Union of India v. Association of Unified Telecom Service Providers [2019]

Citation: 2020 SCC OnLine SC 703

Court: Supreme Court of India

Date of Judgement: 1 September 2020

Coram: Justice Arun Mishra, Justice S. Abdul Nazeer, Justice M.R. Shah

The decision of the Supreme Court in Union of India v. Association of Unified TSPs forms a significant part of the continuing litigation surrounding Adjusted Gross Revenue (AGR) dues in the Indian telecom sector. The judgement arose in the aftermath of the Court’s 2019 AGR ruling, which conclusively determined the scope of AGR and imposed substantial financial liabilities on Telecom Service Providers (TSPs).

This case addresses multiple interlinked issues concerning spectrum sharing, spectrum trading, insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), and the timeline for payment of AGR dues. The judgement reflects the Court’s attempt to balance contractual obligations owed to the Union of India with the financial stress faced by the telecom industry, while ensuring that public revenue is protected.

Background and Brief Timeline

On 24 September 2015, the Union of India framed the Guidelines for Trading of Access Spectrum by Access Services Providers, commonly referred to as the 2015 Guidelines. These guidelines regulated the sharing and trading of spectrum among telecom operators.

On 24 October 2019, the Supreme Court delivered its landmark judgement in Union of India v. Association of Unified Telecom Service Providers of India, deciding the long-standing dispute on the definition of Adjusted Gross Revenue under the Indian Telegraph Act, 1885. The Court rejected the contentions of TSPs and upheld the definition advanced by the Department of Telecommunications (DoT), thereby crystallising enormous AGR dues payable by telecom operators.

Subsequently, on 27 November 2019, the National Company Law Tribunal (NCLT), Mumbai, held that telecom licences are assets of the State. However, it also held that in view of the moratorium imposed under the IBC, such licences could not be revoked during insolvency proceedings. The Union of India challenged this decision before the National Company Law Appellate Tribunal (NCLAT), but the appeal was dismissed on the ground of limitation. Aggrieved by this, the Union of India approached the Supreme Court.

During the pendency of proceedings, on 20 September 2020, the Union of India filed an application seeking extension of time up to 20 years for payment of AGR dues by TSPs. While the Court made it clear that no recalculation or self-assessment of AGR dues would be permitted, it examined the conduct of companies undergoing insolvency proceedings to ensure that government dues were not defeated.

On 1 September 2020, the Supreme Court delivered the present judgement, fixing a structured timeline of ten years for repayment of AGR dues.

Legal Framework Involved in Union of India v. Association of Unified Telecom Service Providers

The case involved interpretation and interaction between several statutes and regulatory instruments. These included the Indian Telegraph Act, 1885, which grants exclusive privilege to the Union of India over telecommunication services; the Insolvency and Bankruptcy Code, 2016; the Telecom Regulatory Authority of India Act, 1997; the 2015 Guidelines on spectrum trading and sharing; and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The dispute also touched upon principles laid down in earlier judgements such as the 2G Spectrum case (Centre for Public Interest Litigation v. Union of India) and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta.

Contentions of the Union of India

The Union of India argued that under Section 4 of the Indian Telegraph Act, 1885, it enjoys exclusive privilege to establish, maintain, and operate telegraphs. Telecom licences granted by the DoT are contractual arrangements, and the terms of such licences are binding on both the licensor and the licensees. Payment of licence fees and AGR dues, according to the Union, forms a fundamental condition of the licence.

It was contended that spectrum is a scarce and valuable natural resource held by the State in public trust. Relying on the 2G Spectrum judgement, the Union submitted that natural resources must be used in the interest of the country and not for private commercial benefit. On this basis, the balance of convenience and public interest lay firmly in favour of the Union of India.

The Union also challenged the applicability of the IBC to spectrum and telecom licences. Reference was made to Section 18 of the IBC, which empowers the resolution professional to take control of assets owned by the corporate debtor. Since spectrum is not owned by TSPs but merely licensed for use, it could not form part of the insolvency estate. The explanation to Section 18 was relied upon to show that third-party assets in possession of the corporate debtor are excluded from IBC proceedings.

It was further argued that AGR dues could not be treated as operational debt. The Union maintained that spectrum is not an essential good under Regulation 32 of the 2016 Regulations and, therefore, could not be sold or transferred under a resolution plan. Any dispute relating to telecom licences, according to the Union, falls under the jurisdiction of the Telecom Disputes Settlement and Appellate Tribunal under the TRAI Act, 1997.

The Union also pointed out the wider economic consequences of immediate enforcement of AGR dues. Representations from telecom operators and the banking sector highlighted risks such as insolvency of major operators, disruption of services, loss of employment, adverse impact on banks, loss of foreign investment, and weakening of digital connectivity, particularly in rural areas. On these grounds, extension of time for payment was sought.

