By Shreyas Gupta (Shardul Amarchand Mangaldas & Co.)
I. Introduction: A Judgment That Shakes the Foundations
On 13 February 2026, the Supreme Court of India delivered what may prove to be one of the most consequential judgments at the intersection of insolvency law and public regulation in the country's legal history. Arising primarily from the insolvency proceedings of the Aircel group of companies, though later joined by appeals from other telecom entities, the judgment addressed questions that had long simmered beneath the surface of India's telecom sector: Who truly owns spectrum? Can it be treated as an asset in insolvency? And can the Insolvency and Bankruptcy Code, 2016 (“Code”) override the sovereign authority of the State over a finite natural resource?
The Court's answers were unequivocal, and sobering for creditors across the telecom sector. Spectrum, it held, is a national resource owned by the people of India, held in trust by the Union Government, and categorically outside the reach of insolvency proceedings. The implications ripple far beyond the telecom sector. This article examines the judgment's intellectual architecture, interrogates its reasoning, and explores the shifts it portends for insolvency jurisprudence, project finance, and the delicate equilibrium between sovereign regulatory power and private commercial rights.
II. The People's Airwaves: Spectrum as Public Trust
At the heart of the judgment lies a deceptively simple proposition: spectrum belongs to the people of India. Drawing on the public trust doctrine – a principle with roots in Roman law and articulated in Indian jurisprudence through Centre for Public Interest Litigation v. Union of India (2012) and Natural Resources Allocation, In Re (2012) – the Court held that spectrum is a scarce, finite, and renewable natural resource of high economic value, administered by the Central Government as trustee for the citizenry.
This characterisation carries profound consequences. If spectrum is held in trust, then telecom service providers (“TSPs”) are, in the Court's framing, mere licensees – recipients of a “limited, conditional, and revocable privilege” to use spectrum under the Telegraph Act, 1885, rather than holders of any proprietary interest. The license, the Court emphasised, is “contractual in form but emanates from sovereign statutory power”.
There is an undeniable elegance to this reasoning. It is consistent with the broader trajectory of Indian natural resource jurisprudence, which has progressively cabined private rights over public goods. Yet one must ask whether the Court has conflated two conceptually distinct questions: the ownership of spectrum as a natural phenomenon, and the economic rights that flow from a lawfully granted license to exploit that resource. Mining lessees do not own the minerals beneath the earth in any absolute sense either, yet no one would dispute that a mining lease carries substantial economic value capable of being dealt with in insolvency. The judgment, in its enthusiasm to protect the sovereign character of spectrum, may have elided a nuance that matters greatly in the commercial world: the distinction between the resource itself and the legally enforceable right to derive revenue from it.
III. The Balance Sheet Illusion: When Assets Are Not Assets
Perhaps the most intellectually arresting aspect of the judgment is its treatment of accounting recognition versus legal ownership. TSPs have, in compliance with applicable accounting standards, recorded spectrum licensing rights as intangible assets on their balance sheets for years. The Court held that this accounting treatment is irrelevant to the question of whether spectrum constitutes an “asset” of the corporate debtor within the meaning of the Code.
The Court drew a sharp distinction between “control over future economic benefits” – the threshold for recognition of an intangible asset under accounting standards – and “ownership rights” which the Court considers the prerequisite for an asset to fall within the scope of Section 18 of the Code. This is a significant doctrinal intervention. It means that what a company's audited financial statements say about its assets, and what the insolvency framework recognises as assets, may be two entirely different things.
The ramifications are significant. Lenders, investors, and resolution applicants have historically relied on balance sheets as a proxy, however imperfect, for the asset base available in a distress scenario. The judgment effectively introduces a category of assets that appear on the books, contribute to revenue, underpin valuations, and secure lending – but may not be available once insolvency proceedings commence. The question that naturally arises is whether this principle is confined to spectrum, or whether it extends, as the Court's reasoning would logically suggest, to mining leases, oil and gas blocks, coal allocations, water extraction rights, and any other right derived from a sovereign grant over a natural resource.
If the answer is yes – and the logic of the judgment points in that direction – then a significant portion of India's industrial economy may operate on assets whose availability in insolvency is less certain than previously assumed.
