TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL
NEW DELHI
Dated
12th February, 2010
Petition
No.138 of 2006
M/s
Archana Telecom Services Ltd.
908, Ansal
Bhawan,
16,
Kasturba Gandhi Marg,
New Delhi-110001
…Petitioner
Vs.
Union
of India
Through
the Ministry of Communications
Department
of Telecommunications
Sanchar
Bhawan
20,
Ashoka Road
New
Delhi-110 001
Department
of Telecommunications
Ministry
of Communications
Sanchar
Bhawan
20,
Ashoka Road
New
Delhi-110 001 …Respondents
BEFORE:
HON’BLE MR. JUSTICE S.B.SINHA, CHAIRPERSON
HON’BLE MR.G.D.GAIHA, MEMBER
|
For Petitioner |
: |
Mr. Jayant K. Mehta, Advocate |
|
For Respondent |
: |
Mr.
K.P.S. Kohli, Advocate for Ms.
Maneesha Dhir, Advocate |
O
R D E R
S.B. Sinha
The petitioner is aggrieved by and
dissatisfied with the encashment of the financial Bank Guarantee and
performance Bank Guarantee, furnished by the petitioner in terms of the license
agreement dated 5.12.1994 as also imposition of liquidated damages to the
extent of Rs. 5 lakhs by the respondent.
Bereft
of all unnecessary details, the fact of the matter is as follows.
2. The petitioner obtained a license from
the respondent herein for providing electronic mail service in India on
non-exclusive basis on or about 15.12.1994.
The term of license was for a period of five years.
The
license fees payable by the petitioner were as under:
|
Year |
Licence Fee |
|
1st Year |
Rs. 25 Lakhs |
|
2nd Year |
Rs. 25 Lakhs |
|
3rd Year |
Rs. 35 Lakhs |
|
4th Year |
Rs. 35 Lakhs |
|
5th Year |
Rs. 50 Lakhs |
3. In terms of the said license agreement,
performance guarantee as also financial bank guarantees were furnished by the
petitioner for a sum of Rs. 35 lakhs.
For operationalisation of the said services, the petitioner obtained
various facilities from its bankers for the purposes of mobilizations of
resources. The said services were to be
provided in five cities in the country, namely, Delhi, Bangalore, Hyderabad,
Ahmedabad and Madras.
4. Indisputably, for the aforementioned
purpose, the parties herein entered into an agreement on or about 15.12.1994 in
terms of the provisions of the Indian Telegraphs Act, 1885, the relevant
clauses whereof are as under:
“2. The
Licence is granted provisionally for a period of five years.
6. The
Licensor may at any time revoke the licence on the breach of any of the terms
and conditions therein contained or in default of payment of any consideration
payable thereunder.”
5. Five schedules were appended to the said
license.
Schedule
‘A’ provided for the definition of service Area. The licensee was to make available the
service at least in any planned service areas within 12 months of signing of the
license agreement provided for in Schedule ‘A’ thereof.
Schedule
‘B’ provided for payment of license fee, the relevant clauses whereof are as
under:
“3. The annual licence fee shall be payable in
advance every year in four quarterly instalments as follows:
(a) 1st
Quarter - 20% of annual licence fee.
(a) 2nd Quarter - 20% of annual licence fee.
(a) 3rd Quarter - 30%
of annual licence fee.
(a) 4th
Quarter - 30% of annual licence fee.
4. The licence fee for the first quarter
will be paid in two parts. The first
part of the licence fee amounting to 10% of the first year’s licence fee shall
be paid before or at the time of signing the licence agreement. The second part amounting to 10% of the first
year’s licence fee shall be paid within 30 days of signing the licence
agreement. The subsequent components
shall be paid within 10 days of the beginning of each quarter.
5. The licence fee shall accrue from the
date of signing the licence agreement.
6. For the subsequent Quarters, the
following will apply:-
(i) The licensee shall make the payment on
quarterly basis in advance, where the service is made operational at the time
of signing the licence agreement or during the first quarter of the licence.
(ii) Where the service is made operational any
time before the end of one year of licence, the licensee shall pay the licence
fee of all the previous quarters and the current quarter end of the first year
of licence.
