TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL

NEW DELHI

 

Dated 11th February, 2010

 

Petition No.108 of 2008

 

Bharti Airtel Limited                                                            ...Petitioner

         

          Versus

 

Bharat Sanchar Nigam Limited                                                      …Respondent

      

BEFORE:

 

HON’BLE MR. JUSTICE S.B. SINHA, CHAIRPERSON

HON'BLE MR. G.D. GAIHA, MEMBER

 

For Petitioner

:

Mr. Navin Chawla, Advocate

Mr.Sharath Sampath, Advocate

 

For Respondent

 

:

Mr. Maninder Singh, Senior Advocate,

Mrs.Prathiba M. Singh,

Mr. Tejveer Bhatia,

Mr.Arjun Natarajan,

Ms.Nitya Thakur, Advocates

 

 

JUDGMENT

 

INTRODUCTION :

         

The petitioner is a licensee under the Indian Telegraph Act, 1885(The 1885 Act).  It was granted two licenses; one for Basic Telecom Service and the other for Mobile Telephony.  A Unified Licence, however, was obtained by it much later i.e. on or about 21.07.2004.

 

FACTS:

 

2.       Indisputably the petitioner entered into an interconnect agreement with the respondent. 

 

3.       Inter alia, on the premise that the petitioner had been routing non-CLI/invalid CLI calls in the trunk routes which was detected upon purported analysis of CDs supplied by it for the period from May 2003 to June 2005, the respondent raised a bill of Rs.59,40,94,834 purported to be on the basis of the guidelines issued by its headquarters; inter alia, stating:

“If such calls are less than 0.5% of the total number of the calls received at the POI, the access provider shall be charged for double the number of such non-CLI/invalid CLI etc. at the highest slab of IUC applicable i.e. incoming IDS rate.  The rate for IUC Regime I, II and III are Rs.5.50, Rs.4.55 and Rs.3.55 respectively.  If the number of non CLI/invalid CLI cases is 0.5% and above, then all the calls received in that trunk group in the preceding two months or from the date of commissioning of POI whichever is less, shall be charged at the above rates.

         

Accordingly, a bill No.787403161,179,186,193,204,211 and 229 for Rs.59,40,94,834/- are sent herewith.  The calculation sheet and sample report are enclosed herewith.  Please arrange to pay the bill within the due date.”

 

4.       In the calculation sheet annexed with the said bill; the month in which the calls were made, the total duration thereof, revised bill amount, the percentage of violation MCU, the bill amount and the proposed amount to be billed were indicated. 

 

5.       The purported sample report indicated the relevant months for the years in question i.e. 2003, 2004 and 2005 in which allegedly such non-CLI calls had been made, the total count, the total duration in second, violation count, duration in second, percentage of violation and MCU claim from violation records. 

 

6.       In a letter dated 21.04.2006, the petitioner in response to the respondent’s letter dated 18.03.2006 stated as under:

 

 

          “We have read the CDRs from the MODs stored from May 2003 onwards and analysed the CDRs for the various CLI sent to BSNL.

 

          The details arrived from the analysis are grouped into the following categories:

 

a.     no CLI

b.     CLI with LAC but less than 10 digits

c.      CLI- due to call forwarding

 

a.       No CLI

 

We have analysed the No CLI calls for the period of May 2003, June 2003 and have found that approximately 30000 calls and 21000 calls have originated from the customer’s line connected to our network.   It is also observed that all these calls were totally stopped after July 2003. We would also like to bring to your notice that a total of 40000 calls of Non-CLI were sent to BSNL because of the technical reason of calls not getting matured on CDOT levels 54 and 59 on C7 signalling.   In order to get the call matured, an EIR2 loop was created in BTNL switch for these calls, and the customers complaint were resolved.  Please note that these calls totally got eliminated after 19th May 2003 because of software modification at our end/CDOT exchange.

 

Please note that this has happened just after the IUC implementation on 1st May 2003 and we were also in the process of above implementation.   We would gladly provide the MOD of the said period for your reconciliation of records.

 

 

b.                CLI with LAC but less than 10 digits.

 

In EWSD switch there is a facility by which the operator can send a specified number (OPN), whenever an ISDN PRI is connected  to the EPBAX.  However, this OPN acts as a mask and sometimes, if the EPBAX sends the CLI with matches the portion of OPN digits then the CLI sent by EWSD to the other network will be as sent by EPBAX.  This scenario is described as case 3 in the clarification letter furnished by Siemens.

 

If the OPN is not given, then the CLI sent by EWSD is as sent by EPBAX.

 

We have got all the MODs from May 2003 and have confirmation from Siemens’ that this is indeed the case.   We shall be very happy to stimulate the above cases to prove that the above observation is true.   Going forward we have made our process more robust to ensure that only 10 digit CLI is ensured for calls made to BSNL.

 

c.       due to call forwarding

 

Other than the above calls, we have handed over some calls which have come by way of call forwarding because there was no clarity on whether the call forwarding to BSNL network be disallowed.  It is learnt that almost all operators were equally uneducated at that point.  We further state that such calls from our network has progressively reduced from May 2004.  now we have taken enough precautionary measures to ensure that no call forwarding in BSNL network from any customer is accepted or entertained from BTNL network.

 

With the above reasons enumerated behind the various scenarios of CLIs, we very earnestly make a point that we do not have any malafide intention to handover any Non-CLI or wrong CLI calls.   We have always handed over calls with LAC(80) and with the levels allotted to BTNL Karnataka.  The observations made for the calls handed by our network to BSNL network may please be treated as valid calls.   We have always been very compliant to all the regulations and so is our endeavour in future.

 

We request you to take into the cognizance of the above facts and waive off the penalty.”

 

 

7.       The respondent set up a committee to consider the said representation. By reason of a letter dated 25.03.2008 the said representation was rejected by the respondent inter alia, stating:

“Kind reference is invited to your letter cited above, wherein it was requested by M/s BAL BSO to relook into the violation case in view of various technical reasons furnished for the above violation.  This office examined the above representation and the observations are listed below:

“1.     M/s BAL BSO have intimated that the reason for routing Non-CLI calls was due to creation of EIR2 loop in M/s BAL switch to avoid call failure to CDOT levels 54 & 59 on CCS7 signalling.  The creation of EIR2 loop should not result in delivery of Non CLI calls.  This fact is confirmed from A/T wing.  Hence, the reason given by M/s BAL for routing Non-CLI calls cannot be accepted.

 

2.                 The second reason mentioned by M/s BAL BSO for routing calls with LAC less than 10 digits is due to the calls originated from ISDB PRI numbers connected to EPABX lines in Siemens switch of M/s BAL.  M/s BAL BSO have neither brought this fact to the notice of BSNL at the time of routing such calls nor have taken permission from BSNL for routing Improper CLI calls.  Hence, BSNL cannot accept M/s BAL’s above reasoning for routing Improper CLI calls.

 

3.       The other reason mentioned by M/s BAL BSO for CLI violation was activation of call forwarding by M/S BAL BSO subscribers.  M/s BAL BSO have not entered into any agreement with BSNL with respect to Inter Operator Call forwarding facility.  In the absence of such agreement with BSNL, calls routed by M/s BAL to the POI not meant for such calls will be treated as Invalid CLI violation by BSNL.

 

It is observed that the percentage of Non-CLI/Improper CLI/ Invalid CLI calls during May’03, June’03 and Nov’03 to Feb’04 exceeds the permissible percentage of 0.5% of the BSNL HQ(Regin) circular dtd.13.6.05.  The percentage of violation for the remaining period of violation is less than 0.5%.

