Pay Rs 92,000 crore, Supreme Court Orders Telcos As Govt Wins AGR Dispute

The Supreme Court Thursday ruled in favour of the government on recovering adjusted gross revenue (AGR) of about Rs 92,000 crore from telecom service providers including Bharti Airtel, Vodafone, Reliance Communications and state-owned MTNL and BSNL. The setback to the telecos came as the apex court upheld the AGR definition formulated by the Department of Telecom (DoT) and termed as "frivolous" the nature of objections raised by them. "The definition of gross revenue is crystal clear in the agreement. How the adjusted gross revenue to be arrived at is also evident. It cannot be submitted that the revenue has not been defined in the contract. Once the gross revenue is defined, one cannot depart from it and the very meaning is to be given to the revenue for the agreement," said a bench headed by Justice Arun Mishra. The top court said that overall revenue has to be taken into account for determination of licence fees without "set off", as provided in the agreement.

"The same was defined to simplify it to rule out the litigation, disputes, and accounting myriads. The submission raised that the term revenue has to be interpreted as the consideration payable in keeping with commercial and financial parlance is what is intended to be avoided. Raising of such submission is a futile attempt that has been made to wriggle out of definition of gross revenue," said the bench, also comprising Justices S A Nazeer and M R Shah.

Reading out the crux of 153-page verdict, Justice Mishra, said: "We have held the definition of AGR will prevail" and allowed the DoT appeal and "dismissed that of licensees (telcos)". All other submissions of the telecom companies are rejected and they have to pay penalties and interests to DoT, the judges said.

An advocate, party to the litigation, said the government in July had told the apex court that telecom firms have pending licence fee outstanding of over Rs 92,641.61 crore till date. In an affidavit filed in the top court, DoT said that as per calculations, Airtel owes Rs 21,682.13 crore as licence fee to the government and dues from Vodafone totalled Rs 19,823.71 crore, while Reliance Communications owed a total of Rs 16,456.47 crore. BSNL owed Rs 2,098.72 crore and MTNL, Rs 2,537.48 crore.

Holding that interest and penalty have rightly been levied on the telecom companies, the bench made it clear that there would no further litigation on the issue and it would fix a time frame for calculation and payment of dues by the telecom companies.

"Once an amount of shortfall has not been paid, it has to carry 50 per cent of the penalty on defaulted amount, as agreed. Thus, we find no substance in the submission that interest, penalty, and interest on penalty cannot be realised. It is as per the agreement. In the facts and circumstances, we find no ground to reduce the same, considering the nature of untenable objections raised on behalf of the licensees," the bench said.

It said that no litigant can be permitted to "reap fruits" on inconsistent and untenable stands and litigate for decades in several rounds which is not so uncommon but is disturbing scenario projected in very many cases. "We have examined the matter upon merits and then aforesaid conclusion indicates frivolous nature of objections," the bench said.

As per the New Telecom Policy 1999, telecom licensees are required to share a percentage of their AGR with the government as annual licence fee (LF). The 1999 policy came after operators made a representation to Centre for relief against steep licence fee which they had consistently defaulted since 1994 and an option to licensees to migrate from fixed licence fee to revenue sharing fee was made applicable in the year 1999. In addition, mobile telephone operators were also required to pay spectrum usage charges (SUC) for use of radio frequency spectrum allotted to them.

Telecos had moved the top court against the Telecom Disputes Settlement and Appellate Tribunal's (TDSAT) order which ruled that certain non-telecom revenues like rent, profit on sale of fixed assets, dividend and treasury income would not (rpt) not be counted as AGR on which licence fee would have to be paid to government. The TDSAT exempted a large number of streams from the definition of AGR, like capital receipts, bad debt, distribution margins to dealers, forex fluctuations, sale of scrap and waiver of late fee.

It also said revenue from non-core sources such as rent, profit on sale of fixed assets, dividend, interest and miscellaneous income must be included while computing a carrier's AGR, dealing a setback to telecos who would have to shell out more towards licence and spectrum usage fees. The court had formulated 19 questions for consideration -- Definition of gross revenue, Discount and commissions, Gains arising out of foreign exchange fluctuations, Monetary gains on sale of shares, Insurance claim in respect of capital assets, Amount of negative balance of pre-paid customer, Reimbursement of infrastructure operating expenses, Waiver of late fee, Gains from roaming charges and PSTN pass through charges.

Other questions were, "Non-refundable deposits, Licence fee demand where spectrum is not granted, Income from interest & dividend, Bad debts written off, Liability written off, Inter-corporate loan, Revenue under IP1 Registration, Income from management consultancy services, Res Judicata, Levy of interest, penalty and interest on penalty".