(p.165) Appendix IV Case Study on Scope of Service and Jurisdictional Issues
(p.165) Appendix IV Case Study on Scope of Service and Jurisdictional Issues
(p.165) Appendix IV
Case Study on Scope of Service and Jurisdictional Issues
Case Study: The scope of service and jurisdictional issues in the telecom sector—A Review of the TDSAT decision of 20 December 2002 in Bharti Cellular Limited v. Union of India and Others, including Escotel Mobile Communications Ltd. as respondent No. 3 (Petition No. 8 of 2002)
This is a typical case arising from a flaw in the licensing terms that resulted in litigation between the licensee, in this case, Bharti Cellular, and the licensor, the Government of India. This case raised a host of issues, such as, scope of service, due discharge of contractual obligations, jurisdictional matters, and implications of applying an archaic rule to the current telecom situation. The case also provides an insight into the working of the dispute resolution entity and how it attempted to resolve the issue.
In 1992, the Government of India had issued a tender for the cellular mobile telephone service for four metro areas: Delhi, Mumbai, Kolkata and Chennai. The area of service for each metro was detailed in the tender document and for Delhi it was stipulated that the service area will be the local area served by Delhi telephones, Ghaziabad and Faridabad telephones, and Noida and Gurgaon. These four places are fast growing towns contiguous to Delhi. With these conditions and the definition of the service area in the tender document, the petitioner prepared a business plan for providing cellular service in these areas, including operations in all areas served by Gurgaon Telephones. The areas served by Gurgaon Telephones encompassed the old town within the Gurgaon Municipality as well as areas commonly known as Gurgaon, which include new townships of DLF, Sushant Lok, Palam Vihar, etc. These new townships in Gurgaon are situated in close proximity to Delhi.
Bharti Cellular, the petitioner in this case, thereupon executed the license agreement on 29 November 1994, and, thereafter, obtained necessary statutory (p.166) clearances from the licensor and other departmental agencies to set up the necessary infrastructure within its licensed area, including the area served by Gurgaon Telephones, thereby incurring huge costs.
Later, in January 1995, the licensor issued tenders for Cellular Mobile Service for various Telecom Circles (the area of a telecom circle broadly conforms to a state in the country) excluding the four metro cities. The license agreement for the Haryana State Telecom Circle (Haryana is one of the states in the country adjoining Delhi) was executed on 12 December 1995. Both the Tender and License for Haryana, expressly defined the area of service as Haryana Circle except the local area served by Faridabad and Gurgaon telephone exchanges. Bharti continued to provide Cellular Mobile Services from 1995 onwards in all the areas being served by various Gurgaon telephone exchanges.
The dispute arose when the licensee for Haryana Telecom Circle, much after the execution of license agreement for that Circle drew the attention of the licensor on 20 July 1999 to the definition of Local Area in the Indian Telegraph Rules, 1951 where it is defined as follows:
Local Area means the area within 5 Kilometers radial distance from a telephone exchange or where the Telegraph Authority has declared any area served by an exchange system to be a local area for the purpose of telephone connection.
Since the license agreement for Haryana Circle defined the service area as Haryana Circle except local area served by Faridabad and Gurgaon telephone exchanges and this definition existed when the license for that circle was granted, it was contended that the Bharti could not operate beyond 5 kms of Gurgaon main telephone exchange. This rule was, however, amended in 1998 which made Local Area co-terminus with Short Distance Charging Area (SDCA), corresponding to a geographical limit of about 50 kms radius. The government contended that the rule, as amended in 1998, would not be applicable in this case as the licenses were issued prior to the amendment, and the definition of local area, as it existed then, would only apply. This decision, in effect, implied that that Bharti could provide the cellular service to its customers only within a radial distance of 5 km from Gurgaon main telephone exchange. Aggrieved by this decision, Bharti approached the Telecom Tribunal, invoking its original jurisdiction for resolution of the issue.
According to the petitioner, Bharti Cellular, the License Agreement defined the scope of the service area as local area served by Delhi, Ghaziabad, Faridabad, Noida and Gurgaon Telephones. The tender for Haryana Telecom Circle, which was a later document, also excluded local areas served by Gurgaon Telephones. The Escotel license also defined the service area as Haryana Circle except the local area served by Faridabad and Gurgaon Telephone Exchanges.