 

Hence, the violation bill raised by BGTD to the tune of Rs.78,31,15,463/- is in order.

 

Therefore, it is hereby requested to pay the above violation bill within 15days from the date of receipt of the letter, failing which action as per Interconnect agreement will be initiated.”

 

8.       Petitioner made a further representation without prejudice to its rights and contentions in terms of a letter dated 15.04.2008 inter alia contending:-

 

                   “4)     That the above referred Clause of the Interconnect Agreement read in light of the Circular would show that even BSNL realizes that there can be technical reasons, other than the termination of unauthorized ILD calls, which may result in a Non-CLI/Incomplete CLI call being handed over to BSNL.

“5)     In the present case, even as per your allegation, it was only in the months of May’03, Jun’03, Nov ’03 and Feb’04 that the Non-CLI/Improper CLI/Invalid CLI calls exceeded the permissible percentage of 0.5% of the Circular dt.13.6.2005.  As per your allegations, the percentage of violation for May’03 is at 1.31%, June 03 is at 3.64%, Nov’03 is at 0.59%, Dec’03 is at 1.25%, Jan’04 at is 3.64% and Feb’04 is at 1.51%.  It is pertinent to note that you have not furnished as to how you have arrived at the said percentages.  Furthermore, you have also not disclosed till date as to what percentage of Non-CLI Calls/ Incomplete CLI Calls and Call Forwarding Calls constitutes the percentage of violation arrived at by you.  No allegation has even been made, and rightly so, that there is any case of tampering or modification of CLI for the purposes of saving or avoiding any IUC charge by us.  This itself shows that ours is a case of bonafide transit of such calls and no motive can be attributed to us for the same.  In fact, none has rightly also been attributed by you as well.  Therefore, in our case, the amount in question is being demanded from us as a penalty is based on a unilateral presumption which is totally impermissible.

 

9.       In rejecting our above explanation, you have relied upon some confirmation received from the A/T wing.  However, we fail to understand the basis of such opinion/confirmation given by the A/T wing.  We are ready and willing to simulate the situation as existing in May-June’03 and prove that the explanation offered by us is correct and genuine and no malafides can be attributed upon us.  We would therefore, request you to kindly confirm if any tests were done by you or by A/T wing before rejecting our representation.  We would also request for any technical basis on which our above representation has been rejected.  In absence of the same, we would have to conclude that our representation has been rejected without cause and in an arbitrary and unreasonable manner.

 

10.     Thus, similarly, as far as calls due to activation of call forwarding facility by us is concerned; it is possible that some of the subscribers may forward their calls, in the same SDCA to BSNL’s numbers without a specific agreement for termination of such calls.  However, we reiterate that this was not a case of unauthorized calls and in any case, no malafide can be attributed on us as we had paid all stipulated charges as per IUC including ADC for these calls.  The same can be verified by you.  Thus, in the absence of any mens-rea to cause any loss to you and in fact, no loss having been caused to BSNL for such routing, we cannot be penalized for such calls and thus your demand is liable to be withdrawn.”

 

 

9.       The respondent was requested not to take any coercive steps.  A personal hearing was also asked for so as to enable it to give physical demonstration for explaining and substantiating its case.  The petitioner has also produced a certificate issued by the supplier of the switch box, namely, ‘Siemens’ dated 29th May, 2008 in respect of non-transfer of calls in 10 digits in BSNL’s network  case by case basis, operative portion whereof reads as under:

 

“Please note that the above implementation is uniform in all EWSD exchanges supplied to all land-line operators throughout the country.

 

It is relevant to mention here that one of the landline operator having EWSD switches has also put in a request to us to enable billing on 10 digits instead of the current method of billing on operator DN or Pilot DN.  However, we have not been able to fulfill their request.  This scenario of billing on 10 digits CLI also stems from the similar implementation depicted in this letter.”

 

 

10.     Petitioner, therefore, contends that ‘Siemens’ being a supplier of similar equipments used by all the BSOs, it could not have been singled out for the purpose of imposition of penalty. 

11.     The respondent, however, by a letter dated 28.04.2008 granted certain benefits in respect of the calls which were less than 0.5% of the total calls at POI, paras 5 and 6 whereof read as under:

“5. BGTD has already furnished the monthwise billing information vide letter No.BGTD/IUC/BTNL/BSO/BIO/13 dated 6.10.2005 and letter No.BGTD/IUC/BTNL/BSO/BIO/13 dated 20.12.2005 along with violation percentage.  It is understood from your letter dated 21.04.2006 that you have sufficient information regarding the violation and the operator has already conveyed in the letter that the violation has indeed occurred and furnished technical reasons for the same.  However, BGTO will be instructed to give the details for your further reference.  The violation but is raised as per instructions of BSNL HQ letter dated 13.06.2005, Clause 6,4,6 of Interconnect Agreement and para 11 of IUC Circulars II & III.

 

6. The reasons furnished by operator were not rejected by BSNL, but was duly considered and hence the bills for months July’03 to Oct.03 and Mar,04 to Oct’04 during which percentage of Non-CLI Calls/ Invalid CLI calls/Incomplete CLI observed is less than 0.5%, were charged at double the number of such calls at ISD rate.  Had the representation of operator not been considered the bills for such calls would have been charged at ISD rate for all calls in that POI.”

 

12.     In the said communication the respondent did not allege any deliberate violation or malafide on the part of the petitioner.  Similarly, it made a distinction between unauthorized calls and calls beyond the control of the licensee.  It was not found that the calls were unauthorized. 

 

13.     The petitioner aggrieved by and dissatisfied with the said demand has filed this petition. 

 

SUBMISSIONS :

 

14.     Mr.Navin Chawla, the learned counsel appearing on behalf of the petitioner would contend:

 

(i)                Clause 6.4.6 of the agreement on the basis whereof the impugned demand has been made having been inserted by one ‘addenda’ in the agreement dated 15.02.2002 as also the agreement dated 19.07.2005, it could not have been given retrospective effect and retroactive operation.

(ii)             The agreements entered into by and between the parties as also the interconnect agreements and ICU Regulations having not provided for imposition of levy of the nature impugned in this petition, the same must be held to be wholly illegal and without jurisdiction. 

(iii)           The respondent could not have by reason of an internal circular levied a charge which had not been provided either in the contract or the statutes governing the same, namely, ICU Regulation (i) (ii) and (iii).  The circular letter in any event being not retrospective in nature must be held to be wholly illegal.

(iv)           There being no allegation that the petitioner had routed its calls through wrong trunk routes and/or tampered CLI, the circular letters issued by the respondent cannot have the application whatsoever. 

(v)             Clause 6.4.6 providing for excessive levy must be held to be penal in nature and thus, must be strictly construed.  Before invoking the said provision, it was incumbent on the part of the respondent to satisfy itself about fulfillment of the pre-conditions laid down therefor.  The petitioner having offered to relate all calls by one simulation the demand made by the respondent is unsustainable. 

(vi)           A part of the demand being attributable to a defective EPA boxes manufactured by a leading manufacturer, namely, ‘Siemens’ no demand could have been raised in that behalf. 

(vii)        The impugned demand inter alia being based on a purported report of a committee, copy whereof having not been furnished, must be held to be violative of the principles of natural justice.

(viii)      The respondent having not provided an opportunity to the petitioner by granting a personal hearing for the purpose of demonstrating that it was being penalized for no fault on its part, the impugned demand cannot be sustained.

(ix)           There being no finding that the calls in question were international ones or ISDs and furthermore no allegation of violation of trunk route having been made, the pre-conditions for levy of the penalty must be held to have not been fulfilled.

