues for the use of a community resource. It is submitted that Parliament should amend s 14 to distinguish between commercial recovery proceedings, which the moratorium appropriately stays, and regulatory enforcement proceedings initiated by governmental authorities in the exercise of sovereign functions conferred by statute, which should continue unaffected. Resolution could proceed on the debtor’s genuine commercial assets in parallel with the State’s enforcement of its regulatory dues. Those dues would be treated as conditions precedent to any final plan rather than as claims subject to the insolvency waterfall. This would eliminate the strategic incentive to use s 10 as a shield against sovereign enforcement while preserving its intended function of enabling voluntary and orderly restructuring.
Conclusion
The Supreme Court’s decision in State Bank of India & Ors v Union of India & Ors is constitutionally sound and analytically correct on every point it directly decides. The balance sheet argument fails because accounting recognition is not a source of legal title, and the Code never intended it to be. The s 238 argument fails because a non-obstante clause presupposes a conflict between two answers to the same statutory question, and no such conflict exists once the ownership question is correctly resolved. The loss suffered by the financial creditors arises from a mispricing of risk in private capital markets, and the correction for that mispricing belongs in reformed lending practice rather than in a revision of constitutional principle.
Two legislative interventions are now required. First, Parliament should amend s 14 of the IBC to carve sovereign regulatory enforcement proceedings out of the moratorium, so that strategic use of voluntary CIRP to stay government recovery actions is no longer available. Second, Parliament should enact a provision, whether in the IBC or the Telegraph Act, creating a supervised statutory pathway for the conditional transfer of spectrum usage rights in an insolvency context, with full payment of government dues and DoT approval as non-negotiable conditions precedent. The judgment has correctly established that the insolvency framework cannot commandeer a community resource. The legislative task now is to ensure that this constitutional clarity does not leave the telecommunications sector without a workable mechanism for resolution, because the absence of such a mechanism ultimately serves neither the public interest nor the creditors that the IBC was designed to protect.
Reference(S):
Cases
Centre for Public Interest Litigation v Union of India (2012) 3 SCC 1.
Embassy Property Developments Pvt Ltd v State of Karnataka (2019) SCC OnLine SC 1542.
MC Mehta v Kamal Nath (1997) 1 SCC 388.
Natural Resources Allocation, In re: Special Reference No 1 of 2012 (2012) 10 SCC 1.
Secretary, Ministry of Information and Broadcasting v Cricket Association of Bengal (1995) 2 SCC 161.
State Bank of India & Ors v Union of India & Ors 2026 INSC 153.
Union of India v Association of Unified Telecom Service Providers of India (2020) 9 SCC 748.
Legislation
Constitution of India, Art 39(b).
Indian Accounting Standard (Ind AS) 38, Intangible Assets (Ministry of Corporate Affairs 2015).
Indian Telegraph Act 1885 (India).
Indian Wireless Telegraphy Act 1933 (India).
Insolvency and Bankruptcy Code 2016 (India).
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (India).
Department of Telecommunications, Spectrum Trading Guidelines (DoT, Government of India 2015).
Secondary Sources
IBC Laws, ‘February 2026: Landmark Supreme Court Judgments on the Insolvency and Bankruptcy Code’ (IBC Laws, 2026) <https://ibclaw.in/february-2026-landmark-supreme-court-judgments-on-insolvency-and-bankruptcy-code-ibc-key-legal-takeaways/> accessed 31 March 2026.
Mishra M and Rai P (CMS Induslaw), ‘The Hon’ble Supreme Court Holds: Telecom Spectrum Beyond the Reach of the IBC’ (Lexology, 24 February 2026) <https://www.lexology.com/library/detail.aspx?g=d93a42e0-3e7d-48e7-a473-b65422c1c704> accessed 31 March 2026.
Supreme Court Observer, ‘Spectrum Ownership Rights for Telecom Service Providers’ SCO.LR 2026 Vol 2 Issue 3 <https://www.scobserver.in/journal/sco-lr-2026-volume-2-issue-3/> accessed 31 March 2026.
Telecom Regulatory Authority of India, Recommendations on Spectrum Management and Licensing Framework (TRAI 2015).
V.K. Rajasekhar, ‘Insolvency, Sovereignty and Spectrum: Locating IBC Within Constitutional Order’ (Live Law, 25 February 2026) <https://www.livelaw.in/articles/insolvency-locating-ibc-constitutional-order-524581> accessed 31 March 2026.
[1] State Bank of India & Ors v Union of India & Ors 2026 INSC 153 (Supreme Court of India, Justices PS Narasimha and Atul S Chandurkar).
[2] Insolvency and Bankruptcy Code 2016 (India) (IBC).
[3] Indian Telegraph Act 1885 (India) s 4.
[4] Indian Wireless Telegraphy Act 1933 (India) s 3.
[5] Department of Telecommunications, Spectrum Trading Guidelines (DoT, Government of India 2015) cl 2.
[6] IBC s 18(1)(f).
[7] ibid s 36(4).
[8] Indian Accounting Standard (Ind AS) 38, Intangible Assets (Ministry of Corporate Affairs 2015) paras 11–17.
[9] Constitution of India, Art 39(b).
[10] Secretary, Ministry of Information and Broadcasting v Cricket Association of Bengal (1995) 2 SCC 161, 236 (Jeevan Reddy J).
[11] MC Mehta v Kamal Nath (1997) 1 SCC 388, 410 (Kuldip Singh J).
[12] Centre for Public Interest Litigation v Union of India (2012) 3 SCC 1 (Singhvi and Ganguly JJ).
[13] Embassy Property Developments Pvt Ltd v State of Karnataka (2019) SCC OnLine SC 1542 (Ramasubramanian J).
[14] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (India).
