Judicial erasure of statutory text

KEEPING GOVT LICENCES OUTSIDE INSOLVENCY ESTATE RISKS DRIVING REGULATED INDUSTRIES TO LIQUIDATION

- MS SAHOO RAGHAV PANDEY

ON FEBRUARY 13, a Supreme Court judgment held that spectrum allocated to telecom service providers (TSPs), although reflected as an asset in their books of account, cannot be subjected to proceedings under the Insolvency and Bankruptcy Code (IBC), 2016. This ruling implies two structural propositions.

First, the licence entitling a TSP to use spectrum cannot be dealt with within the IBC process. If that licence cannot be continued, transferred, or otherwise accommodated in a resolution plan, the TSP cannot be rescued as a going concern. The practical effect is binary: either mechanisms outside the IBC framework resolve financial stress, or liquidation becomes inevitable, in which case the government—as the licensor of the spectrum—effectively stands above the waterfall, with consequential haircuts for fully secured creditors. In a capital-intensive, licence-dependent sector, exclusion of the core operating asset effectively disables resolution.

Second, the ruling’s logic extends beyond accounting characterisation. If the right to use spectrum is excluded because it concerns a scarce public natural resource held in trust, the same reasoning would apply to enterprises dependent on rights to mining leases, coal blocks, petroleum fields, water extraction, or other regulated natural resources. By parity of reasoning, such entities too would either be resolved outside the IBC or face liquidation. The decision thus risks carving out an entire class of regulated industries from the insolvency framework.