(x)             The respondent having not disclosed any basis for demand it is liable to be set aside.  The impugned demand being not in consonance with the IUC Regulations and/or the directives issued by the Department of Telecommunication must be held to have been issued wholly without jurisdiction. 

(xi)           Different amounts having been asked to be paid at different points of time, without assigning any reason for such variation cannot be upheld.

 

15.     Mr. Maninder Singh, learned senior counsel appearing on behalf of the respondent, on the other hand, would contend:

 

(i)                Clause 6.4.6 being not penal in nature but was stipulated merely for providing by way of contractual obligations on the part of the petitioner, the respondent was entitled to raise its bills on the basis thereof, without any further reference to the petitioner.

(ii)             In terms of clause 6.4.6 of the interconnect agreement it was permissible for the respondent to raise bills for the period in question by reason whereof neither the provisions of the contract nor the circular letter had been given any retrospective effect.

(iii)           The petitioner having not questioned the validity and/or legality of clause 6.4.6 of the agreement, the contentions raised in this petition must be held to be wholly untenable.

 

ISSUE :

 

 

16.     The core question which arises for our consideration is:

 

 

1.     Whether the respondent is legally and factually justified in invoking clause 6.4.6 of the agreement in the peculiar facts and circumstances of the case?

 

 

AGREEMENTS/CIRCULARS :

 

 

17.     Before, however, adverting thereto we may notice different agreements entered into by and between the parties so as to enable us to consider the effect thereof.

 

18.     The first interconnect agreement in respect of six circles in Karnataka Telecom Circle was entered into on or about 15.02.2002. 

 

19.     Chapter I thereof contained interpretation clauses.  We may notice the definition of CLI:

‘CLI or “Caller Line Identification” – means the information generated by the network capability which identifies and forwards the calling number through the interconnected BSNL’s /BSO’s network.’

 

20.     Clause 6.4.6 in the original agreement was as under :

 

          “BSNL will pay access charges for STD/ISD calls originating in the BSNL’s network and delivered to the BSO’s network, at the rate of Rs. 0.84 per unit measured call at the point of interconnect to the BSO, only in such cases where the BSNL delivers the call in an exchange other than the BSO’s tandem/terminal exchange.  However, for STD/ISD calls delivered from BSNL’s TAX to BSO’s main exchange serving multiple SDCCs, the latter shall be treated as the terminal exchange and no access charges shall be payable by BSNL to BSO.

         

It is acknowledged that BSNL shall not pay any charges for all types of calls including terminating ISD calls in the following cases”

 

21.     The aforementioned sum was, thus, payable by the respondent to the other basic service operators including the petitioner and thus the petitioner was not to pay the respondent for any non-CLI calls. 

 

The method of billing as contained in clause 6.6. Interconnect billing system is provided for in Chapter – VII.

 

Clause 7.2.1 deals with the issue of bills, which reads as under:

         

“Bills for access charges and charges for special services including trunk calls will be issued on monthly basis by the designated unit of BSNL to the BSO and such bills shall be payable within 15 days from the date of issue.   Similar bills may also be issued by the BSO for the access charges, if any, due to it.”

 

22.     The STD bills were raised on the aforementioned basis every month.

 

23.     Telecom Regulatory Authority of India(TRAI) in exercise of its power conferred upon it under section 11 of the Act made regulations known as “Telecommunication Interconnection Usage Charges Regulations 2003” (The said Regulation), which came into force w.e.f. from 01.05.2003.   The said   regulations did not contain any provision as regards levy of additional charges in respect of non CLI calls.  

 

24.     The respondent issued a circular on or about 24.04.2003, which also did not provide for imposition of any levy on non-CLI calls.   It was modified by the respondent in terms of a circular letter dated 28.04.2008.   The circular provided that respondent was not required to pay any termination charge.   It was stated in para 13 thereof:

“BSNL shall not pay any termination charge without complete records of the calling number details, date and time of origination/termination and duration of the call.   Calls without CLI, if any, may be rejected by the termination access provider at all POIs other than the POIs meant for termination of International calls.   The instructions regarding separate trunk groups for termination of International calls is being issued separately by NM section of BSNL.”

 

25.     The said regulations were amended on or about 29.10.2003 commonly known as IUC Regulations II which came into force on or about 01.02.2004.   The said regulations also did not provide for levy of any charges on non-CLI calls.  

 

26.     The respondent thereafter, issued a circular dated 28.01.2004 in supercession of the earlier circulars mentioned herein in regard to implementation of IUC regulations 2003 in the BSNL network.    The said circular was prospective in nature.   Clause 11 of the said circular in terms whereof CLI based barring facility was to be activated at the POIs  wherever technically feasible to ensure that the traffic handed over to BSNL is in the appropriate trunk groups only.   It was however, provided:

          “Wherever it is technically not feasible to activate CLI based barring, periodic monitoring of the incoming trunk groups shall be done by BSNL to ensure this objective.   The calls received without CLI by BSNL from various operators shall be charged at the highest slab i.e. as for ISD calls.   In case such calls are received by BSNL on a trunk group not meant for such calls then all the traffic received on such trunk group for that month/billing cycle shall be charged at the rates applicable for IUC of incoming ISD calls.”

 

2004 CIRCULAR:

 

27.     Having regard to the fact that the said regulations did not provide for any levy of any charge on non-CLI or in-valid CLI,  the Respondent must be held to have gone beyond the regulation to confer on it an advantage.  Such a provision could not be brought about by way of a circular.  The said circular dated 28.01.2004 provides for handing over a non-CLI calls at a right trunk group. The rates provided for ISD calls was to be charged and in the event, the said provision is correctly implemented the same could be for that call only.   However, in the event a non-CLI call originating from outside the country and handed over to the respondent as a local call, the consequence thereof would be that all calls would be charged at ISD rates irrespective of the fact as to whether such handing over was by reason of any technical defect or otherwise.  

 

28.     So far as the petitioner is concerned, from the pleadings of the parties as also the correspondences exchanged between them, it would be evident that it was not a case of handing over calls at wrong trunk group nor it had anything to do with wrong routing or tampering of CLI.   The only deficiency in handing over the said calls as pointed out by the respondent was that some CLI was generated which did not have appropriate numbers namely 10 digits.  The deficiency in this behalf was inter alia in the switchgear, and the same has been explained by the manufacturer thereof i.e. Siemens.

 

29.     Department of Telecommunications issued a circular on or about 24.06.2003 wherein emphasis was laid to the security of the State which may arise by reason of tampering of CLI.   No charge or levy was contemplated by reason thereof.   In fact the DOT has no jurisdiction in this behalf having regard to the provisions contained in Section 11 of TRAI Act.  It, moreover, does not contain any revenue generating provision.   The Central Government issued the aforementioned instructions which were found to be necessary primarily for safeguarding the security of the country.  It did not and could not contain a penal clause.

 

30.     TRAI also having found the necessity of regulating such calls, by a letter dated 24.11.2003 addressed to the respondent with a copy to the petitioner (it is expected that other service providers  were also notified) rendered as advice not to tamper with CLI of any calls and not to offer any calls without CLI unless it is with CLI records. It was furthermore advised that in case any call is received by any service provider without CLI, the same may be rejected. 

 

We may at this juncture also notice the instructions issued by the Authority dated 24.11.2003.

 

31.     The instructions issued by the authority in terms of letter dated 24.11.2003 was applicable to all the players in the field.   Thus, even the respondent  was required to reject the calls if it did not disclose the requisites of the CLI.

