Author: Hansie Singh Nagpal, 4th year, VIPS affiliated to Indraprastha University, Delhi.
Citation: (2015) 12 SCC 1
Date of Decision: 14th May, 2015
Bench: Justice Jasti Chelameshwar and Justice R.K. Aggarwal
Issue in question:
- Whether there is a right of extension vested in the licensee under section 4 of the Telegraph Act, 1885?
- What are the obligations of a licensor upon receiving an application for extension of license validity period under the National Telecom Policy. 2012’?
- What is the legal position of the recommendations made by Telecom Regulatory Authority of India under Section 11 of the TRAI Act, 1997?
Background of the case:
- The government of India had announced the new ‘National Telecom Policy. 2012’ seeking to delink the allocation of spectrum from licenses. It also extended the validity of UAS (Unified Access Service) and CMTS (Cellular Mobile Telecom Service) licenses for another 10 years.
- The license granted to the Petitioner was due to expire in the financial year 2014-15.
- In the meanwhile, the government in order to carry out the directive in the 2G case, took steps to conduct auction of 900 MHz and 1200 MHz bands in so far as they belonged to operators whose licenses were due to expire by the end of 2014-15.
- There were two classes of license UAS (Unified Access Service) and CMTS (Cellular Mobile Telecom Service). Both the licenses were valid for 20 years with another 10 years of extension allowed. The request for extension could only be made in the 19th year of the 20-year license period. The only difference between the two classes being a minor one was that the UAS could be extended for another 10 years only ‘if deemed expedient’ by the licensor/government.
- The Petitioners requested the government for extension but the government did not reply to their request. They filed a writ application in Delhi High Court to pass necessary directions to the government. Delhi HC disposed of the petition, directing the government to carry out its obligation. The HC order mentioned that, in a situation of adverse decision by the Govt. of India, the Petitioner can seek an alternative and an efficacious remedy.
- The government acted in accordance with the order of Delhi HC and entertained the Application for extension but did not accept the request. The petitioners thereby applied to TDSAT which dismissed their application. For this reason, the present three writ petition has been filed under Article 32 of the Constitution and other five civil appeals under Section 18 of the TRAI Act.
Judgment of the Court
- The court as for the first issue, held that under Section 4 of the Telegraph Act, 1885, there is a presumption regarding formation of a license contract upon issuance of license by the government. The court observed that there exists a right of extension but it is not automatic in nature. It will come into effect only upon the decision taken by the licensor ,who has the sole discretion to accept the request. Also, as per the license, the request for the same has to be made in the 19th year of the license period, otherwise the request would not be entertained. The reason behind it was to provide a cushion to the government for making a replacement in case there was a delay/lack of intention to apply for extension.
- The licensor was under two kinds of obligations to accept the request of the licensee. One, under the Constitution and the other, under the Telegraph Act, 1885.
- Under the Telegraph Act, 1885, Section 4 declares that the government will have exclusive privileges for establishing, maintaining and working telegraphs. Proviso to Section 4 allows the government to issue licenses with respect to the three above-mentioned functions. Telegraph services include both wired and wireless communications. Therefore, the Government has full control over allocation of spectrum. These spectrums are regarded as natural resources and therefore, if the government wants to allocate it to third parties, it has to follow a procedure of rationality and non-arbitrariness in auctioning these resources. Section 4 contains the phrase ‘on such conditions and in consideration of such payments as it thinks fit’ which indicates that conditions have to be on ‘mutually agreed terms’ and the payments forming consideration for grant of license has to be ‘non-discriminatory’.
- The second obligation lies under the Constitution of India. In the 2G case it was held “……spectrum has been internationally accepted as a scarce, finite and renewable natural resource which is susceptible to degradation in case of inefficient utilization. It has a high economic value in the light of the demand for it on account of the tremendous growth in the telecom sector. Although it does not belong to a particular State, right of use has been granted to the States as per international norms.”
Under Article 14, the State in allocation of such huge state largesse must make the auction process transparent, non-discriminatory, fair, impartial and should have it duly publicized. Non compliance with any essentials of the procedure would result in a void contract under Section 23 of the Contract Act, 1872 for being inconsistent with public policy. The court also stated in clear terms, that obligations emanating under the Constitution stand at a higher footing than those in the statute.
- The licensee contended that re-auctioning of licenses would result in huge financial losses to them. For one, huge capital investments had been made over decades in setting up the infrastructure for providing the services. Secondly, re-acquisition of such licenses for securing spectrum bands would lead to huge input costs. Telecom companies would then be forced to unnecessarily impose higher tariffs on the customer to retain commercial viability. Sudden changes in prices would not only result in loss of consumer base but also ensue disruptions in wireless communications networks country-wide leading to economic losses in interdependent businesses and private communications. The court negated the argument saying that it is based on unclear evidence and hypothetical scenarios. It observed, higher tariffs would not lead to substantial losses to the licensee due to huge consumer bases. It is also observed that the court shall not intervene in policy matters of the executive.
- Section 11 of the TRAI Act, 1997 enumerates functions of TRAI. The court after harmonizing Section 11(a)(i) & (ii) with all the five proviso of Section 11 came to the conclusion that TRAI need to be consulted for expert advice on telecom policy and for studying matters related to the industry with respect to efficient utilization, sufficient competition and optimal revenue generation in an effort to promote better spectrum management. Interpreting the relevant provisions of Section 11, the court observed, recommendations to the government made by a committee of TRAI can be remanded for reconsideration. The government is the final decision maker on the recommendations forwarded. However, recommendations are not binding upon the government (proviso 1).
- The court here avoided answering the issue, involving the selection process in allocation of natural resources. It would amount to transgression of the separation of powers principle, had the court interfered in the executive’s domain in deciding the correctness of the spectrum allocation scheme.
- ‘Doctrine of Equality’ guides the alienation of natural resources by state authorities. It is essentially based on the pillars of justice and fairness. The first obligation pertains to providing equitable access to natural resources to all its citizens and paying ‘adequate compensation’ to the owners of the resource upon its alienation to private owners. Second requirement pertains to a just, fair and a non-arbitrary procedure during the process of alienation in accordance with Article 21. The state must be accountable and the auction process must be transparent.