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

NEW DELHI: The Supreme Court on Friday said that telecom companies cannot claim ownership over spectrum allocated to them by the government and that natural resources cannot be subject to insolvency and winding-up proceedings of an insolvent telecom company.A bench of Justices PS Narasimha and AS Chandurkar rejected the plea of ​​the banks, which submitted that the licensed spectrum can also be blocked to recover loans taken by the insolvent telecom company. It set aside an NCLAT order in the Aircel Group’s insolvency proceedings, which had said that rights to use spectrum could be treated as assets of the corporate debtor and could be transferred during bankruptcy or liquidation. The court order is a blow to banks, which have exposure to telecom companies“Recognition of spectrum licensing rights as an intangible asset in the balance sheet is not determinative of recognition/transfer of ownership of spectrum to Telecom Service Providers (TSPs). It only indicates control over future economic benefits flowing from the grant of rights to use spectrum. Hence, even if the rights to use spectrum are subsisting. Terms, exclusivity, transferability, tradability, etc., they only represent different sticks in the bundle of rights and fail to confer full ownership of spectrum on TSPs,” the bench said.Justice Narasimha, who wrote the judgement, said that while spectrum can be considered an “asset” only on the basis of certain characteristics — such as possession and use, lease and assignment, claims and liabilities or debts and loans — the entire telecom sector cannot be brought under Insolvency and Bankruptcy (IBC).He said the grant of a telecom license with rights to use spectrum does not affect the transfer of ownership or ownership interest. “What is granted is a limited, conditional and revocable privilege to use the spectrum for a specified purpose and for a specified period,” the bench said.“In conclusion, the structure of the IBC is clear in excluding assets over which the corporate borrower has no ownership rights. The recognition of spectrum licensing rights by TSPs as an intangible asset in the financial statements is not conclusive of their ownership, as it only represents control over future economic benefits. Even assuming that spectrum rights are one of the bundles of licensing rights, in the absence of transfer of title over the spectrum, no proprietary right is created in the TSP in the right to use the spectrum or as governed by the licensing conditions. Therefore, under the IBC structure, the spectrum licensing rights are not part of the pool of assets for bankruptcy or liquidation,” the judgment said.It said that the license agreement leaves no doubt that the licensor (Government) has effective and comprehensive control over the license and spectrum vests and the 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, grant a license to grant a license or grant a license to grant a license.