IV. The Code Meets Its Limits: Section 238 and the Sovereign Frontier
One of the foundational pillars of the Code has been Section 238, its non-obstante clause, which gives the Code overriding effect over other laws in cases of inconsistency. This provision has been central to the Code's effectiveness: it ensures that insolvency proceedings are not frustrated by conflicting obligations under other statutes.
The judgment significantly curtails this principle. The Court held that the Code's overriding effect cannot extend to matters falling within the public law domain or involving the exercise of sovereign powers. Relying on the ratio in Embassy Property Developments (P) Ltd. v. State of Karnataka (2020), the Court confined the jurisdiction of the NCLT and NCLAT to matters arising “purely within the scope of the Code”. The Spectrum Trading Guidelines, the Court reasoned, are not mere executive instructions but draw legitimacy from the telecom regulatory framework and cannot be overridden by a resolution plan.
This is a significant development. The Embassy Property decision was concerned with ensuring that the NCLT did not adjudicate upon matters falling under the domain of other tribunals or regulators. The present judgment goes considerably further: it holds that an entire class of assets on the books of a corporate debtor is beyond the NCLT's purview. This is not merely a jurisdictional boundary; it is an asset boundary – and it alters the calculus of insolvency resolution for any company whose primary value lies in a sovereign grant.
The risk of fragmentation deserves attention. If sectoral regulators in mining, petroleum, aviation, or broadcasting were to assert analogous claims, i.e. that their regulatory frameworks override the Code with respect to the licenses and concessions they administer, then the universality of the insolvency regime could be tested. The Code was designed to provide a single, predictable forum for the resolution of financial distress. The judgment introduces the possibility of a more differentiated regime, where the scope of insolvency relief depends on the sector in which the corporate debtor operates and the nature of the sovereign grant it holds.
V. The Waterfall Runs Dry: Government Dues and the New Super-Priority
The judgment's treatment of Department of Telecommunications (“DoT”) dues is, from the perspective of financial creditors, one of the most consequential aspects of the decision. The Court upheld the requirement under the Spectrum Trading Guidelines that all outstanding DoT dues must be cleared prior to spectrum trading. This effectively places DoT dues outside and above the statutory waterfall mechanism under Sections 30 and 53 of the Code.
The practical consequence is the creation of what might be described as a judicial super-priority — a category of government dues that must be satisfied before any resolution plan involving spectrum can be implemented or any distribution made to creditors. Section 53 of the Code establishes a carefully calibrated hierarchy of claims in liquidation: workmen's dues, secured creditors, unsecured financial creditors, government dues, and so forth. By holding that DoT dues cannot be subjected to the Code at all, the Court has, in effect, placed a class of government claims entirely outside this hierarchy, a result that some commentators may view as a significant judicial expansion of the statutory framework.
This creates a challenging scenario for any lender to a distressed TSP. In principle, the DoT could simultaneously reclaim the spectrum and assert its dues against the remaining estate, leaving financial creditors with a diminished pool. In a liquidation scenario, the combination of spectrum exclusion and DoT super-priority could materially reduce creditor recovery. The result is a notable asymmetry: the asset that underpins the business is removed from the insolvency pool, whilst the government claims associated with that asset may remain enforceable against whatever residual assets exist. Whether this outcome was fully intended or is an unaddressed consequence of the judgment's broader doctrinal commitments is a question that warrants further consideration.
VI. The Going Concern Paradox: An Impossible Mandate
The judgment creates what can only be described as a tension, one that touches the philosophical core of the Code. The Code, through Sections 20 and 25, imposes a statutory obligation on the resolution professional to manage the affairs of the corporate debtor as a going concern during the CIRP. For a TSP, spectrum is the sine qua non of operations. Without spectrum, there is no telecom business.
Yet the Court has simultaneously held that spectrum falls outside the CIRP framework. The resolution professional is thus placed in a difficult position: statutorily mandated to keep the business alive, but potentially deprived of the primary resource necessary to do so. The judgment offers no express guidance on how this tension is to be resolved. Can the resolution professional continue to use spectrum under the existing license during the CIRP? What happens if the DoT revokes the license mid-process? If spectrum cannot be used, can the corporate debtor operate at all?
