TDSAT India Decision on Licence Fees
TDSAT India Decision of 9 April 2002, in Petition No. 10 of 2001, (Cellular Operators Association of India and Others as Petitioners v. Department of Telecommunication (DoT), Government of India, as Respondent)
Issues involved: Liability to pay license fee and interest under the Migration Package
The petitioners had obtained license, through a competitive bidding process initiated in the year 1995, for providing cellular mobile service in various telephone circles (A circle roughly corresponds to a state in size) in the country. These licenses were initially tenable for 10 years upon payment of a lump sum for the first year prior to signing the license agreement. For subsequent years, the license fee for each year was required to be paid in quarterly instalments in advance by way of postdated checks. An obligation was cast on the licensees to provide bank guarantee and also to provide services within the twelve months of the signing of the license agreement after payment of appropriate component of license fee. Additionally, the licensees were required to cover 10 per cent of the District Headquarters in the first year and 50 per cent of the District Headquarters within three years. After obtaining licenses, the cellular operators ran into problem in discharging their financial obligations, under the licenses, and the Government came forward to rescue the situation by evolving a migration package through negotiations with the cellular operators. Under this package, the petitioners were enabled to migrate from the annual licence regime to a revenue sharing regime, with tenability of licence for 20 years from the effective date of the existing license agreement and payment of one time entry fee, amounting to the total dues of the licensees up to 31 July 1999, latest by 13 August 1999, as also meeting certain other conditions, including payment of liquidated damages in the event of failure to commission services by the prescribed date. The package also made it clear that for the purpose of calculation of outstanding licensee fee up to 31 July 1999, the effective date (the date by which the licensing agreement (p.175) comes into effect) of all the licensees of cellular and basic telephone services will be notionally extended by a period of six months, excepting in the case of the cellular metro licenses, and also subject to a total extension period not exceeding six months in the case of such licensees who may have availed such extensions of effective date, earlier. This provision reduced the amount of license fee payable. It was also stipulated that in case of overdue payments, interest shall be payable at the prime lending rate plus 5 per cent compounded on a monthly basis. The licensor also retained the option of encashment of bank guarantee in case the due payment was not received within time plus a grace period of ten days. It was enjoined upon the licensees to accept all the conditions as a package in its entirety, implying, inter-alia, the withdrawal of all legal proceedings pending before courts and other bodies, and a commitment not to raise any dispute with regard to license agreements for the period up to 31 July 1999. All the licensees, including the petitioner agreed to migrate to the new regime and gave undertakings in this behalf.
The Petitioners’ Case
The immediate provocation, for the petitioners to move the tribunal in June 2001, was the Demand Note No. 15-6/99-LF of 10 August 1999 and of 18 February 2000 sent by the DoT asking them also to pay interest as due on 31 July 1999 along with the reduced license fee payable due to notional extension of the effective date of all the licensees as per the migration package. The petitioners contended that the impact of notional extension of effective date by six months was not only to reduce the amount of license fee payable but also to reduce the quantum of interest payable on outstanding license fees. The petitioners also raised a question about the liquidated damages. They further asked the tribunal to direct the government to modify the Demand Note to the extent it is found to charge higher amounts of license fee, interest, etc. and refund all excess amount charged by the government together with interest at the prime lending plus 5% per annum, compounded monthly till the date of such refund.
Arguments Advanced by The Government Counsel
The Government side contended that it had only agreed to reduce the quantum of license fee payable by extension of the effective date and the amount of interest payable as on 31 July 1999 remained intact. Since there was no diminution of the amount of outstanding interest, it contended that the only relief the petitioner could claim was reduction of the license fee. It was further argued that the petitioners had acquiesced in the demand raised by the Department and cannot now claim that the quantum of interest must also be reduced, pari-passu, with the license fee. In this connection, the stand taken by the petitioner in another case before the High Court was cited. It was also contended that the petitioners, once having accepted the migration package and given an undertaking in this behalf, did not have the option to reopen the issue, and they had the option to remain in their old license fee regime.
The tribunal did not uphold the contention made on behalf of the government for the following reasons:
1. The government had not issued any order nor was it provided in the migration package that would show that only the amount of outstanding license fee payable had been reduced, and the liability to pay the outstanding interest amount remained intact;
2. All the natural consequences and corollaries would follow from the extension of the effective date. If the liability to pay license fee got reduced as a result of extension of the effective date, the interest amount which was to be paid for defaulting in payment of the license fee would have to be reduced. Hence, no interest was payable if the license holder paid the license fee in time;
3. The liability to pay interest arises only in cases of overdue payment. Overdue payment can be calculated from the date on which the license fee is payable. If there has been any deferment of the due date of payment of the license fee by six months, it can not be said that any amount of license fee has become payable or overdue, disregarding the extension of time;
4. The migration package modified the liability to pay the license fee and there was no specific provision in the migration package to the effect that interest will not consequentially be reduced;
5. The natural consequence of the notional deferment of payment of the license fee is that the license fee becomes due and payable not on the actual date when it became due, but on a deferred date. The interest also will be payable as and when a license holder becomes a defaulter, notionally, and the license fee becomes overdue. Interest cannot become payable unless the license fee becomes overdue;
6. The records of the High Court referred to by the government counsel go to show that there was no dispute before the High Court about the quantum of interest to be paid by the service providers. In that forum what was challenged was the migration package itself;
7. The obligation to pay the entire amount of liquidated damages payable under the license agreement will have to be discharged as no relief has been given on this account in the migration package; and
8. The petitioners are not questioning the terms and conditions of the migration package. However, what they are maintaining is that their liability to pay license fee and the outstanding interest amount has been reduced.
While disposing the petition, the tribunal directed the government to modify the charge of interest as reflected in the aforesaid Demand Note of 10 August 1999 and 18 February 2000. The tribunal, however, rejected the plea for reassessing the liquidated damages and payment of refund with interest.
This is a typical case showing how a simple issue became a subject of protracted litigation. The migration package did not clarify that reduction in the license fee payable due to notional extension of effective date of the license agreement would not apply to interest amount payable. This position was not made clear in the license agreement or through any specific order issued by the government. The government continued to maintain the reasonableness of its stand and hardly left any room for further negotiation on the issue. It also did not make any attempt to seek resolution of the matter through any other method. This naturally drove the Cellular service providers to seek remedy through the dispute settlement tribunal against the government’s decision, which was viewed by them as being blatantly arbitrary. If the government believed that its stand truly reflected its intention to keep reduction in the license fee and non-reduction in the interest amount payable as separate issues, it should have specified so in clear terms. The case clearly shows that lack of clarity, in drafting agreements or any package, lends itself to various interpretations that gives rise to a dispute. The telecom sector, where high stakes are involved, is particularly prone to such disputes.