 

32.     TRAI yet again by a circular dated 20.01.2004 addressed to the respondent, a copy whereof was sent also to the petitioner (presumably to the other service providers also) emphasized the requirements to deal with the non-CLI calls, clause (b) whereof reads as under:

“(b)      In para 9 of the letter it is provided that call without CLI  if any may be rejected by the termination access provider at all POIs other than the POIs meant for termination of International calls.    At the same time para 11 of the letter says that calls received by BSNL without CLI shall be charged at the highest level as for ISD calls.  TRAI has already issued a Direction on 24.11.2003 to all service providers as to not to tamper with the CLI and not to offer any call without CLI unless it involves CLIR and in case any call is received without CLI, the same may be rejected.  As regard ILD calls the directions calls on the ILDOs to insert their code and the code of the country from which the call is coming, in case all is received without CLI.  BSNL decision to accept calls without CLI and charging at the highest slab rate is against TRAI direction.    We are separately checking with the operators the implementation of TRAI directions.”

 

(underlining is ours)

 

33.     The respondent was asked to take urgent action to implement CDR based billing in their network.

 

34.     Clause 11 of the circular letter dated 28.01.2004 was, thus, against the direction of TRAI.  It does not, in our opinion, lie in the mouth of the respondent to contend that such a direction were issued by TRAI to the respondent.

          We, however, hasten to add that the matter would be a different one or/and from the day on which an agreement to that effect was entered into.

 

Amended Agreement and the Circulars

 

35.     For determining the issue involved herein; it is necessary to consider the effect of the agreement as amended and the circulars issued by the respondent.  The petitioner protested against the unilateral action of the respondent in terms of its letter dated 27.08.2004 upon bringing to its notice, the provision of the interconnect agreement executed by the parties, and stating:

 

“As you are well aware, the aforesaid circular was made applicable to all operators with effect from February 01, 2004 (0000 hrs i.e. midnight of 31st January– 01st February 2004), regardless of whether the individual operators including ourselves accepted the same.   Please note that we have already written to you in this connection, recommending you to amend this circular as directed by TRAI vide its letter bearing F.No. 409-16/2003 FN dated 20th January 2004.

 

However, the aforesaid circular, without any amendment, was incorporated as a schedule to the interconnect agreements /addenda, which was required to be signed by all Unified Access Service Providers, without any scope for negotiations of its terms.  Therefore, the attachment of the aforesaid circular as part of the interconnect agreements / addenda should not be construed as our acceptance to the terms contained therein.   Our recommendation for correcting the anomalies in the circular so as to make it compliant with the directions of the TRAI (vide letter dated January 20,2004) continue to remain unattended.

 

To summarise, we would like to once again submit that the incorporation of the said circular in the addenda vide schedule I and appendices A to D should not be construed as our having withdrawn our concerns/requests for correcting the anomalies in the aforesaid circular as have also been pointed out by the Regulator vide its letter dated January 20, 2004.  Therefore, all our concerns/issues with respect to both the IUC regimes continue to subsist.”

 

36.     We have noticed heretobefore that the petitioner had two licences; one for providing mobile services and another for basic operations.  It migrated to Unified Access Licence, which was offered to it and in July 2004 , a new licence agreement was executed on or about 21.07.2004.  An addenda to the main interconnect agreement was inserted.   The preamble of the said agreement as also clause 1 thereof clearly show that it is prospective in nature (unlike some other agreements), as the same was to come into force from the date of execution thereof. 

 

37.     By reason of the said addenda only, which was inserted on 21.07.2004 for the first time ; original clause 6.4.6 was substituted by the following :

 

“6.4.6. Unauthorised calls i.e. calls other than specified for that trunk group if detected, for which the applicable IUC is higher than the IUC applicable for calls prescribed in that trunk group, then BSNL shall be free to charge the UASLs the higher IUC, as applicable for unauthorised call, for all the calls recorded on these ports from the date of provisioning of that POI or for the preceding two months whichever is less.  In addition, BSNL shall also have the right for taking other legal actions including disconnection of POIs or temporary suspension of the interconnection arrangements  under misuse.  In case the BSNL wishes to disconnect the POI, it shall give a one – week notice to UASL.  If the unauthorised routing of calls to BSNL is not removed within one week, BSNL shall disconnect the POI.”

 

38.     Apart from the fact that the said ‘Addenda’, by reason whereof it became part of the agreement being prospective in operation, the conditions precedent specified therein were required to be fulfilled i.e. :

(i)                The call must be delivered in a wrong trunk group.

(ii)             Local calls if handed over to the STD/ISD port, the same would not apply but converse is true.

(iii)           Calls must attract higher I.U.C Charges.

 

39.     This Tribunal while considering a matter relating to levy of roaming charges by the respondent being Appeal No.14 of 2006 ( BSNL Vs TRAI ) stated the legal position, thus:

“6.     The appellant’s case for revenue sharing is based on an alleged provision for this purpose in the interconnect agreements which the appellant claims to have with the private operators.  The onus lies on BSNL to show that the Agreement contains such a clause.  We have noticed above that the learned counsel for appellant was unable to point out any specific clause in the agreements regarding revenue sharing.  Clauses 2.1.5.1 and 2.1.5.2 quoted above do not contain any such provision.  The appellant has tried to fill this gap by drawing attention to a Schedule to the agreement and then to an Appendix to the Schedule to the agreement.  The preamble to the Schedule claims that the schedule is as per the IUC Regulations. The Schedule has nothing on revenue sharing.  It may be pointed out here that this is admitted case of the parties that the IUC Regulations are totally silent on revenue sharing.  The Schedule contains an Appendix and in a table to the Appendix the concept of revenue sharing has been introduced.  The respondents challenged the manner in which revenue sharing is sought to be introduced.  They do not deny having signed the agreements but they plead duress in this behalf saying that they had no alternative but to sign agreements otherwise they would not have been able to function because the BSNL was threatening to disconnect the service to them.   We are unable to persuade ourselves to approve the manner in which the appellant has tried to introduce revenue sharing in the mutually arrived interconnect agreements.  BSNL being a Government undertaking should have displayed a fair and honest conduct and such crucial clause ought to have found place in the main body of the agreement.  Revenue sharing is fundamental issue for both the parties having significant financial repercussion.  It should have formed part of the main agreement.  The manner in which it has been inserted in the Appendix to the Schedule to agreement gives credence to the argument of the respondent that it has been surreptitiously introduced in the Appendix to the Schedule to agreement.”  (Emphasis supplied)

 

40.     TRAI amended the said regulations and notified the same on 06.01.2005.  It came into force on and from 01.02.2005.   The respondent by reason of a purported implementation circular dated 29.01.2005, (although the said regulations did not contain levy of any charge), stated the following:

 

          “11.   The CLI based barring facility has been activated by BSNL at the POIs wherever technically feasible to ensure that the traffic handed over to BSNL is in the appropriate trunk groups only.    Wherever, it is technically not feasible to activate CLI based barring, periodic monitoring of the incoming trunk groups shall be done by BSNL to ensure this objective.    In case of wrongly routed calls IUC shall be charged as below :

 

(a)              Unauthorised calls i.e. calls other than specified for that trunk group if detected, for which the applicable IUC (including ADC) is higher than the IUC (including ADC) applicable for calls prescribed in that trunk group,  then BSNL shall charge the concerned private operator the highest applicable IUC (including ADC), as applicable for such unathorised calls, for all the calls recorded on this trunk group from the date of provisioning of that POI or for the preceding two months whichever is less.

(b)             Wherever it is technically not feasible to activate CLI based barring, the calls received by BSNL without CLI or modified/tampered CLI from concerned private operator, shall be charged the IUC applicable for the highest slab (i.e. as for ISD calls including ADC applicable for ISD calls) for all the calls recorded on this trunk group from the date of provisioning of that POI or for the preceding two months, whichever is less.”

