Articles
Descent into Distress of Telcos - Supreme Court Judgment of Oct 2019
Dt: 30/12/19
Descent into Distress of Telcos -
Supreme Court Judgment of Oct 2019
Dr T.H.Chowdary*
The judgment of the three Judges bench of the Supreme Court in Oct 2019, on the more than 15 years old litigation concerning adjusted gross revenue on which a percentage share is to be given to the Department of Telecoms ( DOT) has pushed the Telcos into a deep well of death dealing distress. The Telcos were, in the 1990s given licences in which the crucial condition was the payment of installments of licence fee . During the birth and initial years of operation, the Telcos were required to pay considerable amount of license fee even while setting up of networks and trying to extend service throughout the licenced territories . They defaulted on the upfront payable licence fees as the monies raised by them were required to be invested in the network and customers had to be gained to generate revenues.
2. The BJP-led NDA government understanding the distress of the Telcos and after studying the reports, opinions of economists, engineers and businessmen migrated the distressed Telcos from one of payment of licence fees every year to revenue sharing in 1999. The idea was that the chick should grow into a healthy hen to lay eggs and the eggs are to be shared between the hen and the poultry farms (Telcs) and government. That is, if the telephone companies are enabled to set up their network, expand them gain subscribers and revenues, the government would take a fraction of those revenues as licence fees. As part of migration to the new licence regime, licenses incorporating conditions regarding payment and service obligations were drawn up, discussed with Telcos, and the Telecom Regulatory Authority of India (TRAI).
Agreements were signed, details of what constitute revenues of the licensed companies and what do not constitute were also detailed . The DOT, the licensor served quarterly demands of what the Telcos should pay on the basis of their revenues . Their revenue were to be presented in formats prescribed by the licensor DOT .
3. On receipt of the demands , the Telcos raised disputes as to what part of their revenues should be treated as arising out of licensed business. (That is establishing, operating and providing telecom services) and what should not be i.e those that required no license . The Telcos were having revenues which can be attributed to the licenced operations as well as revenues from businesses by these companies which did not require the licence . The Telcos approached the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). The TDSAT found certain flaws in procedures. It advised the DOT to get the recommendations of the TRAI in regard to disputed items of sharable revenues and in a later hearing, gave a judgment which mostly upheld the contentions of the Telcos that the revenues which could not be attributed to the business not requiring the licence need not be shared by the DOT.
4. The DOT went in appeal to the Supreme Court both over the TDSAT determination. The Supreme Court after hearing the arguments of battery of lawyers engaged by different Telcos finally accepted the argument of the DOT’s advocates who argued that the licence with all the stipulations including those for revenue sharing was accepted and signed by the Telcos. It is therefore in the nature of a contract. The conditions of the contract which licensees have signed bind them without scope for any contention after signing the agreement . The question of fairness , morality or justice does not arise . It is a contract validly entered by both parties; that is DOT and the Telcos. So, the Telcos have to pay not only the ODT demanded but also interest on the defaulted amounts and the penalties according to law from the date demands were served. Rebutting the arguments advanced by the Telcos and examining the TDSAT and TRAI’s conclusions as to what constitutes the sharable revenue, the Supreme Court dismissed all of them. The Telcos signed the license agreements and conditions in that must be fulfilled as per contract which the licenses are in nature . With this rigid and entirely legal decision the Supreme Court dismissed the arguments about reasonableness of the conditions Telcos interpretation of adjusted gross revenue in the license. The licensor is absolutely legal in demanding what he had demanded (just like Shylock in Shakespeare’s play , The Merchant of Venice ).
5. One of the consequences of the Supreme Court’s judgment is staggering. Gas Authority of India Ltd (GAIL) took a licence from the DoT to provide broadband transmission capacity through Optical Fiber cables which it laid along with the gas pipes to connect different cities. From this license, GAIL got Rs. 35 cr as revenue. Its revenues from its gas business which did not require a license from the Telegraph Authority (that is, the DOT) is thousands of crores. The DOT is now demanding that not merely the share payable from its telecom business but from the entire business of the company. GAI’s liability to DOT is Rs. 1.72 lakh crores ! Delhi Metro is demanded to pay Rs. 33,005 cr ! Similarly PGCL and Rail Tel will have to pay huge amounts to DOT.
6. It is obvious that in the context of migrating from upfront licence fee payments to revenue share, the Telcos do not appear to have understood what they were signing and don’t seem to have realized the licence is in the nature of a contract as the Supreme Court has later during the litigation determined. If fact, the Supreme Court even averred that the Telcos having enjoyed the benefits of the migration, had deliberately avoided to fulfill the obligations by restoring to litigation ; may be, even with malafide intentions . It is clear that law in the opinion of the Supreme Court is insensitive to and non-cognizant of fairness or morality . The advocates of the Telcos cited various judgments of the Supreme Court and High Courts to support their arguments. The Supreme Court cited certain other of its judgments which are totally contrary to what the Telco advocates had cited. A learned professor not of law but all the same, a very rational, dispassionate academician in the Administrative Staff College of India (ASCI) had recently written an article on our Constitution wherein he brought out how several articles of the Constitution abound in terms like “notwithstanding” and “provided” and so give room to different conflicting and contradictory judgments.