The Circle tenders and Circle licenses, in contrast to the metro tenders as well as metro licenses, both used the term Telephone Exchanges, thus, recognizing the (p.167) existence of several exchanges working under Faridabad and Gurgaon Telephone systems. The petitioner further maintained that there were about 17 exchanges within the Gurgaon SDCA, which were part of the Gurgaon telephone system even in 1993, and that the license did not restrict the area of operation to the areas served by one particular exchange under Gurgaon Telephones.
Further, the bidders for the license of the Haryana Telecom Circle were specifically advised to seek clarification of the extent of territory available to them as a service area, which the Respondent No. 3 (Escotel Mobile Communications Ltd.) did not seek at all until 20 July 1999, when it took up the matter with the Department of Telecommunications (DoT).
Another point highlighted by Bharti was that the area of service for each metro operator, as described in the tender document, was not limited to the municipal limits of each metro but expanded to include the adjoining satellite towns and adjunct areas. The DoT, according to the petitioner, applied the principle of contiguity and homogeneity and recognized the fact that all these satellite towns needed to be served by the Delhi Metro Cellular Operators, notwithstanding the fact that that some of them may geographically be located in another state.
Bharti also argued that the definition of local area, as it appears in section 2(w) of the Indian Telegraph Rules, 1951, should not be extended to the Cellular Licenses. Rule 2(w), as it existed before its amendment in 1998, categorically provided for a radial distance of 5 km from the telephone exchange, which was subsequently amended with effect from 15 August 1998, making the area co-terminus with the SDCA (that is, extending to a radial distance of approximately 50 km from the telephone exchange instead of 5 km). However, Bharti contended that the tenders for basic licences and Haryana Cellular License, that were issued on 16 January 1995, did not have the same definition of ‘Local Area.’ The Basic Licence tender defined the term local area as ‘the area within 5 km radial distance from a telephone exchange or such area where the Telecom Authority has declared/declares any area served by an exchange system to be Local Area for the purpose of telephone connection.’ The Cellular License issued to Escotel for Haryana Circle, however, stipulated that they would operate in the area covered by Haryana Circle except local area served by Faridabad and Gurgaon telephone exchanges. Therefore, Bharti pointed out, that if the intention of the DoT were to allow limited operation as per the Local Area definition prior to its amendment, there would have been no reason for the DoT to use and employ the term served while defining the Service Area in the licence issued to Bharti for the provision of Cellular Mobile Service in the Delhi Circle.
The petitioner also referred to the National Capital Region Plan (NCRP) which included Gurgaon as part of the Delhi Metropolitan Area and National Fundamental Plan, where the reference Local Area means the entire area identified by STD Code 0124. This National Fundamental Plan, as per the petitioner, is an authentic contemporaneous government document and takes (p.168) into consideration the impending introduction and operation of cellular telephony. The tender document which is a part of the License Agreement itself provides that the system should conform to the Fundamental Plan of DoT. Hence, the area served by the Gurgaon Telephones, and more specifically identified by the STD Code 0124, would be the local area for the purpose of the license. The petitioner also drew attention to the absurdity of the argument of Escotel Mobile that it was entitled to operate within 5 km radial distance from the main Gurgaon Telephone Exchange in the old town of Gurgaon.
Bharti also maintained that the subsequent tenders for Circles cannot override earlier licenses issued to Metro Operators, even more so, since it has performed, and continues to perform, its obligations and is entitled to exercise all its rights under the contract. Furthermore, even before the tenders were invited for Metros and Circles, the Gurgaon Telephones had several telephone exchanges operational at various places. Hence, limiting the meaning of Gurgaon Telephones only to one exchange in the old Gurgaon town was not justified.
Another argument advanced by Bharti was that the Engineering Plan and maps submitted by Escotel Mobile to the DoT did not include Gurgaon and that for a period of six years it had silently acquiesced to Bharti’s activities and operations in this area. Hence, Escotel Mobile was fully aware of the areas which were being served by Bharti, and it never considered the area served by exchanges falling within the Gurgaon telephone system as a part of its service area.
Bharti also mentioned that the dispute is barred by Clause 2 of the Migration Package since Escotel had accepted the Migration Package on or about 29 July 1999, and the cut-off date in the Migration Package was 31 July 1999. The petitioner, Bharti, also raised the potentially adverse impact on a large number of subscribers (about 400,000) if its operations were restricted to a radius of 5 km from the main exchange. The petitioner also raised the issue of equity being in its favour as it had invested a significant amount in infrastructural equipment and incurred heavy cost in leasing real estate.