 

41.     The schedule appended to the said addenda, moreover, contained a clause being clause 10, which reads as under :

 

          “10.   The CLI based barring facility shall be activated at the POIs wherever technically feasible to ensure that the traffic handed over to BSNL is in the appropriate trunk groups only.  Wherever it is technically not feasible to activate CLI based barring, period monitoring of the incoming trunk group shall be done by BSNL to ensure this objective.   The calls received without CLI by BSNL from UASL shall be charged at the highest slab i.e. as for ISD calls.  In case such calls are received by BSNL on trunk group not meant for such calls then all the traffic received on such trunk group for that month/billing cycle shall be charged at the rates applicable for IUC of incoming ISD calls.”

 

42.     The respondent, thereafter, came out with another addenda to the agreement which was to be made effective from 19.07.2005 as is evident from the preamble thereof as also clause (1) thereof.  

 

43.     Clause 6.4.6 was inserted for the purpose of direct connectivity in terms of the said addenda dated 19.07.2005.  It is almost analogous to paragraph 11 of the circular dated 28.01.2004. 

 

44.     It reads as under:

 

          “6.4.6          WRONGLY ROUTED CALLS

 

(a)              Unauthorised calls i.e. calls other than specified for that trunk group if detected, for which the applicable IUC is higher than the IUC applicable for calls prescribed in that trunk group, then BSNL shall charge the UASL the highest applicable IUC, as applicable for such unauthorised calls, for all the calls recorded on this trunk group from the date of provisioning of that POI or for the preceding two months whichever is less.

(b)             The CLI based barring facility shall be activated at the POIs wherever technically feasible to ensure that the traffic handed over to BSNL is in the appropriate trunk groups only.  Wherever, it is technically not feasible to activate CLI based barring, periodic monitoring of the incoming trunk groups shall be done by BSNL without CLI or modified/tampered CLI from UASL shall be charged at the highest slab i.e. as for STD calls.  In case such calls are received by BSNL on any trunk group, then all the calls recorded on this trunk group shall be charged at the rates applicable for IUC of incoming ISD calls from the date of provisioning of that POI or for the preceding two months, whichever is less.

(c)              When CDR based billing is introduced in BSNL’s network some of the trunk groups shall be merged.  In such cases also, in case unauthorised or incoming international calls, without CLI call, call with tampered CLI is handed over to BSNL at the merged trunk group, then BSNL shall charge the UASL the highest applicable IUC, as prescribed in clauses 6.4.4. (a) above for unauthorised calls & 6.4.4 (b) above for incoming international call, without CLI call, call with tampered CLi, for all calls recorded on this merged trunk group from the date of provisioning of that POI or for the preceding two months whichever is less.

(d)             In addition, BSNL shall also have the right for taking other legal actions including disconnection of POIs or temporary suspension of the interconnection arrangements under misuse.”

 

45.     Schedule I appended to the said agreement provides for interconnection IUC charges similar to the provision of clause 11 was inserted therein.

 

46.     Clause 6.4.6 appended to the Addenda provides for a drastic civil consequence.  It is in a nature of the penal provision. There are some pre-conditions of its applicability.  They are as under:

 

(i)                Delivery of call at wrong trunk group and / or the local call if handed over to the ISD port. 

(ii)             In that event higher tariff provided for in the IUC regulation would be attracted.

(iii)           How and in what manner the petitioner can be said to have incurred such penal consequence or civil consequence, was for the respondent to show. 

(iv)           The applicable IUC in respect of unauthorized calls must be higher than IUC applicable for calls prescribed in that trunk group which would mean that finding of fact has to be arrived at that the IUC applicable pertains to one trunk group of the calls received in another for which the IUC is lesser than the IUC prescribed therein.

 

47.     Clause 11 has thus, an enormous impact.  It is also prospective in nature.  The   BSNL’s circular dated 29.01.2005 must also be held to be prospective and not retrospective in operation.  

 

48.     The conditions precedent therefor were required to be satisfied.  By its very nature the provision should be held to be a penal one as it speaks of a modified or tampered call which would mean a conscious act on the part of the private party, provided the same is applicable.  

 

CIRCULAR OF 2005 – EFFECT OF:

 

49.     Let us now consider the effect of the circular dated 19.07.2005.

 

50.     Clause 11 of the schedule or para 6.4.6 of the agreement did not contemplate that even for a mere technical problem, the penal clause would be attracted.  The demand could be imposed by the respondent only if an incorrect CLI was generated namely modified / tampered / non-CLI. One of the questions which arises for consideration is as to whether the addenda inserted in the agreement and / or aforementioned circular will have a prospective operation.  In our opinion the answer thereto should be rendered in the negative.

 

51.     The respondent, however, seeks to give retrospective effect to the said circular in terms of an internal letter dated 13.06.2005, stating as under:

 

          “2.     Various reasons for handover of such non-CLI or invalid/incomplete CLI calls have reported.  These reasons may be due to calls originating from mobile without SIM card, transient faults in the switch, software version signalling problem, non-recognition of CLI by exchanges, lack of capability to analyse all digits by some exchanges, operator assisted trunk call booking non-CLI calls originate by BSNL network and meant for private operators between which is in turn forwarded back to BSNL network due to activation of call forwarding feature by private operators subscribers, roaming calls forwarded cases wherein non-CLI or invalid/incomplete CLI calls meant for cellular subscribers roaming in other services area/networks were routed via BSNL Tax etc. In all such cases where it is sufficiently established by concerned BSNL field units that the reasons for handover of non-CLI, invalid / incomplete of CLI of incoming ISD calls at POI, and where the private operators give an undertaking that call forwarding to BSNL network has been barred from their network, in all such cases which have come to notice as well as cases which come to notice henceforth shall be settled as prescribed below.”

 

 

52.     In law a circular letter providing for any fiscal liability cannot be given retrospective effect. No plea can be raised that the circular letter allegedly being for the benefit for the private operator should be treated to be retrospective in operation.

 

53.     Let us now examine the legal effect of the circulars.

 

54.     Licenses are granted by the Union of India as holder of special privilege under ‘the 1885 Act’.

 

55.     After coming into force of the Telecom Regulatory Authority of India Act, 1997 (The Act), even the Department of Telecommunication has no jurisdiction to lay down any new terms and conditions in respect of an Interconnect Agreement.  TRAI, as noticed heretobefore, has framed three Interconnection Regulations, commonly known as IUC-I, IUC-II and IUC-III.

         

56.     The said Regulations, having been framed by the Authority in exercise of its powers conferred by Section 36 of the Act, pertain to the nature of Subordinate Legislation.  It has the force of a Statute.  They became enforceable from the date they came into force.  All the players in the field including the respondent are bound thereby. 

         

57.     The respondent although is the successor of the DOT and constituted by a Parliamentary Act is not a repository of any statutory power.

         

58.     It is not a delegatee of TRAI.  In fact, TRAI has no such power to delegate its powers and functions in terms of the provisions of the said Act or otherwise.

 

          The Circular letters issued by the respondent, therefore by themselves, have no statutory force. 

         

          Some circulars, which are for internal use, however, would be binding on the subordinate officers.  They cannot ignore the same. 

         

59.     If any circular letter has been issued by the respondent directing its subordinate officers to do any particular act in a particular manner, they should ordinarily be complied with.  Strong reasons are required to be assigned in case of non-implementation thereof.

         

60.     However, the other operators are not bound thereby.

 

61.     It is, however, stated at the Bar that BSNL was the only authority to issue implementation circulars.

 

          We do not find any legal force therein.  Nor could any statutory source therefor was pointed out.

