Beyond Ownership: Government Licences and the Limits of IBC's Rescue Objective

[Priya is a student at Rajiv Gandhi National University of Law.]

The Insolvency and Bankruptcy Code 2016 (IBC) was enacted to maximise value and balance stakeholder interests, marking a shift from recovery to rescue. However, this rescue-oriented approach encounters a fundamental challenge where the commercial value of a corporate debtor derives not from assets owned by the corporate debtor, but from government-owned licenses conferring only a right of use. This tension came into sharp focus in the case of State Bank of India v. Union of India, wherein the Court held that spectrum licensing rights, despite constituting the economic foundation of a telecom enterprise, do not form part of “the pool of assets for insolvency or liquidation”. 

This article argues that the Supreme Court’s decision undermines the rescue-oriented objective of the IBC and examines potential solutions adopted by major jurisdictions worldwide.

Background

In the case of State Bank of India v. Union of India, the Corporate Debtors defaulted on the payment of telecom spectrum licensing fees to the Department of Telecommunications (DoT), thus triggering the corporate insolvency resolution process (CIRP). The DoT's claim for the unpaid fees was extinguished upon approval of the resolution plan. On appeal, although the National Company Law Appellate Tribunal recognised the spectrum usage rights as assets forming a part of insolvency proceedings, it simultaneously prevented their transfer under a resolution plan unless outstanding governmental dues were discharged. This position conflicts with the architecture of the CIRP, where the successful resolution applicant acquires the corporate debtor’s assets pursuant to the approved resolution plan.

On appeal, the Supreme Court concluded that the spectrum is a natural resource held by the Union Government in public trust under Article 39(b) of the Constitution of India and thus, a spectrum license is a “limited, conditional and revocable privilege to use spectrum for specified purposes and for a defined duration”, subject to continuous compliance with license conditions.

The court concluded that spectrum usage rights fall outside the insolvency estate because the licensee lacks proprietary interest in the underlying asset. The court derived this conclusion from Section 18(f) of the IBC, which authorises the interim resolution professional to take control and custody of the corporate debtor’s assets, which confines the insolvency estate to assets over which the corporate debtor has ownership rights. This interpretation was reinforced by the Explanation to Section 18, which excludes third-party-owned assets merely under the possession of the corporate debtor. 

The court further held that Section 238 of the IBC was not attracted because spectrum usage rights fall outside the insolvency estate under Sections 18 and 36. Consequently, the IBC could not override the statutory framework governing telecom licenses. The court therefore preserved the DoT's authority to enforce license conditions, withhold consent for spectrum trading, and suspend or terminate a license for non-payment of dues, holding that these powers constitute sovereign statutory functions beyond the jurisdiction of the National Company Law Tribunal (NCLT). The IBC’s rescue-oriented framework therefore encounters a particular difficulty where the value of the corporate debtor depends upon rights or permissions granted by the State.

Indian Jurisprudence and the Limits of the Resolution Professional’s Powers 

The tension between the IBC’s rescue objective and government-granted rights is reflected in Indian jurisprudence. Sections 18 and 25 empower the interim resolution professional / resolution professional to take control and custody of the corporate debtor’s assets, preserve and protect them, and exercise rights for its benefit in judicial, quasi-judicial and arbitral proceedings. However, these provisions do not confer authority to acquire, renew or enforce rights that remain subject to an independent statutory or regulatory regime. This distinction was illustrated in Vasudevan v. State of Karnataka, where the NCLT initially treated a subsisting mining lease as property of the corporate debtor and directed its continuation during CIRP. The Supreme Court subsequently reversed this approach in Embassy Property Developments Private Limited v. State of Karnataka (Embassy Property), holding that the NCLT could not direct the State to renew a mining lease, since the grant or renewal of such a lease involved the exercise of sovereign and public-law functions. This principle has acquired particular significance in State Bank of India v. Union of India, where the Supreme Court held that spectrum usage rights, notwithstanding their immense commercial importance to a telecom enterprise, do not form part of the insolvency estate because the underlying spectrum remains a public resource and the license confers only a limited and conditional right of use. Indian jurisprudence therefore establishes that Sections 18 and 25 facilitate preservation of the corporate debtor’s existing proprietary and contractual interests, but cannot transform a regulatory privilege into an asset capable of being transferred or renewed through the insolvency process.

Creditors Without Value: The Economic Cost of the Judgment

By excluding spectrum usage rights from the insolvency estate, the Supreme Court undermines the rescue-oriented architecture of the IBC. A resolution process that cannot transfer the enterprise’s key operational asset becomes an exercise in form rather than substance. This leaves liquidation as the likely outcome, despite the IBC’s clear preference for rehabilitation.

The IBC's value-maximisation goal is likewise compromised by the ruling. It reduces the value of spectrum usage rights as collateral by removing them from the insolvency estate and depriving them of proprietary status, which discourages lenders from placing a high value on such rights when funding telecom projects. This ruling also extends beyond the telecom industry. The Court's reasoning may equally affect insolvency procedures involving mining leases, aviation licenses, broadcasting licenses, and other license-dependent industries because it is based on the lack of proprietary rights rather than the special qualities of spectrum.

International Jurisdictions

This section examines how the US, the U.K, and Singapore reconcile governmental ownership of licenses with rescue-oriented insolvency.