(iii) Where the service is not made operational
before the end of first year of licence, the licensee shall pay the licence fee
for all the previous quarters and the current quarter before the end of the
first year of licence.
6. Some of the relevant clauses of the
Schedule of payment of license fee are:-
“For the second quarter of first year
of licence—
(i)
20%
of first year’s licence fee, where the service is made operational at the time
of signing the licence agreement or within the first quarter, shall be paid
within 10 days of the beginning of the second quarter.
(ii)
20%
of the first year’s licence fee, where the service is made operational during
the second quarter, shall be paid within 10 days of making the service operational.”
7. Schedule ‘C’ refers to the table of
contents, definitions, interpretations etc.
It contains a provision for payment of liquidated damages in clause 4
thereof; such clauses 4.1 and 4.2 read as under:
“4.1 The date delivery of the service stipulated
in clause 3.3 shall be deemed as the essence of the licence and the Service
must be brought into commission not later than the date specified therein. Extension will not ordinarily be given. Should, however, the Service be brought into
commission after the expiry of the licensed date of commissioning, without
prior concurrence of the licensing authority and be accepted by it, such
commissioning will not deprive the Authority of its right to recover liquidated
damages under this article. When, however,
the commissioning of the Service is effected within 15 days of the licensed
commissioning period, the Authority may accept the Services and in such cases,
the provision of the Condition 4.2 will not apply.
4.2 Should the Licensee fail to bring the Service
or any part thereof into commission within the period prescribed for the
Commissioning, the Authority shall be entitled to recover for each Service Area
Rs. 5000/- (Rupees Five Thousand) for each week of the delay or part thereof
subject to maximum Rs. One lakh for each service area. The authority may without prejudice to any of
its other rights under the licence, terminate the licence in case if the delay
in commissioning the service exceeds twenty weeks.”
8. Clause 7 provided for extension of
license in the following terms:
“7.1 The validity of this provisional licence is
for a period of five years unless terminated under Condition B. (Extension may
be granted by the Authority if requested by the Licensee for a period of Two
years at a time. The decision of the
Authority will be final in the matter.
In case the licensee does not wish to extend the licence beyond the
expiry period, he will inform the authority accordingly atleast 365 days prior
to the expiry of the licence.
7.2 The Authority reserves the right to grant
more than one licence per geographical area/service area.”
9. Clause 8 provides for termination of
license. We may notice para 8.3 which is
as follows:
“8.3 TERMINATION
FOR CONVENIENCE :
If the licensee is to surrender the licence, he shall give
a notice of 365 days. If during the
period,, the criteria of Quality of Service are not met, the bank guarantee
provided by the licensee will be invoked.”
10. The said license was to expire on
15.12.1995.
The
petitioner applied for extension of the said license by a letter dated
9.10.1995, inter alia, stating that although it had made all arrangements in
respect of finance, manpower, e-mail system and software/hardware
infrastructure in readiness, sought for extension of 20 weeks to the validity
of license.
As no
immediate response was received thereto, the petitioner by its letters dated
10.11.1995 and 13.12.1995, urged the respondent to grant extension of license
for providing e-mail services. Extension
of the license for a period of 3 months
was granted in favour of the petitioner by a letter dated 14.3.1996.
According
to the petitioner, as the extension was granted almost at the end of the
tenure, it had no other option but to ask for another extension of 3 months,
i.e., till 14.6.1996 by a letter dated 18/19.12.1995. The respondent, by a letter dated 5.1.1996
granted such extension for another 3 months, stating ----
“The
Telecom. Authority is pleased to grant further extension to the date of
commissioning of E-mail service unto 2.5.96 in continuation of three months
extension already granted, i.e., upto 14.3.96, vide this office letter of even
number dated 19.12.95. Thus, the total
extension comes to a period of 20 weeks, which is the maximum permissible limit
under the terms and conditions of the License Agreement. This extension has been granted subject to
payment of liquidated damages for the period of delay in commissioning of the
service reckoning with effect from 15.12.95 (the specified date of
commissioning) at the rate which would be intimated to you later on.
You are requested, to
intimate the progress made so far in respect of procurement and installation of
equipment etc. urgently and to commission the service within this extended
period, as further extension will not be granted.”