 

          It is, furthermore,  difficult for us to agree to the submission that in the name of issuing such circulars, BSNL is entitled to not only state the effect of such regulations, it can lay down new terms and conditions and seek to cover such areas which were not touched by the Authority.

         

62.     Mr. Maninder Singh urged that BSNL can even refer back same matter to the Authority if it is not in a position to implement the same. 

         

          Reference in this connection was made to its representations to the Authority as regards its difficulties in raising bills on the CDR platform.

         

          Being wholly unnecessary, we as at present advised do not propose to dwell on the subject.  Suffice, however, it to state that it is one thing to say that an operator seeks exemption from the Authority from the purview of some regulatory regime, but it would be wholly a different thing to say that it has the requisite power to fill up the gap. A regulation validly made may lay down new terms and conditions on the service providers and create new rights and liabilities.   BSNL as a service provider at its sweet will cannot refuse to comply with a statutory regulation.

          If such a power is conceded to the respondent, the provisions of the Act and the regulations framed thereunder shall lose all their efficacies.

         

          A statutory body without any statutory power vested in it by no stretch of imagination can become a super legislator.

 

63.     Even, thereby, the concept of level playing field would lose all its meaning.  In such an event, the equality clause contained in Art. 14 of the Constitution of India cannot be given effect to.      If in the eyes of law, all are equal, BSNL cannot be an exception thereto.

         

We hope and trust that in future, TRAI, if not already done, shall take due care in this behalf and shall publish its regulations in the manner known to law and not through another player in the field.

         

64.     Paragraph 11 of the Circular dated 28.1.04 issued by the respondent or any other clause thereof whereby any fiscal liability is imposed on another operator having no legal basis cannot be given effect to, far less become binding on other private operators and that too with retrospective effect.

         

          There cannot, thus, be any doubt whatsoever that enforcement of Paragraph 11 of the Circular letter could not have been enforced until it became a part of the Contract in terms of the ‘Addenda’.

         

65.     We have not gone into the validity of clause 6.4.6 being not in question.

         

          We have, however,  no hesitation to hold that all the circulars have only prospective operation.

 

          The respondent, therefore, could resort to the said provision only in terms of agreement and not on the basis of the Circulars or prior to the date of coming into force of the said agreement.

         

66.     The period in question during which, the alleged violations have taken place, being  May, 2003 to June 2005, i.e., much prior to the insertion of Clause 6.4.6 in the contract, the impugned demand is wholly  unsustainable.

 

LETTERS OF SHIMLA CIRCLE OF THE PETITIONER

67.     Mr. Maninder Singh has referred to a few letters issued by the Shimla Circle of the petitioner to contend that not  only it had acted upon the circulars issued by the respondent but, in fact, expressed its hope that the same shall be given effect to from May, 2003.

         

We could have considered the effect of those letters at some details to show that to a great extent, they have been referred out of context by the respondent, but we desist ourselves from doing so as we are firmly of the opinion that enforcement of a contract being required to be done on contract to contract basis, the same would depend upon the terms of licenses in respect of different Circles; enforcement of Clause 6.4.6 of  one contract will have nothing to do with the enforcement of another.

 

68.     Admission of a liability, if any, must be kept confined to the demand in question and not beyond the same.

         

          A stand, thus, taken by another Circle of the petitioner cannot, in our considered opinion, be held to be binding on it in respect of all the Circles.

 

LEGALITY ASPECT :

 

 

69.     Even otherwise, by reason of such unilateral circular, bilateral agreement cannot be amended.  

 

          It has been so held by Supreme Court of India in BSNL Vs BPL Mobile Services Limited 2008(13) SCC 597 in the following terms:

“25. In view of the aforementioned law laid down by this Court, there cannot be any doubt whatsoever that the circular letters cannot ipso facto be given effect to unless they become part of the contract. We will assume that some of the respondents knew thereabout. We will assume that in one of the meetings, they referred to the said circulars. But, that would not mean that they are bound thereby. Apart from the fact that a finding of fact has been arrived at by the TDSAT that the said circular letters were not within the knowledge of the respondents herein, even assuming that they were so, they would not prevail over the public documents which are the brochures, commercial information and the tariffs.

26. If the parties were ad idem as regards terms of the contract, any change in the tariff could not have been made unilaterally. Any novation in the contract was required to be done on the same terms as are required for entering into a valid and concluded contract. Such an exercise having not been resorted to, we are of the opinion that no interference with the impugned judgment is called for.

 

It was furthermore observed :

31. We will assume that the contention of the learned Additional Solicitor General that the internal circulars are issued for their application by the local officers. If they have committed a mistake, the same could be rectified.

32. Indisputably, mistakes can be rectified. Mistake may occur in entering into a contract. In the latter case, the mistake must be made known. If by reason of a rectification of mistake, except in some exceptional cases, as for example, where it is apparent on the face of the record, mistake cannot be rectified unilaterally. The parties who that would suffer civil consequences by reason of such act of rectification of mistake must be given due notice. Principles of natural justice are required to be complied with. The fact that there was no mistake apparent on the face of the records is borne out by the fact that even the officers wanted clarification from higher officers. The mistake, if any, was sought to be rectified after a long period; at least after a period of three years. When a mistake is not rectified for a long period, the same, in law, may not be treated to be one.

33. Furthermore, what would be the effect of such a mistake must be determined having regard to the provisions of the Contract Act.

34. It is not a case where the contract is sought to be terminated on the ground of a mistake. Only a higher rate is sought to be enforced on the basis of internal circulars.”

 

          To the same effect is the decision of this Tribunal, in M/s Reliance Infocomm Limited Vs. Bharat Sanchar Nigam Limited being Petition No.224 of 2006 disposed of on 05.05.2009 which is in the following terms:

“10.   The effect of the above Circular is that the BSNL’s records shall be treated as final. As can be seen,  provisions of this Circular are very different from the provisions of clause 7.6.3 of the Agreement dated 25.1.2002 extracted in para 6 above.  The argument of the counsel for Respondent is that this has been issued since BSNL being a government service provider cannot rely upon any data and records other than its own so as to ensure that there is no loss to the public exchequer.  He has also stated that the clarification issued in the Circular would also be useful to the private operators in as much as they do not have to spend valuable time on synchronizing their own equipment with that of the BSNL and also can save on the time required for establishing the points of interconnection.  We are unable to agree with this contention of the counsel for Respondent.  Firstly, BSNL is a Public Sector Undertaking and is as much bound by Agreements signed as any other commercial undertaking.  There is no concept of a Government service provider.  Secondly, the argument that it is for the benefit of private operators is also not tenable.  If parties have to depend only on the data and records of the BSNL, it is all the more reason why they should synchronise their equipment accurately with that of BSNL.  Thirdly, there is also no evidence that there is either request from or an agreement with the private operators, let alone the Petitioner on this aspect.

 

11.     The contention of the Respondent is that these Circulars have been issued pursuant to a request by the Petitioner for clarification and that these have been issued after an Agreement has been arrived at.  We do not find any support for this argument.  In any case, we do not wish to get into the correctness or otherwise of issuing clarification.  Even if a clarification has been issued pursuant to an understanding, it can only serve as a basis for Agreements posterior to the date of such understanding.  Any application of such understanding, even if it is mutual, will have to be signed by both the parties as addendum to the Agreement if it has to apply to existing Agreements.  Written Agreement is supreme and can only be altered by another Agreement signed between both the parties, as an addendum to the earlier Agreement.  Agreements cannot be amended by either party by issuing Circulars to their field offices.  In this case, we notice that copies of these Circulars were not even marked to the Petitioner even though the first Circular refers to a representation from the Petitioner. 