7. When the NDA government led by the late Sri Atal Behari Vajpayee migrated the Telcos from upfront licence fee payment to revenue sharing in 1999 and consequently removed the distress to the Telcos had obviously not held the license as a contract which should be fulfilled in the Shylockian manner , it considered the reasons that were causing distress to Telcos and the government’s intention of rapidly extending telecom services and so took a moral and rational decision to migrate the Telcos by annunciating the new National Telecom policy ( NTP) ’99.
8. It will be truly sweeping to say that the Telcos had all along the intention to defraud the government by litigation and therefore did not pay the demanded revenue shares to the government . The country has immensely benefitted by the operations of the Telcos the last 20 years because of migration to revenue share and NTP’99. There was hyper competition . Prices had come down so drastically that while at the time the first National Telecom Policy was annunciation in ’94, an year’s telephone service was fetching to the DOT Rs. 10,000 which was equal to the then annual per capita income. For the100 cr population then, there were only one crore telephones , a teledensity of 1per 100 people . As a result of the National Telecom Policy ‘99 which migrated the Telcos from a rigid upfront licence fee payment to revenue -sharing and liberal issuance of licenses, at one time there were 12 telephone companies competing with one another and in one month in the year 2010, 19 mln telephones were given . Now the average renew per user per year is one hundredth of the per capita income, as a result of which the poorest of the poor are having a cell phone. And the business practice of pre-paid service, enables (which the DOT or BSNL never thought of) a person can only telecommunicate as much as he can afford.
9. It appears fair and reasonable that the BJP -led NDA should , as in 1999 take a faira moral and ethical view and save the Telcos from imminent death due to their being required to pay over Rs. 1,00,000 crores to DOT . The Telcos are having distress not only by the action of the government but by a Telco which with immense and inexpensive financial resources has entered the business with fantabulous introductory offers of some free services, thus sucking subscribers from the rival companies.
10. The government also does not appear to do right in bailing out the BSNL- MTNL combine by infusing Rs. 82,000 cr into these ill-performing PSUs with accumulated losses of over Rs. 40,000 cr and a genetic character that disables them from competing with any P-Telco under fair conditions . It is as well to recall what a great sage Thiruvalluar said,
“Government in business means the ruination of people and if the Governments (or Public Sector companies) are rich, the people will be poor”.
and what a Congress (I) leader, the late Sri Vasant Sathe who was Communication Minister for some time wrote in his book, Restructuring of Public Sector in India, “Academicians have attributed several traditional strengths to the public sector . They primarily are:
-ability to survive without profit
-state-ownership gives than immortality
-wages and high bonuses can be paid over by continuously incurring losses
-government ownership gives full benefit of a monopoly
11. The government is now in a very bad financial situation . It perhaps thinks that it can ease the situation by partially at least by the Shylokian demand backed by the Supreme Court judgment that the distress and indebted Telcos should somehow furnish the government with Rs. 1 lakh crores. Its own company, GAIL will have to pay thousands of crores of Rupees for the innocent entry into Telecom; from which its revenue was Rs. 35 cr but now has a liability to pay Rs.1.72 lakhs cr . So will other government companies RAILTEL and PGCL each one of which got only a few cr of rupees on their telecom business but will have to pay thousands of crores from their core non-telecom business.
12. All this appears to be a great farce arising after the Supreme Court’s Shylokian judgment “the companies signed the agreement; the agreement says the company in whose name the licence was issued should pay what the licensor is demanding as that demand is literally in compliance with the conditions in the agreement” . Arguments like that the licensor DOT cannot license non-telecom business did not cut ice with the Supreme Court . It simply said, “the company signed the agreement; the licensor used the word that the licensed company should pay certain percent of the company’s (whole) revenues – (not merely those coming from telecom business) - without any regard to considerations like morality and faireness and justice” .
13. It is obvious that the judge’s philosophy and view of life and business are leading to perplexing judgments. Judges hearing a case are citing the judgments of other judges in India and abroad and advocates are also citing judgments of the same courts in India and abroad, each according to their beliefs as to what the law is. But the Supreme Court’s judgment is final if special leave petitions (SLPs) and curative petitions come to naught. We can take comfort in Vyasa’s painful excavation with hands raised at the end of the devastating Kurukshetra war .
Oordhva baahau me yesha ; na kaschith, srunothi me
Dharmaath arthascha kaamascha; Sa dharmaha kim na sevyate
I lift my hands (in despair); nobody is listening (respecting) to my exposition of dharma in regard to wealth and desire. (2,033 words)
END