11. The petitioner, however, by a letter dated
2.5.1996 expressed its inability to operationalise the said services and
expressed its desire to drop the
project, raising, inter alia, the following contentions :
“6. The aforesaid resulted in a typical ‘CATCH
22’ situation since, with licence extension for only 3 months i.e., up to
14.3.96 the implementation & commissioning of the system would not have
been possible as the time given was insufficient to come out with the public
issue, allot shares to public and utilize the funds for launch of the service.
7. It was only after repeated requests
(personal visits & written letter) the license for commissioning of the
service was extended to a maximum permissible limit of 20 weeks up to 2.5.96,
vide DOT’s letter no. 845 12/93-TM dated 5.1.96.
8. By the time extension was granted in
Janrary 1996 that the share market started becoming unfavourable for the launch
of the new public issues. Accordingly
Archana’s public issue also had to be delayed till the market improves.
9. The rest, as you know, is the history
viz., announcement of elections and other financial environment factors
resulting in continued sluggish primary market for launch of public issues and
overall shortage of liquidity.
10. It may please be appreciated that inspite
of best efforts of promoters of Archana Telecom Services Ltd., the reasons for
inordinate delay to launch E-mail service were totally beyond control.
11. If DOT would have given timely extension of
licence, Archana Telecom. Services Ltd, could have launched the E-mail service
in time.
12. Under the circumstances, since, company’s
promoters have already sunk Rs. 2.35 crores in this project by virtue of :
·
Hardware and software already purchased and now
lying unused.
·
Hiring of premises in different cities &
·
Training of manpower,
we request
you to consider our case for waiving of penal clauses of the licence, by the
competent authority.”
12. The respondent, however, sought to
terminate the license by a letter dated 9.5.1996, the relevant portion whereof
reads as under:
“2. The licence agreement for operation of
E-mail services was signed and issued to you on 15.12.94. As per terms and conditions of the Licence
Agreement, the service was required to be started on or before 14.12.95. On your request, a 20 week extension was
granted to you to commission the service.
You should have commissioned the service on or before 2.5.96. You have failed to commission the service
even after the expiry of 20 weeks extension beyond stipulated 12 months from
the date of signing of licence agreement.
3. We would like to inform you that the
licence fees for the second, third and fourth quarters of the first year and
the first and the second quarters of the second years and the penal interest
for the delay in payments have not been paid.
The licence fee for second, third and fourth quarters of first year is
to be paid 10 days before the completion of 12 months of licence agreement and
for the subsequent period, the license fee is to be paid quarterly within first
10 days of each quarter.
4. You are, therefore, once again requested
to make the payments of all the outstanding licence fees alongwith penal
interest at the rate of 20% compounded monthly or part thereof within 30 days
of the issue of this letter failing which the financial bank guarantee of Rs.
25 lakhs and two performance bank guarantees of Rs. 5 lakhs each, submitted by
you, shall be forfeited and encashed.
The Licence No. 845 12/93-TM dated 15.12.94 issued to you shall also be
terminated after 90 days from the issue of this letter.”
13. However, the respondent encashed the bank
guarantees for the said sum of Rs. 35 lakhs.
The petitioner contends that having regard to the fact that the
provision for payment of license fee was made in the agreement only if certain
events were to take place and it was, thus, imperative on the part of the
respondent to acknowledge that the petitioner was to pay license fee depending
upon the ability of the licensee to recover the payment from the consumers by providing for services; the
respondent could only invoke the
liquidated damages class and not the license fee.
In any
event, the respondent -itself having terminated the license in terms of its
letter dated 9.8.1996, the impugned demand must be held to be bad in law. Our attention in this behalf has been drawn
to the evidence of Shri B.K. Singhal, a Director of the Company, who in his
evidence, inter alia, stated -
“14. However, in 1996, the capital market in the
country witnessed an unprecedented decline and this ultimately ruined the
prospect of Petitioner’s public issue.
15. The Petitioner submits that the actions on
part of the Respondents were actuated by discrimination against the
Petitioner. As a result of the actions
and omissions on part of the Licensor, not only was the Petitoner unable to
make the licensed service operational, huge amounts, which it had invested in
the project, were also lost. Moreover,
the business reputation of the Petitioner also received a heavy blow as a
result of which numerous other projects of the Petitioner also came under
shadow. Such actions on the part of the
Respondent No. 2 fundamentally altered the circumstances to the detriment of
the Petitioner. On the one hand, the
Petitioner faced the prospect of multitude of service providers and the onset
of internet services and on the other it had to face a hostile and
discriminatory treatment from the Respondent.”
