The State Bank of India’s decision to seek review of the Supreme Court’s recent spectrum ruling has revived a dispute that extends far beyond telecom insolvency. At stake is a basic question — can the Insolvency and Bankruptcy Code, 2016 (IBC), designed to rescue distressed businesses and maximise creditor recoveries, override the sovereign character of scarce public resources such as a spectrum?
Running alongside that question is another equally important one — can large statutory dues owed to the State be pushed down the repayment ladder as mere operational debt while financial creditors recover first?
The Supreme Court’s February 2026 ruling drew a clear conceptual line. Telecom spectrum, it held, is not an ordinary corporate asset available for unrestricted transfer through insolvency proceedings. It remains a national resource allocated by the State subject to statutory conditions, payment obligations and continuing regulatory control. A telecom operator enjoys a right to use spectrum, but not unfettered ownership over it. That distinction, though legally orthodox, has significant ramifications.
Lenders’ worries
For lenders, the concern is immediate. Telecom borrowing is underwritten not merely by towers or equipment, but by the cash flows generated through access to spectrum. If those rights cannot be effectively dealt with during insolvency, recoveries become uncertain. Where recovery becomes uncertain, risk premiums rise. Banks and bondholders do not wait for jurisprudence to settle; they price the uncertainty in advance. The eventual burden is borne by the sector through higher borrowing costs and reduced investment appetite.
For the State, however, the concern is different. Spectrum usage charges, licence fees and AGR liabilities are not routine trade claims. They arise from the use of a public resource and form part of the consideration for that use. Treating such dues as ordinary operational debt raises a difficult policy concern: public revenue may take steep haircuts while private credit recovers ahead of it.
The IBC was built as a general code. But sectors such as telecom, mining, aviation and power function through licences, concessions and permissions that originate in sovereign authority. Their value is commercial, yet their resource is public. This dual character makes them resistant to a universal insolvency process.
Legal friction
The legal friction is therefore unsurprising. Creditors rely on the IBC’s broad objective of value maximisation and speedy resolution. Regulators insist that insolvency cannot dilute statutory obligations or convert licences into transferable private property. Both positions have force.
The present uncertainty is costly. As the British economist Ronald Coase argued in The Problem of Social Cost, markets allocate resources efficiently only when property rights are clear and transaction costs remain low. Where rights are uncertain, bargaining becomes expensive, delay increases, and assets are abandoned rather than redistributed. That is precisely the danger here. If distressed telecom assets cannot be resolved smoothly, valuable spectrum may remain tied up in litigation while subscribers migrate, infrastructure declines and enterprise value erodes. A scarce national resource then becomes commercially idle.
Consumers are not untouched by these disputes. If borrowing becomes costlier and stressed companies cannot be resolved quickly, telecom firms may expand networks more slowly, face weaker competition, and delay new technology rollouts.
The review petition reflects market unease that the present framework does not adequately reconcile insolvency principles with regulated-sector realities.
A more practical way forward may be to re-consider clearer insolvency rules for sectors that depend on public licenses or natural resources.
That may include involving regulators earlier in the process, setting out how statutory and government dues are to be handled, and creating workable routes for transfer of operating rights when a company is being restructured.
The writer is an advocate at the Delhi High Court
Published on May 14, 2026