The Supreme Court of India is currently weighing a landmark decision that could reshape the future of India's telecom sector and bankruptcy proceedings. At the heart of the matter is a critical question: can the right to use telecom spectrum, a valuable national resource, be sold when a telecom operator goes bankrupt?
Government's Contradictory Stance Exposed
While the government's official position presented to the Supreme Court argues that spectrum belongs to citizens and cannot be sold during insolvency, internal documents reveal significant disagreement between its own ministries. The Department of Telecommunications (DoT) and the Ministry of Corporate Affairs (MCA) held opposing views during the bankruptcy proceedings of Aircel and Reliance Communications (RCom).
According to sources familiar with internal discussions, the DoT maintained that spectrum is a natural resource that cannot be sold during liquidation. Meanwhile, the corporate affairs ministry believed airwaves should be tradable to enable creditors like banks to recover their dues. This internal conflict emerged despite the government's unified stance in court that spectrum is held in trust for the public and falls outside the Insolvency and Bankruptcy Code (IBC).
Massive Financial Stakes and Legal Battles
The financial implications are enormous. RCom, Aircel, and Videocon collapsed between 2018 and 2019, leaving behind unpaid statutory dues exceeding ₹40,000 crore. The Supreme Court reserved its verdict on 13 November after hearing petitions from State Bank of India and the insolvent telecom operators challenging a 2021 NCLAT order.
That NCLAT ruling had created a complex middle ground—it allowed spectrum to be included in Corporate Insolvency Resolution Process and transferred to successful bidders, but only after all government dues were cleared in full. The tribunal classified the DoT as an operational creditor, meaning it would be paid after financial creditors like banks under the standard insolvency waterfall mechanism.
During court proceedings, SBI's lawyer argued that spectrum served as security for loans, with tripartite agreements between lenders, corporate debtors, and the government establishing lenders' first charge over this asset. "The important aspect of this loan agreement is that it stipulates I (lender) should have the first charge over this asset (spectrum) otherwise I have no security," the bank's representative told the court.
Sector-Wide Implications and Global Comparisons
The uncertainty has created significant challenges for the entire telecom industry. Banks have become hesitant to lend to telecom operators against spectrum as collateral, now prioritizing a company's financial health before advancing funds. This has left large volumes of spectrum unused for years, representing what analysts call a waste of public resources.
Independent telecom analyst Parag Kar highlighted this paradox in a recent analysis, noting that "21% of the total gross revenue of operators from FY10 to FY24 has gone into spectrum auction outflow." High spectrum prices have contributed to operator bankruptcies while valuable airwaves remain idle.
The situation contrasts with global practices. Satya N. Gupta, former principal advisor at TRAI, observed that "globally, in most countries, the resolution process is faster if a telecom operator goes under insolvency. Government dues are not absolute blockers, though regulatory compliance is mandatory there as well."
Even current industry players like Bharti Airtel have weighed in, describing spectrum locked in insolvency as "an unproductive national asset" and urging its prompt inclusion in upcoming auctions to prevent further value erosion.
The Supreme Court's upcoming verdict will therefore determine not just the fate of bankrupt telcos and their creditors, but also establish crucial precedent for how India balances public resource management with commercial insolvency resolution in critical infrastructure sectors.