United Kingdom: Regulatory control through special administration

Owing to the unsuitability of the general insolvency framework to deal with industries where the enterprise performs a public function by holding government-granted authorisations, the UK has enacted a series of Special Administrative Regimes (SARs) bespoke to specific sectors. For instance, the water industry SAR, which applies to licensed water and sewerage undertakers. In this model, a special administrator is appointed with the foremost objective of ensuring the continuity of the water supply and sewerage functions of the company and the secondary objective of protecting the creditors’ interests. This regime authorises the transfer of the licence to a new company, with the Secretary of State empowered to revise the existing licence to facilitate the transfer. Similarly, the same mechanism has been followed for the smart meter licence sector, and the energy sector among others. Importantly, the Insolvency (Moratorium) (Special Administration for Energy Licensees) Regulations 2020 prohibit the suspension or termination of the licences during the special administration. 

The UK model thus positions the regulator as a co-architect of rescue rather than an external veto-holder. 

United States: Regulatory approval without bankruptcy penalties

Unlike India, in the US, under Section 310(d) of the Communications Act of 1934, the assignment of any Federal Communications Commission (FCC)-issued radio license or the transfer of control of any licensee requires the prior written consent of the FCC, which must determine that the proposed transaction serves the public interest, convenience and necessity. Further, Section 525(a) of the Bankruptcy Code explicitly prohibits a governmental unit from revoking or denying a license to a debtor “solely” because of the non-payment of a debt that is or can be discharged in a bankruptcy proceeding. This protection was reaffirmed in FCC v. NextWave Personal Communications Inc. (NextWave), where the court struck down the FCC's cancellation of licenses for missed payments as a Section 525(a) violation.

Singapore: Regulatory coordination within general insolvency

Singapore's Insolvency, Restructuring and Dissolution Act (IRDA) 2018 adopts a different approach. Rather than adopting sector-specific SARs, it strengthens the general insolvency framework in a way that makes it easier for regulated businesses to achieve going concern results. Part 7 of the IRDA establishes a judicial management (JM) regime, under which an independent judicial manager is appointed with the objective of preserving the business as a going concern. Crucially, unlike Indian jurisprudence under Embassy Property, the IRDA does not exclude government-granted licenses from the definition of property. To pursue a going concern sale of a regulated firm, a Singapore judicial manager or liquidator must engage with the appropriate regulatory body. Additionally, the broad and immediate moratorium granted under JM prevents action against the company while the judicial manager prepares proposals for creditors. 

Critical Analysis

The comparative analysis shows that the Supreme Court's exclusionary reasoning is a legislative choice that other jurisdictions have deliberately avoided rather than an unavoidable result of insolvency theory. Therefore, the lack of a statutory mechanism that may accommodate government ownership of licenses within a rescue-oriented insolvency process is the true shortcoming of the Indian system, not the recognition of governmental ownership of licenses.

The US partially addresses this issue by acknowledging that bankruptcy alone should not strip a business of its regulatory licenses. Section 525(a) prohibits governmental entities from utilising insolvency as a sole basis for license termination, thus safeguarding the debtor's opportunity for reorganisation. Nevertheless, the transfer of telecom licenses still relies on the FCC's consent based on its “public interest” evaluation. 

As a result, even though bankruptcy protection and regulatory supervision exist together, the success of a resolution transaction remains contingent upon an external regulatory decision. This uncertainty can prolong the resolution process and diminish the appeal of distressed assets for potential resolution applicants.

Singapore, instead of establishing sector-specific regimes, adopts a rescue-oriented strategy by fortifying its general insolvency framework. The JM framework, an immediate moratorium, and a broad definition of property reflect a legislative intent to maximise the scope of transfers in a going concern sale. However, this model has not yet been tested in circumstances comparable to Embassy Property or NextWave, when a regulator asserts an independent statutory jurisdiction to terminate a licence essential to the debtor's business. Therefore, it is unclear how much regulatory authority would give way to insolvency goals in such a dispute. 

In the UK, the State is inherently involved in the insolvency process instead of merely being a creditor with a blocking veto. The law explicitly provides for the transfer of the undertaking to a new company, and the Secretary of State can, through a statutory instrument, modify the application of insolvency laws to Special Administration proceedings. This confirms the legislative superiority of the SAR in relation to the general insolvency framework for regulated entities. Furthermore, although in India the explanation of Section 14 of the IBC safeguards licenses from termination during the CIRP, it lacks a process to allow their transfer, especially when the corporate debtor eventually enters liquidation. In contrast, the UK moratorium functions within a legal framework that maintains both the continuity and transferability of licenses, facilitating a genuine going concern sale instead of merely postponing regulatory measures. The UK framework presents a model in which the regulator is integrally involved in the insolvency process as a collaborator in the going concern sale, rather than acting merely as an outside veto.

Conclusion

Therefore, the Supreme Court’s decision to exclude government-granted licenses from the insolvency estate contradicts the IBC’s rescue-oriented structure by depriving resolution applicants of the very assets necessary for the business to continue. India should adopt a legislative framework based on the UK’s SAR model allowing the transfer of government-issued licenses during insolvency, with ongoing regulatory supervision, which would enable India to balance state control over public assets with the aims of insolvency legislation.