This article is written by Nameera Meraj, of Aligarh Muslim University.
Recently, Reliance Communications dispute has brought renewed attention to the evolving interface between insolvency law, arbitration, and sector-specific regulation in India. Central to this shift is the Supreme Court’s 2026 ruling in Union of India v. Association of Unified Telecom Service Providers, which clarified the legal status of telecom spectrum.
Spectrum, in the telecom context, refers to the electromagnetic frequencies allocated by the State to telecom operators for providing communication services. Unlike conventional assets, the Court held that spectrum is not owned by the licensee but is a sovereign public resource held in trust by the State, subject to regulatory control by the Department of Telecommunications. As a result, it cannot be treated as part of the corporate debtor’s estate under the Insolvency and Bankruptcy Code, 2016.
This clarification has significant implications for insolvency proceedings involving telecom companies, where spectrum often constitutes the most valuable operational component. It also complicates the expectations of creditors and resolution applicants, who rely on the IBC’s framework for value maximization and transfer of assets as a going concern.
Against this backdrop, the earlier dispute between RCom and Ericsson assumes renewed importance. What began as a contractual dispute subject to arbitration ultimately intersected with insolvency proceedings, raising deeper questions about the limits of private dispute resolution once a collective statutory regime is triggered. The RCom case, therefore, provides a compelling framework to examine not only the traditional conflict between arbitration and insolvency, but also the emerging role of public law considerations in redefining the boundaries of both regimes.
I. Arbitrability and the In Rem–In Personam Divide
Arbitration is traditionally understood as an in personam mechanism, binding only the parties to the agreement. The arbitral proceedings initiated by Ericsson against RCom exemplified this, including interim measures restraining the alienation of assets to preserve the efficacy of a potential award.
However, the legal character of the dispute fundamentally changes once insolvency is triggered. Proceedings under the IBC are in rem, affecting not only the debtor and a single creditor, but the entire body of stakeholders. This distinction has been consistently emphasized in Indian jurisprudence, including Swiss Ribbons Pvt. Ltd. v. Union of India, where the Supreme Court underscored the collective nature of insolvency.
The transition from an in personam dispute to an in rem proceeding marks the point at which arbitration loses primacy, as the law prioritizes preservation of the debtor’s estate over bilateral enforcement.
II. The Trigger Point: Default, Admission, and the Limits of Arbitration
A critical issue in the RCom–Ericsson dispute was whether the existence of an arbitration proceeding could preclude the initiation of insolvency.
RCom argued that since the debt was subject to arbitration, it could not constitute a “default” under the IBC. This argument, however, was not accepted. The jurisprudence, including Indus Biotech Pvt. Ltd. v. Kotak India Venture Fund, clarifies that:
- The mere existence of an arbitration clause or pending dispute does not bar insolvency proceedings.
- The adjudicating authority (NCLT) must determine whether a real dispute exists or whether debt and default are established.
Crucially, arbitration retains its relevance only until the admission of the insolvency petition. Once the NCLT admits the petition, the legal framework shifts decisively.
III. Moratorium and the Supremacy of the IBC
Upon admission of CIRP, Section 14 of the IBC imposes a statutory moratorium, staying all proceedings against the corporate debtor. This includes arbitration, enforcement actions, and other recovery mechanisms.
The overriding nature of this framework is reinforced by Section 238, which grants the IBC supremacy over inconsistent laws. As recognized in Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan Pvt. Ltd., arbitration proceedings cannot continue in a manner that undermines the insolvency process.
At the same time, recent developments such as Ankhim Holdings v. Zaveri Construction introduce nuance: while arbitral proceedings may continue in a limited procedural sense, their enforcement is effectively suspended during the moratorium period.
This reflects a calibrated approach arbitration is not extinguished, but it is subordinated to the collective framework of insolvency.
IV. Asset Control, Arbitral Orders, and Institutional Priority
The interim arbitral order restraining RCom from disposing of its assets came into direct conflict with the powers of the Resolution Professional (RP). Under the IBC, control over the debtor’s assets is centralized in the RP, subject to oversight by the adjudicating authority.
Allowing arbitral tribunals to independently restrict asset transfers would fragment this process and undermine the objective of equitable distribution. Consequently, such interim measures lose practical force once CIRP is initiated, as asset management becomes part of a single, court-supervised process.
V. The Public Resource Exception: Spectrum and the Limits of Insolvency
A transformative development emerged in Union of India v. Association of Unified Telecom Service Providers, which addressed the status of telecom spectrum in the insolvency of RCom.
The Supreme Court held that spectrum is a sovereign public resource held in trust by the State, and not a proprietary asset of the corporate debtor. This classification excludes spectrum from the insolvency estate and places it under the control of the Department of Telecommunications.
The implications of this ruling were immediate. In March 2026, RCom’s Resolution Professional challenged the decision through a review petition, arguing that excluding spectrum renders the insolvency framework effectively unworkable for telecom companies and undermines the objective of value maximization.
This development also intensifies the tension between the IBC’s “clean slate” principle and the claims of statutory authorities. While insolvency law seeks to enable a fresh start for resolution applicants, regulatory bodies continue to assert independent rights over key resources, complicating the transfer of the business as a going concern.
Although the ruling does not arise from arbitral proceedings, it significantly reshapes the arbitration–insolvency interface by shrinking the asset base available for enforcement and reinforcing a hierarchy in which public law considerations override both insolvency and private dispute resolution.
VI. Beyond Insolvency: The PMLA and Criminal Law Overlay
The conflict is further complicated by the intersection with the Prevention of Money Laundering Act, 2002 and actions by the Enforcement Directorate.
Provisional attachment of assets under the PMLA introduces a competing claim over the debtor’s property, often persisting despite the initiation of CIRP. This creates tension with the IBC’s objective of providing a “clean slate” to resolution applicants.
The resulting legal landscape reflects a multi-layered hierarchy in which insolvency law must operate alongside, and sometimes yield to, criminal enforcement mechanisms.
Conclusion
The RCom dispute illustrates that the relationship between arbitration and insolvency is not merely one of conflict, but of structured subordination shaped by broader legal principles.
Arbitration, as a private dispute resolution mechanism, operates within the limits imposed by insolvency once collective proceedings are triggered. Insolvency itself, however, is not absolute; it must yield to overriding public law considerations, including sovereign control over natural resources and criminal enforcement regimes.
Frequently Asked Questions
1. What was the core issue in the Reliance Communications dispute?
The conflict was between enforcing arbitration awards and the moratorium under insolvency proceedings.
2. Why do arbitration and insolvency laws clash?
Arbitration focuses on dispute resolution, while insolvency law prioritises collective recovery and asset protection.
3. What role does the moratorium under IBC play?
It stops all proceedings, including arbitration enforcement, to preserve the debtor’s assets.
4. Can arbitration continue during insolvency proceedings?
It may continue in limited cases, but enforcement is usually restricted due to the moratorium.
5. What key lesson comes from this dispute?
Insolvency proceedings generally override arbitration when asset preservation and creditor interests are at stake.
References
ET Telecom, RCom Challenges SC Spectrum Ruling in Review Petition (Mar. 2026) https://telecom.economictimes.indiatimes.com/news/industry/reliance-communications-challenges-supreme-court-on-spectrum-sale-rules/129599477
Business Standards, Telecom spectrum can’t be treated as asset under IBC: Supreme Court (Feb. 2026) https://www.business-standard.com/industry/news/spectrum-public-resource-not-ibc-asset-supreme-court-126021301828_1.html
