Indonesia’s biggest mobile operator by some margin, Telkomsel, has been declared bankrupt on a technicality, throwing an auction for additional 3G spectrum into disarray.

The state-controlled operator, which is also part owned by SingTel, boasted 117 million subscribers at the end of June, putting it clear ahead of its closest competitor, Indosat, with 50 million. In 2011, the company turned in revenues of $5.6bn with earnings that were in the black. But a Jakarta court has declared Telkomsel bankrupt on a technicality involving a disputed and unpaid debt of $550m, purportedly owed to SIM and scratch card distributor Prima Jaya Informatika.

Telomsel is appealing the verdict, and believes the situation has arisen due to a quirk of the Indonesian legal system and will eventually be rectified. The company issued a statement saying that service would not be affected while the legal teams fight it out. It may take several months for a resolution to come through however.

In the meantime, a planned auction for additional spectrum in the 1900MHz band has delayed due to rules which would prevent Telkomsel, as a bankrupts company, from bidding. The country’s operators are feeling the pinch of congestion on their networks but it looks as though the auction could at least be delayed until the situation regarding Telkomsel’s bankruptcy status is resolved.