Arguments Advanced by Escotel Mobile (Respondent No. 3 to The Petition)
Escotel Mobile argued that in the new licenses given to the Petitioner in Haryana Circle and another licensee in Delhi Circle, the service area had been defined with reference to the old Rule 2(w). Hence, under the statutory notifications, the local area served by Gurgaon Telephone Exchange is the circular area covered by a radial distance of 5 km from the exchange, and that the municipal limits of Gurgaon falls within this circular area, and does not extend beyond it at any place.
Escotel also contested the validity of Bharti’s argument of contiguity. The respondent pointed out that the boundary between Delhi and Gurgaon stretches approximately 18 km and, as such, it becomes inherently difficult to identify a specific point on this stretch for assigning a corridor or passage to establish contiguity between Delhi and Gurgaon.
(p.169) It was also argued that the 1974 Guidelines also stipulate that the local area of a single exchange telephone system would comprise of all localities which are within a radial distance of 5 km from the exchange. However, in case the town has an established municipality or corporation, with well-defined limits, and served by it that extend beyond 5 km of the exchange, such localities are also to be included in the local area. Another argument given was that an exchange may serve subscribers beyond its local area, but that does not have the effect of expanding the limits of the local area to include the area in which such subscribers are located. Hence, Escotel argued that what Bharti was given, within the scope of the license, was only the local areas of Delhi, Ghaziabad, Faridabad, Noida, and Gurgaon and not the areas covering the subscribers beyond such local areas.
As regards WPC and SACFA clearances granted to Bharti, Escotel averred that these are technical clearances regarding frequency of operation and the height of tower of radio site of the network and cannot be taken to effect any change in the geographical limits of the local area. A judgment of a High Court was also cited in which the Court had held that WPC and SACFA clearances are given by a third agency and not by the Licensor, and, hence, cannot be construed as an express or implied understanding between the licensor and licensee as regards the area of service under the license.
With regard to the argument of acquiescence, Escotel argued that as per the license, its area of service was for whole of the State of Haryana except the two areas, namely, the local areas of Gurgaon and Faridabad Telephones. No part of the licensed area was surrendered and, hence, an unauthorized encroachment by Bharti cannot constitute the foundation for an argument of acquiescence on its part. It has also been maintained that out of 113 sites, for which Bharti had obtained SACFA clearances, only five sites are marginally outside the 5 km radius of Gurgaon exchange.
Escotel also maintained that it had approached the Licensor seeking clarification for identification of geographical boundaries of cellular service areas of Haryana, UP (West), and Kerala. However, the DoT took more than three years to issue the clarifications, first on 28 February 2000 and then on 2 April 2002, regarding the service areas of cellular operators in Haryana Circle and Delhi Metro Circle.
As regards the Engineering Plan, Escotel clarified that it was a tentative plan which was required to be submitted within two months of the signing of the agreement. As such, the reason why it did not mention Gurgaon and Faridabad was that these District Headquarters were excluded from the service area under the license.
The Government of India Response
The Government argued that the meaning of the term Local Area, within the statute, would be as defined in Rule 2(w) of the Indian Telegraph Rules, 1951. (p.170) Although this rule was amended on 15 August 1998, the Government pointed out, the amended definition would not be applicable in this case as the licenses in question were issued in November 1994 and December 1995. In this context, the Government cited the Notification No. S.O. 394(E) dated 5 June 1992 pertaining to Delhi. The following is an extract from the Notification.
Now, therefore, in exercise of the power conferred by rule 434 (III) (2C) of the said Rules, the Director General Telecommunication, hereby declares that with effect from June 16, 1992, the revised local area of Delhi, Ghaziabad, Faridabad and Bahadurgarh shall be as under:
1.1. Delhi Telephone System—Local area of Delhi Telephone System shall cover the area falling under the jurisdiction of Union Territory of Delhi i.e. covering New Delhi Municipal Committee, Municipal Corporation of Delhi and the Delhi Cantonment Board; provided that the telephone subscribers located outside the boundary of Union Territory of Delhi but who are served at present from Delhi Telephone System shall continue to pay local tariffs till they are transferred to the adjoining telephone systems.
Similarly, with regard to Gurgaon, the Government referred to Notification S.O. 2397 dated 19 June 1971, which reads as follows:
In exercise of powers conferred by clause (w) of Rule 2 of the Indian Telegraph rules, 1951, the Director General of Posts and Telegraphs declare that effective from July 15, 1971 the local area of following exchanges in the Punjab P&T circle shall cover an area within a radial distance of 5 (five) Kilometers from the respective telephone exchanges.