 

12.     We accordingly hold that the Circulars dated 12.6.2006 and 24.7.2006 issued by the Respondent will have no application whatsoever to any Agreement unless it has been specifically agreed between the parties that the Agreements entered into prior to the date of these Circulars are to be amended suitably.”

 

 

 

 

 

DEMAND – VALIDITY OF

 

70.     Applicability of the penal clause must, thus, be considered having regard to the findings aforementioned. The petitioner was not charged for handing over of calls in a wrong trunk group as would be evident from the various correspondences.

 

71.     The respondent had constituted a committee pursuant to the representation of the petitioner dated 21.04.2006.  It submitted a report.  The report of the committee, however, was not supplied to the petitioner. 

 

72.     The respondent rejected the said representation of the petitioner.  

 

          Prior thereto, the petitioner was not given an opportunity of hearing.  The respondent did not state in its order that the offer to stimulate by the petitioner was an impossible proposition and was raised on extraneous consideration. It even did not reject nor could it reject the certificate of Siemens.

 

73.     The respondent raised a contention that in paragraph 2 of its letter dated 25.03.2008 while rejecting the representation of the petitioner that the reason for routing calls with LAC less than 10 digits had not been brought to its notice.  It was an irrelevant consideration being not required in law, it did not respond to the petitioner’s contention with regard to the certificate of Siemens. According to Siemens such switches have been delivered to other basic services operators as well.  

 

74.     The contract did not suggest nor any legal provision has been brought to our notice to show that in regard to a defective switch box, it was obligatory on the part of the petitioner to inform the respondent before installation thereof. It is possible that the defect in the EPBAX box could come to the notice of the petitioner at a later date having regard to the impugned bills raised by the respondent. By reason of said letter curiously a legal fiction has been raised for which there was no legal basis.    Legal fiction cannot be raised unilaterally. It may be raised either in terms of the statutory provision or an agreement.

 

 

75.     We have noticed heretobefore that the petitioner made another representation wherewith the certificate issued by Siemens was annexed.  In response to the representation of the petitioner dated 15.04.2008, the respondent gave the benefit to the clause of 0.5% non-CLI calls to the petitioner. It did not arrive at a finding that there had been any deliberate violation on its part. It, however, painted all the calls alleged to be invalid with the same brush although a non-CLI and an invalid CLI call stand differently, as also the calls made in the wrong trunk group or otherwise modified or tampered.

 

76.     It is not the case of the respondent that the calls were international in nature.  It is also not contended that there has been violation of the trunk group restrictions. No fraud or malice in fact has been alleged against the petitioner.  Besides the fact that the respondent in its letter dated 18.02.2006 stated that the trunk group violations have been noticed during the period in question, no separate bill was raised.  Why despite making such allegations no separate bill was raised in respect thereof as the same would constitute a serious violation on the part of the petitioner, was a matter for the respondent to show. We have, thus, no other option but to presume that the said allegations had wrongly been made.

 

77.     In absence of any finding unlike the case of some other service provider namely, Reliance Infocomm Ltd. to which, reference has been made to by Mr. Maninder Singh, there is nothing on record to show that the international calls were put to the port of BSNL as local calls.  It is accepted that whereas IUC in respect of a local call would be about 30 paise ; that of an international call would be about Rs. 4.65.

 

78.     A contention has been raised that clause 6.4.6 of the agreement is not penal in nature but only provides for a strict civil liability.   What would constitute penalty depends upon a large number of factors. 

 

79.     A party to an agreement if called upon to pay a huge amount, only because he had made some default would itself constitute penalty.

 

80.     A ‘penal provision’ in Taxman’s Law Dictionary by D.P.Mittal at page 807, is stated to be as under:

 

 

          “The word “penalty” is a word of wide significance.  Sometimes it means recovery of an amount as a penal measure even in a civil proceeding.   An exaction which is not of compensatory character is also termed as penalty though it is not being recovered pursuant to an order finding the penalty though it is not being recovered pursuant to an order finding the person guilty of crime.”

 

 

81.     In Stroud’s Judicial Dictionary 4th Edition page no. 1973 and 1974 it is stated:

 

          “A ‘penalty’ is a contract, generally means not a sum to be recovered eo nominee, but a provision for securing the due performance of the contract ; secus, of “Liquidated Damages”.”

 

 

1.       In the case of John D. Medak & Charles F. Medak V. Anton Hekimian and Alaxy Hekimian 241 Or.38, 404 P. 2d 203

 

“penalty” is for purpose of securing performance of contract.

 

 

2.       King Motors V. Delfino, 136 Conn. 496, 72 A 2d 233 (1950), If however, the provision was inserted for the purpose of deterring the defendant from breaching the contract and of penalising him or her for doing so instead of specifying a sum on which the parties agreed in good faith as representing the damages which would ensue from breach.       

 

 

82.     In Stroud’s Judicial Dictionary of Words and Phrases, 6th Edition Vol 2, 2000 at page no. 1908, it is stated:

 

“Penalty – The civil liability arising from the breach of a statutory duty is of a wholly different nature from a penalty for such a breach.  The former gives no cause of action unless damage to a third party follows from it, and then, in general gives ground for an action for the amount of such damage at the suit of such third parties.  But penalties  for breaches of statutory duties apply whether damage has been caused or not. (per Fletcher Moulton L.J.  in David V. Britannia Merthyr Coal Co. (1909) 2 K.B.  149 (sub nom. Britannic Merthyr Coal Co. V. David(1910) A.C.”

 

 

83.     West’s Legal Thesaurus Dictionary, 2006 Thomson Learning by William Statsky, states :

 

          “Penalty, n. Punishment imposed by law(the penalty of imprisonment), sanction, sentence, loss, forfeiture, disciplinary action, castigation, handicap, retribution, suffering, amercement, reprisal, deprivation, penance, retaliation,  chastisement, condemnation, pain; consequence, fruit, result, cost, payment.  See also punishment, discipline(2). Ant. Commendation.  References supplied.

These all arise out of civil wrong.

 

Penalty clause –  A provision in a clause or law that calls for the imposition of a penalty instead of actual damages.”

 

 

84.     In Bouvier’s Law Dictionary, Rawle’s Third Revision Vol 3–page 2557 states:

 

          “A clause in an agreement, by which the obligor agrees to pay a certain sum of money  if he shall fail to fulfil the contract contained in another clause of the same agreement.

 

          A penal obligation differs from an alternative obligation, for the latter is but one in its essence; while a penalty always includes two distinct engagements, and when the first is fulfilled the second is void.   When a breach has taken place, the obligor has his option to require the fulfilment of the first obligation, or the payment of the penalty, in those cases which cannot be relieved in equity, when the penalty is considered as liquidated damages.  Dalloz Dict. Obligation avec Clause Penale.”

 

 

 

85.     Black’s Law Dictionary (8th Edn. 2004) states :

 

          “Penalty clause. A contractual provision that assesses against a defaulting party an excessive monetary charge unrelated to actual harm.  Penalty clauses are generally unenforceable – often shortened to penalty – also termed penal clause Cf. LIQUIDATED DAMAGES CLAUSE; LIMITATION-OF-REMEDIES CLAUSE. (Cases: Damages 76, 80, C.J.S. Damages 176, 185-187, 190, 194)

         

 

          It is not frequently happened that contract provide for what is to happen in the event of a breach by the parties, or by one of them.   Such provisions may be perfectly simple attempts to avoid future disputes, and to quantify the probable amount of any loss.  That is unobjectionable.  But sometimes clauses of this kind are not designed to quantify the amount of the probable loss, but are designed to terrorize, or frighten, the party into performance.  For example, a contract may provide that the promisor is to pay ₤5 on a certain event, but if he fails to do so, he must then pay ₤500.  Now a clause of that kind is called a penalty clause by lawyers, and for several hundred years it has been the law that such promises cannot be enforced.  The standard justification for the law here is that it is unfair and unconscionable to enforce clauses which are designed to act in terrorem.”

