November 26, 2020

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

Court: Supreme Court of India

Citation: 2019(14)SCALE513

Date of Decision: October 24, 2019

Bench: Arun Mishra, Vineet Saran, S. Ravindra Bhat

Theme: AGR debate

Subject: Constitutional Law

Brief history of facts

· 1994: The telecom sector was liberalized under the National Telecom Policy, 1994 and various licenses were issued to the companies under Section 4 of the Indian Telegraph Act, 1885. The licenses granted to the service providers stipulated a fixed license fee, which was payable by the service providers every year. However, as the said fixed license fee was very high and the telecom service providers consistently defaulted in making the payments, the telecom service providers made a representation to the Government of India for relief against the steep license fee.

· 1999: “National Telecom Policy, 1999 Regime” was introduced. This gave an option to the licensees to migrate from fixed license fee to revenue sharing fee. The Government decided to take a final decision to charge the quantum of the revenue share as license fee after obtaining recommendations of the telecom regulatory authority of India (TRAI). Meanwhile the Government decided to fix 15% of the gross revenue of the license as a provisional license fee. The new telecom policy 1999 was so designed that the Government would become a partner or sharer of “gross revenue.” From the money received under the head of “adjusted gross revenue” the Government decided to spend it on remote and uncovered areas, rural areas, tribal areas and hilly areas to maximum tele-connectivity. However the telecom service providers in spite of the financial benefits of the package started to ensure that they do not pay the license fee to the public exchequer based on even an agreed “AGR.”

· 2001: “Draft license agreement” – the telecom service providers were required to submit the relevant data/revenue earned by them so that the ultimate AGR/license fee can be determined. In 2001, The association of basic telecom operators submitted their comments. They said that the licensee should be required to pay license fee only on that income which he has actually obtained. In view of this, the above mode of revenue is inequitable. Hence both the income as well as deductible expenses should be computed on actual basis to arrive at an equitable and fair figure of revenue.

· 2003: The department raised the demands on the service providers, in the year 2003 the Association of Basic Telecom Operators and respective telecom operators filed a petition before the telecom disputes settlement and appellate tribunal, New Delhi. It was a case of the telecom operators that the department was supposed to determine the quantum based on the recommendations of the TRAI. The department had illegally included various elements of income in the definition of the term “AGR” which do not accrue from the operations under the license.

· 2006: The Tribunal held that under Section 4 of the Indian Telegraph Act, the Central Government can take percentage of the share of gross revenue of a licensee realized from activities of the licensee under the license and therefore revenue received by a licensee from activities beyond license activities would be outside the purview of Section 4 of the Telegraph Act. It also sought TRAI’s recommendations on the definition of licensed and non-licensed activities. TRAI subsequently gave its recommendations defining the items to be included in the AGR for payment of licensee fee.

· 2007: The department of telecommunications challenged in the Supreme Court TDSAT’s jurisdiction over terms of the telecom licenses that had previously been accepted unconditionally by licensees. In an order dated January 19, the apex court dismissed DOT’s appeal and directed it to raise its contentions before TDSAT. On August 30, TDSAR accepted most of TRAI’s recommendations and passed an order that would be applicable to those AUSPI members that had moved the TDSAT with effect from the date when they filed their petitions. AUSPI and the Cellular Operators Association of India (COAI) filed a review petition urging that the TDSAT order be made applicable to all members of the two bodies from the date of filing of their petition. DOT again moved the Supreme Court against the 30th August TDSAT order. Even as the DOT appeal was pending before the apex court, some telecos filed petitions before TDSAT requesting to be included in the tribunal’s August 30th order.

· 2011: In October, 2011, the Supreme Court held that the TDSAT did not have jurisdiction to decide on the validity of the terms and conditions of the license and also did not have jurisdiction to decide on the issue of interpretation of the definition of AGR and thus its order was a nullity. The Supreme Court also held that if the wide definition of AGR included revenue beyond the license activities, then it was open for the licensees to not undertake activities for which they did not require license and they could thereby transfer these activities to other persons or firms or company.

· 2015: In April, 2015, various TSPs filed petitions at High Courts and TDSAT for the correct interpretation of the heads of Gross Revenue. This issue was agitated before the TDSAT where it was held that the term revenue in the license was no different from its definition in the accounting standard 9. It was noted that gross revenue would include inflow from all its business activities, whether it was under the license or beyond the license.

· 2019: The 2015 litigation gave rise to this 2019 judgment. The Supreme Court upheld the interpretation of AGR that was adopted by DOT. It said that TSP had an obligation to pay license fee in accordance with the terms and conditions of the license as it was nothing but a contractual obligation and this has to be followed by TSPs. The TSP’s had accepted the terms and conditions of the Migration Package voluntarily and unconditionally and this has led to substantial growth of the sector.

Issue: The question involved in the case is with respect to the definition of gross revenue of the license agreement granted by the Government of India to the telecom service providers.

Definition of Gross Revenue: ‘broad, comprehensive and inclusive’. The court while responding to the arguments by TSP’s that gross revenue should be interpreted according to accounting standards, has noted that this is not permissible since a specific definition of gross revenue has been explicitly stipulated in the license and this cannot be substituted by using another definition from another source. It said that revisiting this question again, which was already decided in a previous judgment by the Supreme Court would be barred by res-judicata. Also, the broad and comprehensive definition of ‘revenue’ has held the rule of ejusdem generis and should be implemented while construing the heads set out in the definition of gross revenue and should thereby include revenue generated from activities of TSPs beyond the license.

Present Status of the Judgment: Supreme Court order on 14th February, 2020

The Supreme Court on 14th February, 2020 has come down hard on telecom operators and the Government for not honoring the deadline that it had set for the companies to pay up the adjusted gross revenue that is due to the government.

The telecos in question moved the Apex Court, hoping for some relief in terms of a staggered pay out of the amount that was due. But what they got instead of relief, were possible threats of contempt proceedings being launched by the highest court of the country against these companies. A three-judge bench headed by Justice Arun Mishra, expressed their anguish as to why despite the judgment being given out on 23rd October, 2019 and despite the deadline being set as 23rd January, 2020 and despite the review petition being dismissed, there has not been a single penny that has come forth. The Supreme Court commented on the conduct of these companies and stated that the companies should have atleast come forth and made some form of a token payment before coming to the Apex Court and seeking for relief. It ordered that in the next hearing, the M.D and the directors of the companies will have to be present in Court and will have to show the Court as to why it shouldn’t initiate contempt proceedings.

But that’s not all, the Supreme Court went a step further and questioned the authority of the DOT order which had stayed any coercive action against the telecos on the recovery proceedings. The bench observed that there seems to be no rule of law that was followed and that there seems to be a money power in play and a hand-in-glove movement between the telecos and the DOT. This Supreme Court Order has huge consequences on the telecom operators as well as the department of telecommunications.

The future of telecommunication companies

The recent Supreme court order means that the telecos will have to immediately clear the pending AGR dues. Some of the companies also face the prospect of shutting down business due to the trouble they would undergo for not paying the AGR dues on time. The AGR issue has triggered panic in the telecommunications sector and has far-reaching ramifications on the sector. As a next course of action, the next hearing is scheduled to be on 16th of March and it would be a key day in deciding the fate of companies.

Contributed by: Mayukha Parcha (Student, O.P Jindal Global University)

The views of the author are personal only. (if any)

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