Contentions of the Telecom Service Providers

The TSPs contended that the scope of proceedings before the Supreme Court was limited. According to them, the only issue before the Court was whether insolvency proceedings had been initiated as a device to evade AGR payments. Questions regarding ownership of spectrum, its treatment under IBC, and classification of AGR dues were technical matters within the jurisdiction of the NCLT.

It was argued that telecom licences and the right to use spectrum constitute intangible assets under Section 18(f)(iv) of the IBC. Reliance was placed on accounting standards and regulatory documents, including the Accounting Separation Regulations, 2016, which treat spectrum usage rights as intangible assets.

The TSPs further submitted that government dues fall within the definition of operational debt under Section 5(21) of the IBC, making the DoT an operational creditor. Reliance was placed on the Essar Steel judgement to support the argument that statutory dues could be dealt with under insolvency resolution.

Another significant argument related to tripartite agreements between the DoT, TSPs, and lenders. Under these arrangements, spectrum had been offered as security to lenders. The TSPs contended that the DoT’s claims could not override the rights of secured creditors and that AGR dues were purely contractual in nature.

It was also argued that Section 238 of the IBC contains a non-obstante clause that gives the IBC overriding effect over other laws. Therefore, the NCLT was the appropriate forum for adjudication.

Issues Considered by the Supreme Court

Based on the submissions, the Supreme Court in Union of India v. Association of Unified TSPs identified the following broad issues:

1. Whether spectrum can be subjected to proceedings under the Insolvency and Bankruptcy Code.
2. In cases of spectrum sharing, how liability for AGR dues is to be determined.
3. In cases of spectrum trading, how liability between the seller and buyer is to be apportioned.
4. Whether extension of time for payment of AGR dues beyond the date fixed in the 2019 judgement could be granted.

Findings and Analysis of the Supreme Court in Union of India v. Association of Unified TSPs

Spectrum and Insolvency Proceedings

The Supreme Court in Union of India v. Association of Unified Telecom Service Providers observed that serious jurisdictional questions arise in relation to spectrum, including its ownership, its nature as a natural resource, and the extent to which IBC can override sector-specific laws. The Court held that these questions require adjudication by the NCLT in appropriate proceedings.

Accordingly, the Court refrained from giving a final determination on whether spectrum could be subjected to insolvency proceedings and indicated that such matters fall within the domain of the NCLT.

Liability in Spectrum Sharing Arrangements

The Court examined the 2015 Guidelines and the submissions of the DoT. It found that the guidelines do not provide for payment of past AGR dues by sharing operators.

The Court clarified that in spectrum sharing arrangements, liability is limited to the extent of spectrum actually used by each operator. A sharing operator cannot be made liable for past AGR dues of the original licensee. Each operator is responsible only for the AGR corresponding to its own usage of spectrum.

Liability in Spectrum Trading Arrangements

In relation to spectrum trading, the Court noted that at the time of entering into trading agreements, AGR liabilities of the seller were known to the buyer. On a combined reading of the 2015 Guidelines and the Office Memorandum dated 12 May 2016, the Court held that AGR dues incurred by the seller prior to the effective date of trading cannot be transferred to the buyer.

The Court reaffirmed that TSPs remain liable for all AGR dues as adjudicated in the 2019 AGR judgement.

Extension of Time for Payment of AGR Dues

The Court declined to accept the proposal for a 20-year payment period. At the same time, it recognised the financial stress in the telecom sector and the potential impact on the economy and banking system.

A balanced approach was adopted. The Court directed TSPs to pay 10% of the total AGR dues by 31 March 2021. The remaining amount was to be paid in annual instalments over a ten-year period, commencing from 1 April 2021 and ending on 31 March 2031.

The Court exempted interest on AGR dues accrued prior to the judgement. However, it made it clear that any default in payment after the judgement would attract interest.

Union of India v. Association of Unified Telecom Service Providers Judgement

The Supreme Court in Union of India v. Association of Unified Telecom Service Providers (2020) dealt with issues arising from payment of Adjusted Gross Revenue (AGR) dues by telecom service providers following its 2019 AGR judgement. 

The Court examined questions relating to spectrum sharing, spectrum trading, applicability of the Insolvency and Bankruptcy Code, 2016, and extension of time for payment of dues. It clarified that in spectrum sharing, liability for AGR is limited to the extent of spectrum used, and sharing operators cannot be burdened with past dues of original licensees. In spectrum trading, buyers are not liable for sellers’ past AGR dues. 

While rejecting a 20-year payment proposal, the Court granted a structured 10-year instalment plan, balancing public revenue interests with financial stress in the telecom sector.

Conclusion

The judgement in Union of India v. Association of Unified TSPs represents a crucial phase in the AGR litigation. While the Supreme Court upheld the sanctity of contractual obligations and public revenue, it also acknowledged the systemic importance of the telecom sector.

By clarifying liabilities in spectrum sharing and trading arrangements and granting a structured timeline for payment of AGR dues, the Court sought to prevent economic disruption while ensuring compliance with its earlier rulings. The decision also leaves open important questions regarding insolvency and spectrum, to be examined by specialised forums under the law.