When Public Trust Meets Insolvency Law, The Supreme Court’s Spectrum Ruling and Its Consequences
The Supreme Court’s judgment of February 13, 2026, in State Bank of India versus Union of India fundamentally reshapes the interaction between state and market. The court has ruled that spectrum is a natural resource held in public trust, and the right to use it does not form part of the insolvency estate of a telecom service provider. This ruling effectively places the most valuable asset of a TSP beyond the reach of a resolution plan.
The likely consequence is the liquidation of stressed TSPs and the fragmentation of the insolvency framework, contrary to legislative design. Though grounded in high constitutional concerns over natural resources, the ruling suffers from a conceptual overextension. The Public Trust Doctrine is applied without sufficient regard to the evolution of the modern regulatory state and market economy. If extended across sectors, the reasoning could exclude from the insolvency estate all licensed natural resources and associated usage rights, thereby driving stressed, licence-dependent enterprises into liquidation.
The Public Trust Doctrine in Context
The Public Trust Doctrine emerged to protect communal access to resources such as air and water, as a check against the privatisation of the commons. Its application to telecommunications, however, requires greater nuance. In this sector, the state has translated the PTD into a detailed statutory and contractual framework of auctions, licences, and contracts. That framework explicitly permits the allocation, trading, and transfer of spectrum usage rights.
When the state auctions spectrum, it does not abandon the public trust; it operationalises that trust through market mechanisms. A sovereign resource is converted into a regulated, tradeable economic entitlement, juridically embodied in the licence. For the Insolvency and Bankruptcy Code, it is this statutory-contractual construct that matters, not the doctrine in abstraction.
The judgment does not fully distinguish between sovereign ownership of spectrum and the contractual licence conferring the right to use it. These operate at distinct juridical levels. Spectrum remains vested in the state at all times, while the licence is a statutorily recognised intangible right, acquired for valuable consideration. Though a derivative of sovereign resources, it has clear commercial attributes. In accounting and economic terms, the money paid to acquire the licence exits the balance sheet and is replaced by an intangible asset of corresponding value.
The Conflation of Resolution and Liquidation
The judgment conflates resolution with liquidation. In liquidation, assets are sold, and the proceeds are distributed in accordance with the priority rule; third-party assets are rightly excluded. A licence, however, is central to revenue generation, and is transferable, subject to conditions.
A resolution plan rescues the corporate debtor as a going concern. It does not appropriate or sell spectrum; nor does it extinguish or recreate the licence. It allows its continued use by the same entity, subject to regulatory approval. There is only a change in control of the licensee, while the regulatory relationship endures.
This distinction is critical. Resolution is about preserving value, not distributing it. It keeps the enterprise alive, employees in jobs, and services running. Liquidation destroys value, scatters assets, and disrupts services. By removing the licence from the insolvency estate, the court has made resolution far more difficult, if not impossible, for stressed telecom firms.
The Problem of Special Statutes
At a broader level, the ruling raises concerns about the interactions among special statutes. The suggestion that telecom law must override insolvency law because spectrum is a special resource overlooks a settled principle of interpretation: where two special laws operate in distinct domains, courts must prefer harmonious construction over implied exclusion.
Telecom regulation and the IBC address different dimensions of the same economic reality. Telecom law governs access to spectrum, licensing conditions, technical standards, and regulatory compliance in respect of a scarce public resource. The IBC governs financial distress, capital reallocation, and enterprise reorganisation. One regulates the resource; the other restructures the user. Their objectives are distinct yet complementary.
There is nothing in telecom legislation to suggest that licensed entities are insulated from insolvency resolution. Nor does the IBC purport to dilute sovereign ownership or licensing control. On the contrary, the Code preserves regulatory approvals and conditions. The interpretive task, therefore, is to ensure that each operates within its sphere without frustrating the object of the other.
The Insolvency Estate
The insolvency estate encompasses enforceable rights and interests, no less than ownership of property. A telecom licence, acquired through auction and held subject to conditions, is precisely such a right. It has economic value, can be transferred (with regulatory approval), and is essential to the enterprise’s operations.
To exclude it from the estate is to hollow out the very concept of insolvency resolution for telecom firms. Creditors who lent money on the security of the licence find that security worthless. Potential resolution applicants find that the most valuable asset is unavailable. The only remaining option is liquidation, which benefits no one—not creditors, not employees, not consumers, and not the state.