This is not merely an operational inconvenience; it is a structural tension that the judgment leaves unresolved. A legal framework that simultaneously mandates the continuation of a business and removes the primary means to do so raises difficult questions about practical implementation. It is possible that the Court intended for these operational details to be worked out by regulators and resolution professionals on a case-by-case basis, but the absence of any transitional mechanism or guiding principle leaves considerable uncertainty for practitioners on the ground.
VII. The Lending Landscape Transformed: Security Interests in Sovereign Grants
For India's banking sector, the judgment carries implications that extend well beyond any single insolvency. The Court upheld the NCLAT's finding that spectrum cannot be treated as a security interest capable of enforcement by lenders, even where tripartite agreements between the TSP, the lenders, and the DoT purport to create such security. The tripartite arrangement, the Court found, provides that any conditional transferability of the license to safeguard lender interests remains “subject to the licensor's paramount authority and regulatory control”.
The immediate consequence for any lender holding such purported security is significant: the enforceability of their interest over spectrum is now open to serious doubt. The broader consequence for the banking industry is no less noteworthy. If the reasoning is extended (as the judgment's logic invites) to other sectors dependent on regulated licenses and sovereign concessions, then an entire category of security packages may need to be reassessed. Banks that have extended credit on the strength of mining leases, petroleum exploration licenses, or broadcasting permissions may find that their security is worth considerably less than they assumed.
This has potential implications for the cost and availability of credit in resource-dependent sectors. Lenders may need to reassess their collateral frameworks, adjust pricing to reflect the altered recovery calculus, or seek additional security where possible. The judgment's emphasis on the sovereign character of natural resources, whilst doctrinally coherent, may prompt a recalibration of how capital is deployed in sectors where the primary business asset derives from a government grant.
VIII. The Moratorium Question: Section 14 Under Siege
One of the more notable omissions in the judgment concerns the interplay between the Court's findings and the moratorium under Section 14 of the Code. The Explanation to Section 14(1) specifically provides that licenses, permits, and similar grants shall not be suspended or terminated on grounds of insolvency, provided there is no default in payment of current dues during the moratorium period. This provision was designed to preserve the going concern value of the corporate debtor during the CIRP.
By upholding the requirement that all outstanding DoT dues must be cleared before spectrum can be traded, the Court has effectively limited the moratorium's protective function with respect to spectrum-related obligations. Pre-insolvency arrears, which the moratorium was specifically designed to defer, become immediately payable as a condition of any spectrum transaction. This interpretation raises the question of whether the Explanation to Section 14(1) has been rendered less effective in respect of spectrum dues, a result that may be difficult to reconcile with the legislative intent behind the provision.
Furthermore, the judgment raises questions about the status of bank guarantees furnished by TSPs to the DoT as a condition of their licenses. Where such guarantees have been submitted by banks on behalf of a corporate debtor, the moratorium under Section 14 was generally understood to discourage their invocation during the CIRP. Post-judgment, the interplay between the moratorium and the DoT's rights under the telecom regulatory framework is less certain, and stakeholders on both sides may need clarity on this point, whether through further judicial guidance or regulatory accommodation.
IX. Beyond Telecom: The Shadow Over Natural Resource Industries
Although the judgment arises from the telecom sector, its reasoning is not so confined. The public trust doctrine, the distinction between accounting recognition and legal ownership, and the subordination of the Code to sovereign regulatory power – these are principles of general application. The judgment itself acknowledges that its rationale may extend to mining leases, coal blocks, petroleum fields, water extraction rights, and other regulated natural resources.
This is not a speculative concern. India's mining, oil and gas, and power sectors are populated by companies whose primary value lies in government-granted concessions. If these concessions are, following the logic of this judgment, excluded from insolvency proceedings, and if government dues associated with them enjoy super-priority, then the entire architecture of project finance in India merits re-examination. The judgment may encourage other sectoral regulators to assert that their respective domains are similarly beyond the Code's reach – a development that, if it materialises, could test the Code's ambition to provide a unified and predictable insolvency framework.