 

          Penalty (2) An extra charge against a party who violates a contractual provision.”

 

(underlining is ours)

 

 

86.     In Deepa Bhargava and Anr Vs. Mahesh Bhargava and Ors. (2009) 2 SCC 294, the Supreme Court of India while referring to its earlier decision in Sova Ray and Anr V Gostha Gopal Dey (1988) 3 SCR 287, observed that there exists a distinction between the penalty and declaration of special advantage. It was noticed that a penalty is an elastic term with many different shades of meaning involving an idea of penalty.

 

87.     No machinery provision has been laid down for determination of the actual amount of compensation.  It is also not a case where a penal provision has been laid down for breach of contract and in particular a specific sum was fixed therefor. We would not, in absence of any challenge to the validity of clause 6.4.6, propose to go into the question as to whether the same, in a situation of this nature legally enforceable or not.  We would assume that in absence of any other procedure laid down under any law for the time being in force, clause 6.4.6 is capable of being enforced; but we have no doubt in our opinion that conditions precedent thereto must be fulfilled.

 

88.     We may refer to a well-known decision of the Supreme Court of India in Fateh Chand Vs. Balkishan Das reported in AIR 1963 SC 1405 wherein tracing the history of Section 74 of the Indian Contract Act, 1872 vis-à-vis the equitable remedies available to a party in a case where earnest money was sought to be forfeited; it was observed that unlike common law the Indian legislature  has provided uniform principles applicable to all stipulation naming amounts to be paid in case of breach of, and stipulation by way of penalty.

 It was opined :

 

“The jurisdiction of the court is not determined by the accidental circumstance of the party in default being a plaintiff or a defendant in a suit. Use of the expression "to receive from the party who has broken the contract" does not predicate that the jurisdiction of the court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract. The court has to adjudge in every case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach.”

 

Fateh Chand (supra) was followed in V.K. Ashokan Vs. Assistant Excise Commissioner & Ors. (JT 2009 (5) SC 104) 

 

89.     From the ratio laid down by the Apex Court, it appears that where payment of any damages / compensation being not immediate/automatic; only because a machinery has been provided to compute the same, it in all situations would only make the amount of compensation payable for breach of contract and would constitute only a civil liability and not a penalty.  

 

90.     Section 74 of the Indian Contract Act emphasizes that in case of breach of contract, the party complaining of the  breach is entitled to receive reasonable amount of compensation whether or not,  actual loss is proved to have been caused by such breach or not.  Therefore, the emphasise is on payability of reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and party would only be entitled to reasonable amount of compensation for the loss suffered.  But if the amount of compensation named in the contract for such breach is genuine pre estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him.   See Oil & Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd. reported in AIR2003SC2629.

 

91.     In our opinion clause 6.4.6. provides at least for civil consequence, if not evil consequences.  In either case the principles of natural justice are required to be complied with. The petitioner categorically stated that it would be in a position to explain its case, if a personal hearing is granted. There was, in our opinion absolutely no reason to deny it from that opportunity.   The contract did not exclude application on the principles of natural justice.  The computation of damages in this case was not automatic nor a fixed sum was named.   Computation of the amount of damage would depend upon fulfilment of certain conditions wherefor factual foundations were required to be laid down before the penal provision could be invoked.

 

92.     In this case for determining the amount of compensation, it was, thus, obligatory on the part of the respondent to give an opportunity of hearing to the petitioner.

 

          In Rajesh Kumar & Ors v. Dy. CIT & ors. [JT 2006(10) SC 76 : 2007 (2) SCC 181], it was held:

         

          “15.   Effect of civil consequences arising out of determination of lis under a statute is stated in State of Orissa v. Dr. (Miss) Binapani Dei and Ors.  [1967 (2) SCR 625].  It is an authority for the proposition when by reason of an action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice are required to be followed.  In such an event, although no express provision is laid down in this behalf compliance of principles of natural justice would be implicit.  In case of denial of principles of natural justice in a statute, the same may also be held ultra vires Article 14 of the Constitution.”

 

          (See also V.K. Ashokan v. Asstt. Excise Commnr. & Ors. [JT 2009(5) SC 104].

 

 

 

93.     It is also interesting to note that respondent by its letter dated 06.10.2005 demanded a sum of Rs. 59,40,94,834/- .  Such demand was made by the respondent in terms of its letter dated 20.10.2005 to Rs. 78,31,15,463/-.  Even at that stage, neither any reason was assigned nor any hearing was given.  Yet again the demand was brought down to Rs. 76,77,041,940/- as would appear from the respondent’s letter dated 28.03.2008.   Curiously enough, it was further brought down to Rs. 66,30,12,579/-  by the respondent in terms of its letter dated 28.04.2008.

 

94.     Some reasons ought to have been assigned by way of justification by the respondent for the said inconsistent demands. Furthermore, as it appears that even the certificate of the supplier of the said EPBAX Switch Box was furnished having been annexed to the representation of the petitioner which had pointed out various technical reasons for non-receipt of CLI at the end of the respondent, which had not been considered by the respondent despite the circular dated 13.06.2005, purported to be on the basis of the report of its AT Wing and that too without giving an opportunity to the petitioner to make the stimulation exercise as was sought for by it. 

 

95.     Clause 6.4.6 must be invoked having regard to the provisions contained in the circular letter of the respondent dated 13.06.2005.   It is evident that the said provision is required to be given effect to in letter and spirit, by reason whereof it was obligatory on the part of the respondent to consider each and every case individually with reference to representation of the service provider. 

 

96.     The respondent in determining the issues raised by basic service providers could not have ignored to consider:

(i)                That it cannot take advantage of its own wrong.  See Chinthamani Ammal Vs. Nandagopal Gounder and Anr. (2007)4SCC163, and Raja Ram Pal Vs.  The Hon'ble Speaker, Lok Sabha and Ors. (2007)3SCC184.

(ii)             Mechanical failure which has sufficiently been explained and / or the stimulation in respect whereof sought for to show exact number calls which according to the respondent was having invalid CLI etc.

(iii)           The practice prevailing at that point of time in regard to transfer of conference calls as direction in that behalf was inadequate.

(iv)           The number of calls at least in some respects did not exceed 0.5% of the calls.

(v)             Calls were not alleged to have been routed through wrong trunk groups ; and

(vi)           Calls were not alleged to be tampered and / or modified by the service provider.

(vii)        It could not have been given effect to prior to coming into force of the agreement.

 

97.     The respondent unfortunately did not pose unto itself the right question. It took into consideration irrelevant facts not germane for arriving at a decision which would conform to its circular letter and failed to take into consideration the relevant facts ; as pointed out heretobefore,  including the certificate of ‘Siemens’.

 

98.     The impugned demand raised on the petitioner by the respondent was based on mis-direction in law and thus, cannot be sustained. 

 

99.     It is set aside accordingly. This petition, for the reasons aforementioned is allowed. The respondent shall pay and bear the cost of the petition.  Advocate’s fees assessed at Rs.1,00,000/-  only.

 

 

…….………J

(S.B. Sinha)

Chairperson

 

 

 

……………….

(G.D. Gaiha)

Member