The Economic Consequences
The economic consequences of the ruling are potentially severe. Telecom is a capital-intensive industry. Firms borrow heavily to acquire spectrum and build networks. If lenders cannot rely on spectrum licences as security, they will lend less and charge more. The cost of capital for the industry will rise.
Stressed firms that might have been rescued through resolution will instead face liquidation. Spectrum will sit idle while the resolution process plays out. Consumers will lose service. Employees will lose jobs. The state will lose tax revenue and auction proceeds.
This outcome is inconsistent with both telecom law and insolvency law. Telecom law seeks to ensure that spectrum is used efficiently to provide services. Insolvency law seeks to ensure that distressed assets are redeployed to more efficient users. The ruling frustrates both objectives.
Learning from Mature Jurisdictions
Mature insolvency jurisdictions recognise the equilibrium that the Indian judgment disturbs. They allow the continuation of regulatory licences through a resolution plan, subject to regulatory approval. They understand that preventing such continuation destroys enterprise value and risks leaving critical resources idle.
If a licence cannot survive resolution, liquidation follows. Spectrum remains unused for a period, generating neither revenue for the state nor services for consumers. This outcome serves no one’s interest.
Conclusion: A Question of Balance
The issue, therefore, is not one of choosing between constitutional fidelity and commercial pragmatism but of harmonising two special regimes so that each operates within its legitimate sphere. The Public Trust Doctrine safeguards sovereign ownership and public interest in natural resources. It does not require that every commercial derivative of those resources be placed beyond the reach of economic reorganisation.
Elevating the PTD into a bar against economic reorganisation risks turning a doctrine of stewardship into one of exclusion. A coherent legal order must allow sovereign control over spectrum to coexist with an effective resolution regime so that public resources remain protected, markets remain predictable and viable, but stressed entities can be rescued.
The Supreme Court’s ruling has disturbed that balance. The task now is to find a way to restore it—through legislative clarification, regulatory guidance, or further judicial interpretation. The alternative is a telecom sector hobbled by uncertainty and a resolution regime fragmented beyond repair.
Q&A: Unpacking the Spectrum and Insolvency Ruling
Q1: What did the Supreme Court rule in the spectrum case?
The Supreme Court ruled that spectrum is a natural resource held in public trust, and the right to use it does not form part of the insolvency estate of a telecom service provider. This means that when a telecom company undergoes insolvency resolution, its spectrum licence cannot be included in the assets available to creditors or resolution applicants. The ruling effectively places the most valuable asset of a stressed telecom firm beyond reach of the insolvency process.
Q2: Why is this ruling problematic for insolvency resolution?
The ruling conflates resolution with liquidation. In resolution, the goal is to rescue the corporate debtor as a going concern—keeping it alive, preserving jobs, and maintaining services. A spectrum licence is central to a telecom firm’s revenue generation. Excluding it from the insolvency estate makes resolution nearly impossible, pushing stressed firms toward liquidation instead. This destroys value, disrupts services, and leaves spectrum idle, contrary to both telecom and insolvency law objectives.
Q3: What is the Public Trust Doctrine, and how does the court apply it?
The Public Trust Doctrine emerged to protect communal access to resources like air and water, checking privatisation of the commons. The court applies it to spectrum, arguing that as a natural resource held in public trust, its usage rights cannot be treated as assets in insolvency. Critics argue this ignores that the state has operationalised the doctrine through a detailed framework of auctions, licences, and contracts that create tradeable economic entitlements. The doctrine should not bar economic reorganisation of those entitlements.
Q4: How does this ruling affect the relationship between special statutes?
The ruling suggests telecom law must override insolvency law because spectrum is special. This overlooks the principle that where two special laws operate in distinct domains, courts should prefer harmonious construction over implied exclusion. Telecom law governs resource access and licensing; insolvency law governs financial distress and enterprise reorganisation. They are complementary, not contradictory. The ruling fragments the insolvency framework, potentially creating carve-outs for regulated industries that undermine its uniform application.
Q5: What are the economic consequences of this judgment?
The ruling will likely increase the cost of capital for telecom firms, as lenders can no longer rely on spectrum licences as security. Stressed firms that might have been rescued will face liquidation. Spectrum will sit idle during resolution processes. Consumers lose service, employees lose jobs, and the state loses tax revenue and auction proceeds. This outcome is inconsistent with both telecom law’s goal of efficient spectrum use and insolvency law’s goal of redeploying distressed assets to more efficient users. A coherent legal order must balance sovereign control with effective resolution.