X. The Road Ahead: What Comes Next?
The judgment leaves open questions that will need to be addressed, by the legislature, the executive, or the judiciary itself, as the insolvency ecosystem absorbs its implications. Several trajectories are conceivable.
Legislative intervention is one possibility. Parliament could amend the Code to expressly address the treatment of sovereign-granted licenses in insolvency, perhaps by creating a bespoke regime that balances regulatory oversight with commercial certainty. The Telecommunications Act, 2023, which has already begun to modernise the sector's statutory framework, could serve as a vehicle for such reform.
Judicial development is another. Future benches of the Supreme Court, confronted with the practical consequences of the judgment in other sectors – mining, aviation, or petroleum – may have occasion to clarify or refine the principles laid down. The judgment's reasoning, whilst clear in the telecom context, leaves room for development as applied to other regulated industries where the balance between sovereign authority and commercial imperatives may differ.
Executive accommodation should not be discounted either. India's telecom sector has been the subject of significant policy solicitude, the 2021 relief package for TSPs being a prominent example. Whether the executive chooses to use its regulatory discretion to ease transitional difficulties for pending insolvency proceedings, or instead treats the judgment as a settled restatement of sovereign primacy, will signal the direction of travel for the broader relationship between the State and distressed industries.
There is, of course, the question of judicial review. The judgment leaves a number of doctrinal tensions, particularly around the moratorium under Section 14 and the going concern mandate under Sections 20 and 25, that could furnish grounds for a review petition. Whether such a petition is filed, and whether the Court would entertain it on the narrow standard of “error apparent on the face of the record” remains to be seen. One suspects that many stakeholders across affected industries are watching this space closely. Only time will tell whether the judiciary revisits its own handiwork, or whether this judgment settles into the jurisprudential landscape as settled law.
Equally noteworthy is the judgment's relationship with ongoing legislative reform of the insolvency framework. The Union Government has, in recent years, signaled its intention to strengthen and modernise the Code, most recently through proposed amendments aimed at streamlining the resolution process, enhancing creditor protections, and reinforcing the Code's primacy as a comprehensive insolvency statute. The judgment sits uneasily with these ambitions. A legislative project premised on consolidating the Code's overriding authority is complicated, to say the least, by a judicial pronouncement that carves out an entire category of economically significant assets from its reach. If Parliament proceeds with amendments designed to bolster Section 238's non-obstante effect or to codify the treatment of regulated licenses within the insolvency waterfall, it will need to contend with a Supreme Court judgment that has drawn a constitutional line in the opposite direction. The tension between legislative intent and judicial interpretation may itself become a defining feature of the next phase of insolvency reform in India.
What is clear is that the judgment has opened a new chapter in the relationship between insolvency law and public regulation in India. The quality of the system's response, measured by its ability to preserve both sovereign prerogatives and commercial predictability, will determine whether this judgment is remembered as a necessary correction or as the beginning of a more fragmented insolvency landscape.
XI. Conclusion: A Judgment in Search of a Framework
The Supreme Court's judgment is intellectually ambitious and doctrinally significant. It articulates a vision of natural resource governance in which the sovereign's stewardship of public assets is paramount, and private commercial arrangements, however elaborate, must yield to that imperative. As a statement of constitutional principle, it is defensible. As a framework for the resolution of financial distress in resource-dependent industries, it leaves important questions unanswered.
The judgment tells us what spectrum is not: it is not an asset of the corporate debtor, not a security interest enforceable by lenders, not a commodity that can be traded through insolvency proceedings. What it leaves for another day is the equally important question of what spectrum is for the purposes of a company in distress — how the resolution professional is to operate, how the business is to be preserved, how the competing demands of sovereign authority and creditor rights are to be reconciled in practice.
These are not peripheral questions. They go to the heart of what the Code was enacted to achieve. As practitioners, regulators, and courts work through the judgment's implications in the months ahead, the central challenge will be to find a framework that honours both the sovereign character of natural resources and the commercial imperatives of a modern economy. The Court has articulated a principle. The task now is to build the operational architecture around it.