Supreme Court: AGR dues that were imposed on Telecom Service Providers are not liable on PSUs, adjourns hearing to June 18

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Telecom Service Providers (TSPs) are required to pay a license fee to DoT. This is in consideration of license granted by DoT on behalf of the Central Government. At first, DoT proposed a fixed license fee regime. This fixed regime predefined a lump sum to be paid by TSPs. Then, TSPs made several statements regarding financial viability and sustainability of the fixed license fee regime. It resulted in the proposal to be done away with. This was substituted by a Revenue-sharing based regime under the National Telecom Policy, 1999 (“NTP”).

Telecom licenses were then amended owing to the Revenue-sharing model. As a result, TSPs were required to share a percentage of their AGR with the Government as Licensee Fee (8% at present) and Spectrum Usage Charge (3-5 % at present). License agreements between the Dot and the TSPs define the gross revenue of the latter. AGR is determined by certain deductions specified, from Gross Revenue. This concept of AGR was finalized and implemented in 2001. Accordingly, demands for license fees based on this definition were raised on TSPs.

The dispute arose with respect to the definition of Adjusted Gross Revenue (“AGR”). DoT stated that the AGR includes all revenues before discounts from both telecom and non-telecom services. While the TSPs claimed that AGR should only include revenue accrued from core services. They emphasized that dividend, interest income or profit on sale of any investment or fixed assets, etc. cannot be included for computing AGR.

Supreme Court: AGR dues that were imposed on Telecom Service Providers are not liable on PSUs, adjourns hearing to June 18
Credit: Financial Express

Timeline of legislation

This dispute has been spanning for nearly two decades.

First Round of Litigation:

A petition was filed in the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) by an industry association of TSPs. It held revenue from non-licensed activities must not be considered for computation of AGR.

11.10.2011: The TDSAT order challenged. The SC held that the TDSAT had no jurisdiction to decide on the validity of terms and conditions of the license. Further, the SC held that if definition of AGR included revenue beyond the licensed activities, then it was open for the TSPs to not undertake activities for which they did not require a license. It suggested to transfer such activities to any other person or firm or company. Accordingly, several TSPs broke into divisions that were carrying out non-telecom activities to mitigate the impact of this judgement.

Second Round of Litigation:

TSPs filed petitions in High Courts and TDSAT for correct interpretation of the heads of Gross Revenue mentioned in the license.

23.04.2015: TDSAT ruled that the term ‘revenue’ in the license was no different from its corresponding definition in the Accounting Standard 9 (AS-9). It thus stated that Gross Revenue for the purpose of determining license fee would include inflows from all business activities of TSPs, whether under license or beyond license.

The High Court of Tripura held that definitions of Gross Revenue and AGR under the license were ultra vires to Section 4(1) of the Telegraph Act. Because even non-licensed activities were sought to be included.

The High Court of Kerala held that as TSPs had entered into licenses with the Government at their will. They also had availed the benefits of such licenses. Hence, it was not open to them to contend that license fees was arbitrary or beyond the scope of the Indian Telegraph Act, 1885.

24.10.2019: As a landmark judgement (“the Judgement”), SC upheld the interpretation of AGR which has been adopted by DoT from the inception. The AGR would also include revenue generated from activities of TSPs beyond the license. It observed that the obligation to pay license fee in accordance with the terms and conditions of the license is a contractual obligation. Thus, it needs to be honoured by TSPs.

For computing interest and penalty of the pending fees, it relying on the provisions of the license agreement for delay in payment of license fees. The Respondents were required to pay within a period of three months, approximately 147 crores.

14.02.2020: SC ordered to issue contempt notice to the TSPs owing to non-compliance of its order asking telecom companies to pay AGR of Rs 1.47 lakh crore to DoT.

18.03.2020: This order prohibited self-assessment or re-assessment of the license fee payable to the DoT.

Present Order

The Supreme Court bench headed by Justice Arun Mishra clarified an important misunderstanding while strongly questioning the Government’s stance.

The issue involved the DoT sending show cause notices to various Public Service Undertakings (“PSUs”). Approximately, GAIL was issued 1.7 lakh crores; Powergrid 22,062 crores; Oil India 15000 crores, etc.

The Bench questioned the basis and the authority of such notices.

Justice Mishra strongly condemned this and heard to state,” How could demands have been raised when our judgement doesn’t even not touch the PSUs at all. Government must explain how our ruling has been used for that purpose. This is misuse of judgment”

Further, he stated that there are vast differences between licenses of PSUs and licenses of TSPs. The Government must clarify if the demand order has been revoked. Also, the notice should be withdrawn.

AGR dues that were imposed on TSPs are not liable on these large PSUs companies.

The Court granted 3 days for the DoT to reconsider the demands made to PSUs.

The next aspect considered by the bench was the timeline of payment of pending dues. The DoT had asked for a 20 year time period for payment over installations. The Bench did not disallow the request made by the DoT. Rather, it posed questions to ensure surety of such staggered payment.

The Court questioned id the TSPs are willing to submit personal guarantee by directors. The bench insisted on a provision of security and confirmation for payment as EMIs over the period.

Since the liabilities imposed were of a significant amount, the TSPs stated that they do not have the bandwidth to pay off the amounts at one shot.

The Court adjourned the hearing to June 18. It also granted the TSPs to file affidavits in 5 days.


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