Further, the Government stated that at the relevant time of execution of license agreement, there was only one telephone exchange within Gurgaon municipal area and that the local area of this telephone exchange should be taken to be the 5 km radial from the telephone exchange, extendable to the limit of the municipality.
As regards various clearances granted by the WPC Wing, including site clearances at the disputed area, it was stated that subsequent conduct of the parties might not be used as an aid to interpretation of a written contract as it may vitiate the contract itself. The Government also argued that undue reliance should not be placed on the expression served by in the license agreement as that would not be in conformity with the statutory definition. With regard to placing reliance on the argument that the areas beyond the municipal limits of Gurgaon Municipality were also being served from Gurgaon Telephone Exchange, the Government stated that even though at a given point of time a telephone exchange may be catering to areas beyond the limits of its local area, as and when a new telephone exchange is installed in such areas, subscribers belonging to the local areas of that new exchange will be shifted to the new telephone exchanges.
(p.171) The Tribunal’s Findings
The entire case, according to the Tribunal, hinged on the interpretation of the term ‘local area’ as used in the license of the Petitioner (Bharti Cellular Ltd.) and the extent of applicability of Rule 2(w), which defines the term local area in the Indian Telegraph Rules, 1951.
From the arguments advanced by the various parties, the Tribunal held that it was clear that the petitioner (Bharti Cellular Ltd.) had been operating in the new settlement areas of Gurgaon, beyond 5 kms of Gurgaon Main Telephone Exchange for which the petitioner had obtained necessary clearances. The Government was aware of this position, as also the fact that the petitioner had invested huge amount of money in setting up the infrastructure and enrolled a sizeable number of subscribers in Gurgaon and Delhi Metro who availed of cellular service and had the advantage of not being required to pay incremental roaming charges. Based on the arguments advanced and a perusal of records, the Tribunal observed that the licensee of Haryana Telecom Circle (Escotel Mobile Communications) did not include Gurgaon when it submitted its engineering plan and maps within the terms of the license. Neither did Escotel seek clarification from the Government about the geographical area in Gurgaon which would fall in their jurisdiction until 20 July 1999 (Escotel maintained that they had raised the issue once in 1996, but, thereafter, it could bring up the question only in July 1999).
Schedule ‘A’ of License Agreement of Bharti Cellular Ltd. (Petitioner in Petition No. 8 of 2002) defined the scope of service as ‘DELHI—Local area served by Delhi, Ghaziabad, Faridabad, Noida and Gurgaon Telephones.’ The term local area has, however, not been defined in the license agreement, and, for that, the Tribunal observed that one has to rely on the meaning assigned to this term in Rule 2(w) of Indian Telegraph Rules, 1951. However, the expression, local area served by Delhi, Ghaziabad, Faridabad, Noida and Gurgaon Telephones, occurring in the Schedule ‘A’ of Bharti Cellular’s license and the expression, local area of, appearing in Rule 2(w) of the Indian Telegraph rules seem to be capable of more than one interpretation, particularly when these expressions get compounded by the expressions telephone exchanges and telephones.
It needs to be appreciated that when Rule 2(w) was framed, cellular service was nowhere in existence in the country and, therefore, it would not be wrong to assume that this rule intended to determine the service area for providing basic telephone service. This assumption gets reinforced from the Reply Affidavit of the Government in another similar case (Petition No. 11 of 2002), wherein it has been stated:
… Though, specific comment about the rationale of adding Ghaziabad, Faridabad, Gurgaon and Noida to Delhi Metro license is not available, it appears that these were added at the time to make available the Cellular Service in these important towns in the vicinity of Delhi having a strong community of interest and movement of people on every day basis.
As a result, the Tribunal believed that it would not be unfair to assume that the changed telecom scenario, especially after the introduction of cellular mobile (p.172) telephone service, and the ground reality may be one of the factors prompting the amendment of the definition of the term, local area. Recall that the 15 August 1998 amendment changed the definition as contained in Rule 2(w) of the Indian Telegraph Rules, 1951, making it co-terminus with short-distance charging area (SDCA). While the short-distance charging area corresponds to a geographical limit of about 50 kms radius, the earlier definition under Rule 2(w) prescribed the limit of 5 kms radius from the main telephone exchange. Taking a purely technical and legalistic interpretation of the definition of local area, as contained in Rule 2(w), in the case of cellular mobile telephone service would imply that the petitioner would be entitled to provide cellular mobile service only in a radius of 5 kms from the Gurgaon Main Telephone Exchange, leading to an absurd situation and ignoring the principle of contiguity and community of interest.
