State Bank of India v. Union of India: spectrum, sovereign trust and the IBC

The facts in brief

The Aircel group — Aircel Limited, Aircel Cellular Limited and Dishnet Wireless Limited — held Unified Access Service Licences granted on 5 December 2006 for twenty-year terms. They initiated voluntary corporate insolvency proceedings under section 10 of the Insolvency and Bankruptcy Code in March 2018, at a point when the Department of Telecommunications was pressing for recovery of unpaid Adjusted Gross Revenue (AGR) dues and licence-fee arrears that, on the Government's case, ran to approximately Rs 9,894 crore.

Within the corporate insolvency resolution process, resolution applicants treated the spectrum-usage rights as recoverable intangible assets capable of being sold or restructured as part of the resolution plan. The State Bank of India and other financial creditors backed this characterisation: it preserved value within the insolvency estate and improved the recovery prospects of secured lenders. DoT objected. The Department's case was that spectrum was a sovereign resource that could not be alienated through CIRP, that licence and spectrum dues were not commercial debts amenable to the moratorium, and that any treatment of spectrum as part of the liquidation estate would contradict the constitutional trusteeship over a finite public resource.

The National Company Law Appellate Tribunal permitted the spectrum question to be agitated in the CIRP. Cross-appeals reached the Supreme Court, where the lead matter was carried in SBI's name with DoT and the Union of India as principal respondents. After extended hearings on the interaction between the IBC and the sovereign-trusteeship framework, the Court reserved judgment and pronounced it in February 2026.

The questions before the Court

Two questions stood at the centre of the appeal. The first was whether the spectrum allocated to a telecom service provider could be characterised as a "corporate asset" of the debtor for the purpose of the IBC, so that it could be sold, assigned or restructured as part of the resolution plan or liquidation estate. The second was whether the moratorium under section 14 of the IBC could be invoked to defer or extinguish payment of licence and spectrum dues owed to the Department of Telecommunications.

Beneath these two questions sat a deeper architectural question: how does the IBC, a commercial-insolvency framework that presupposes freely alienable ownership, interact with constitutional and statutory frameworks that designate a class of resources as held by the State in trust for the community?

What the Court held

Spectrum is not part of the insolvency estate

The bench held that spectrum cannot be subjected to proceedings under the IBC. The reasoning starts from the source of the licensee's interest. Under section 4 of the Indian Telegraph Act 1885, the exclusive privilege of establishing, maintaining and working a telegraph (which includes wireless telegraphy) vests in the Union of India. A licensee receives, through the Unified Access Service Licence Agreement, a conditional right-to-use spectrum on terms that the State sets. The licensee never acquires proprietary ownership.

The Court's reasoning runs through the framework of section 36 of the IBC, which excludes from the liquidation estate property "owned by a third party but held by the corporate debtor under contractual arrangements". A spectrum allocation falls squarely within that exclusion. The debtor holds the right-to-use; the Union owns the underlying resource.

Accounting treatment does not create proprietary ownership

The most analytically interesting move in the judgment is the treatment of the Ind AS 38 question. Telecom companies recognise spectrum as an "intangible asset" on their balance sheets because the accounting standards require it. Resolution applicants and financial creditors argued that this recognition itself created a property interest that the IBC machinery could realise.

The Court rejected the argument. Accounting recognition reflects the economic reality of a long-term right-to-use; it does not transform a sovereign privilege into freely alienable corporate property. The balance-sheet question and the legal-ownership question are distinct, and the IBC machinery operates on legal ownership, not on accounting characterisation.

The section 14 moratorium does not extend to sovereign dues

The Court held that the moratorium under section 14 of the IBC does not insulate a telecom debtor from licence and spectrum dues owed to DoT. The moratorium suspends recovery actions in respect of commercial debts so that the corporate debtor can be restructured or wound up in an orderly way. It does not displace the State's right, exercised in its sovereign capacity, to enforce conditions attached to the right-to-use of a public resource. A defaulting licensee cannot use the moratorium to convert a conditional privilege into a permanent entitlement.

The doctrinal architecture

The judgment threads together three strands of Indian public law and makes them speak to a contemporary commercial-insolvency dispute.

