Spectrum can’t be part of insolvency process: SC | India News

NEW DELHI: Supreme Court on Friday held that telecom companies cannot claim ownership over spectrum allocated to them by govt and the natural resource cannot be subject to insolvency and liquidation process of a bankrupt telecom company.A bench of Justices P S Narasimha and A S Chandurkar rejected the plea of banks, which submitted that licenced spectrum could also be put on block to recover debt taken by a bankrupt telecom company. It quashed an NCLAT order in insolvency proceedings of Aircel group, which had said that spectrum usage rights could be treated as assets of a corporate debtor and could be transferred during insolvency or liquidation. The court’s order is a setback to banks, which have exposure to telecom firms.“Recognition of spectrum licensing rights as an intangible asset in the balance sheet is not determinative of recognition/transfer of ownership of the spectrum to telecom service providers (TSPs). It only indicates control over the future economic benefits flowing from the grant of the right to use the spectrum. Hence, even if the right to use spectrum exhibits property-like features, such as longer licensing terms, exclusivity, transferability, tradability, etc, they merely represent different sticks in the bundle of rights and falls short of conferring complete ownership of the spectrum on TSPs,” the bench said.Justice Narasimha, who penned the judgment, said merely because spectrum can be treated as an “asset” on the basis of certain attributes – such as possession and usage, lease and assignment, claim and liability or credit and debt – the entirety of the telecom sector cannot be brought under the sweep of the Insolvency and Bankruptcy Code (IBC).He said the grant of a telecom licence, including the right to use spectrum, does not effect a transfer of ownership or proprietary interest. “What is conferred is a limited, conditional and revocable privilege to use spectrum for specified purposes and for a defined duration,” the bench said.“In conclusion, the framework of IBC is clear in excluding assets over which the corporate debtor has no ownership rights. Mere recognition of spectrum licensing rights as an intangible asset by TSPs in financial statements is not conclusive of their ownership, as it only represents control over future economic benefits. Even assuming that licensing of spectrum rights is one among the bundle of rights, in the absence of transfer of title over the spectrum, no ownership rights are created in TSPs either in the spectrum or in its right to use as governed by licensing conditions. Hence, under the IBC framework, spectrum licensing right is not a part of the pool of assets for insolvency or liquidation,” the judgment said.It said licence agreement leaves no doubt that effective and pervasive control over the licence and spectrum vests with the licensor (govt) and licensee’s rights are circumscribed by regulatory oversight, disclosure obligations, restrictions on transfer, and the ever-present power of the licensor to suspend or terminate the licence for breach, liquidation, or winding up of the licensee.