The Tribunal pointed out that the Government Counsel had not given a satisfactory explanation as to why the service area of Delhi Metro Circle was described as Local Area served by Delhi, Ghaziabad, Faridabad, Noida and Gurgaon Telephones instead of Local Area of Delhi, Ghaziabad, Faridabad, Noida and Gurgaon Telephones which would have put the statutory position of Rule 2(w) of Indian Telegraph Rules firmly in place in such licenses. There is also no explanation as to why, approximately around the same time, the licensor felt compelled to define, precisely, the local area in respect of basic services and ignore the same in respect of cellular services if Rule 2(w) of Indian Telegraph Rules was equally applicable in both the cases. Note, the Government detailed the service areas in the tender for basic services as the area within 5 kms radial distance from a telephone exchange, or such area where the Telecom Authority has declared/declares any area served by an exchange system to be local area, for the purpose of telephone connection.
Furthermore, the Tribunal noted that to maintain that the various clearances, including SACFA, site, and so on, given to Bharti, would have no relevance to the terms and conditions of the license itself amounts to hair-splitting and stretching the logic too far. If these clearances have no relevance, the Tribunal observed, can one argue that these can be given without there being a license agreement for operating the main service. The Government also stated that the Gurgaon municipal area was served by a single exchange and that there was another telephone exchange outside the Gurgaon municipal limits which was not a part of the Gurgaon local area. Yet, when Bharti submitted its business plans, including areas beyond the radial distance of 5 kms from Gurgaon Telephone exchange, the Government gave clearances without any demur. Such permissions were not obtained through any sleight of hand or in any clandestine manner. The required permissions were granted by the entity statutorily authorized to give such permissions. There is hardly much merit in the argument that WPC and SACFA clearances are merely technical clearances and have no bearing on the service area. Technical clearances are not given in the air and there are specific site clearances which are involved that have to be necessarily correlated with the service area. No WPC or SACFA clearance can be either sought or granted (p.173) unless one holds a valid license under the Indian Telegraph Act, which inter alia contains a defined service area.
All these facts raise a reasonable doubt as to whether the licensor (the Government of India) was as clear in its perception about the service area of the Delhi Metro Circle Cellular Operators as it is averring now. The argument made in this regard is somewhat ambivalent, which could partly be due to the fact the licensor was trying to tailor the concepts and terminologies of an Act of 1885 to developments that have come almost a century later. However, the Tribunal observed that it would not like to hazard any guess in this respect.
The Tribunal, taking note of the anomalous position, set aside the Government’s decision, contained in the letter dated 2 April 2002, and directed the Government to reconsider its decision with regard to the questions raised in this Petition, and to decide the case afresh within a period of three months from the date of communication of the order. It also directed the Government to re-examine the cases of three other similarly placed cellular licensees, and to take a decision after hearing all the parties.
Key Lessons from The Case
1. The drafting of the licensing terms and conditions should be done with due care and the obligations of each party should be clearly identified. There should be no scope for any kind of ambiguity that could be exploited by the parties involved at a future date;
2. Since the telecom environment is changing very fast, rules and laws governing the telecommunications sector would need to be updated regularly. The attempt to apply an archaic rule to modern day telecom operations hinders telecom growth, and could create litigation in the sector as the case study has shown;
3. There should be uniformity between two sets of licenses for delivery of the same type of service. Any mismatch in this respect invites litigation;
4. The instrument of licensing can be effectively used to spur telecom development, provided it conforms to overall policy goals, encourages transparency in the telecom operations, details the obligations of each party, and also provides a route for dispute resolution; and
5. The case study highlights the failure on the part of the licensor to comprehensively address the issues by adopting a problem-solving approach. It placed too much reliance on technicalities that finally landed the matter before the Tribunal. The licensor, instead, could have initially phrased the license in such a way as to restrict the service area of the licensee to the entire state excepting Gurgaon, or could have allowed it to operate in the entire State of Haryana including Gurgaon as another competitor along with the petitioner. The Tribunal, on the other hand, behaved constructively by clearly delineating the issues involved and giving explicit direction to the Government on what was needed to be done in the matter.