The first strand is the public-trust doctrine as crystallised in Centre for Public Interest Litigation v. Union of India (the 2G spectrum case), which characterised natural resources as held by the State in trust for the community and required their allocation through processes consistent with that fiduciary character. Spectrum, as a finite electromagnetic resource, sits comfortably within that frame, and the Court draws on the 2G reasoning to ground the trusteeship characterisation.

The second strand is the section 36 liquidation-estate exclusion. The IBC itself acknowledges that not everything in the debtor's possession is part of the insolvency estate. Property held under contractual arrangements but owned by a third party is excluded. Spectrum is the paradigm of such property: the debtor's interest is contractual, conditional and revocable; ownership remains with the Union.

The third strand is the section 14 moratorium's relationship with sovereign action. The moratorium is a tool of commercial restructuring; it cannot be read to displace constitutional or statutory obligations of the State as sovereign. DoT's recovery of licence and spectrum dues is not a commercial recovery action of the kind that section 14 is designed to pause.

The three strands together produce a clean rule: spectrum is in, and remains in, the sovereign trust account; the IBC machinery cannot reach it; and the moratorium cannot defer the dues attached to its use.

What the judgment did not decide

The Court did not lay down a comprehensive framework for restructuring telecom debtors outside the IBC. The judgment establishes what cannot be done within the IBC but does not prescribe what must be done in its place. The legislative or regulatory architecture for telecom-distress workouts — likely to require amendment of the Telegraph Act framework as carried forward into the Telecommunications Act 2023 — remains a policy question.

The judgment did not address whether the reasoning extends to other classes of sovereign-licensed resources. Mining leases, oil and gas blocks, and port concessions all share structural features with spectrum: a sovereign resource, a conditional right-to-use, and a regulatory regime that limits alienation. Whether the Court's reasoning travels to those contexts will be worked out in future litigation; the judgment offers strong analytical material but does not decide the point.

It also did not address the position of secured creditors who had advanced finance specifically against spectrum-backed cash flows. The recovery position of such creditors against the operating-company estate is left to be worked out within the resolution and liquidation processes, against the reduced asset base that the judgment confirms.

After the judgment

The most immediate consequence is the recalibration of telecom-debtor resolutions. Resolution applicants will have to value telecom estates without including spectrum as a transferable asset, which will reduce expected recoveries for financial creditors and may push resolution plans toward going-concern restructurings that work alongside DoT rather than against it. The judgment improves DoT's recovery position against operators with significant AGR and licence-fee arrears.

The reasoning also has implications beyond telecom. Public-resource concessions across mining, hydrocarbons and infrastructure share enough structural features with spectrum that the Court's treatment of accounting characterisation, contractual right-to-use and sovereign dues will be cited in IBC proceedings touching those sectors. Expect challenges in future CIRPs to test the boundaries of the section 36 exclusion against the backdrop of the SBI v. Union of India reasoning.

On the legislative side, the judgment increases pressure for a dedicated telecom-distress framework that recognises the sovereign character of spectrum while providing an orderly pathway for restructuring stressed operators. Whether that takes the form of an amendment to the Telecommunications Act 2023, a sector-specific resolution regime, or a coordinated DoT-IBBI framework will be worked out in the policy space.

Related on Valkya

• Adani Power v. Union of India: SEZ-to-DTA customs duty without authority of law
• Pannalal Bhansali v. Bharti Telecom: section 66 capital reduction and the NCLAT bench
• Vidarbha Industries Power v. Axis Bank: NCLT discretion under section 7 IBC
• Centre for Public Interest Litigation v. Union of India: the 2G spectrum allocation

Sources

1. LiveLaw judgment page (2026 LiveLaw SC 152): https://www.livelaw.in/sc-judgments/2026-livelaw-sc-152-state-bank-of-india-v-union-of-india-ors-523094
2. Bar and Bench feature on the AGR-insolvency holding: https://www.barandbench.com/amp/story/news/litigation/telecom-spectrum-not-restructurable-asset-under-ibc-supreme-court-in-aircel-agr-insolvency-dispute
3. Supreme Court Observer Law Reports analysis: https://www.scobserver.in/supreme-court-observer-law-reports-scolr/spectrum-ownership-rights-for-telecom-service-providers/
4. SCC OnLine Law Reports (SCO.LR 2026 Vol. 2 Issue 3) case-note on the judgment.