14. However, it appears that the said witness,
in his cross-examination stated as under :-
“Que : Do you remember how much amount was paid
towards licence fee obligation?
Ans : It’s an old case. So far as I remember Rs. 5 lakhs were paid
towards licence fee to the respondent.
Que : Have you filed or record the progress report
mentioned in para 3.8 of the petition?
Ans : We had been filing with DOT the
progress reports of the project. I am
not in a position to say whether copies of reports have been filed on record or
not.
I deny the suggestion
that averments made in Para 7 of the affidavit dated 29.11.2007 by way of
evidence are baseless. We have filed
complete set of papers in relation to this para with SEBI.
It is correct that the
respondent granted maximum extension which was permissible under the licence to
us but this maximum came very late i.e. after e xpiry
of the one year period. Therefore, SEBI
did not accept our proposal and the banks refused to grant the sanctioned
loans.
Our raising of funds
through public issue was not a condition precedent for grant of licence to
us. But this was discussed in every
meeting with DOT officials that we are arranging the funds through public issue
and from the banks.
I do not know if DOT
granted extensions in some case beyond the maximum period allowable under the
licence.
I can produce documents
in support of averments contained in para (iii) of para 3.16 of the
petition. I do not have the same at
present with me.
Same is my answer with
respect of paras (i) and (ii) of para 3.16 of the affidavit.
My field staff used to
go for the meetings with DOT. They were
technical persons. Normally, I was not
personally attending the meetings, therefore, I cannot give names of the
officials of DOT who used to be present in the meetings.
We requested for extension much before
the expiry of one year.”
15. The respondent, however, has filed
counter-claim in the following terms:
“Paras 3.24 to 3.25 - That in response to the
averments/allegations made in the instant paras, it is submitted that the Exit
Policy is applicable only for the existing ISPs and it is not applicable for
the email service providers where the license has already been
terminated/surrendered prior to migration in internet Service Providers
license. The Migration to the Email
Service Providers was allowed by the respondent without the condition of 365
days notice. This was allowed only to
those who clear all dues of Email licence.
Licence fee outstanding
as on 15.6.96 was Rs. 2,50,000/- on 15.9.96.
Licence fee was Rs. 7,50,000/- on 15.12.96, licence fee was Rs.
7,00,000/- on 15.3.97. Licence fee was Rs. 3,73,333/- . Hence, total licence fee comes to be Rs.
20,73,333/-. The PLR is taken as per SBI
Bank rate interest of that year. The
total interest on belated payments comes to be Rs.2,58,42,513/-. The original amount to be covered by DOT was
licence fee Rs. 20,73,333/- and LD charges Rs. 5,00,000/- Hence, total comes to be Rs.25,73,333/-. The interest components on the licence fee is
Rs. 2,58,42,513/- and interest on LD is Rs. 47,22,520/-. Hence, total amount comes to be Rs.
3,31,38,366/-. Copy of Work Sheet is
filed herewith as Annexure-R7.”
16. One Mr. Subodh Saxena examined himself on
behalf of the respondent. His
deposition, however, is not of much relevance.
17. Mr. Mehta, the learned counsel appearing on
behalf of the petitioner, would submit:
(i) In view of the peculiar facts and
circumstances of the case, the license fee was not payable as the respondent
also committed breaches of contract.
(ii) It granted extension only at the last
minute and, thus, the petitioner could not complete the project.
(iii) The respondent did not take into
consideration the capital expenditure involved and the number of people
employed by the petitioner.
(iv) It also failed to take into consideration
the practical difficulties on the part of the petitioner to operationalise the
license.
(v) The respondent could only invoke the clause
for claiming liquidated damages for breach of contract and not beyond the same
and in that view of the matter, the petitioner is entitled to the reliefs
sought for herein.
(vi) For similar services, namely, ISP Service, an
exit policy having been formulated by DoT, there is no reason as to why the
same should not be made applicable in respect of the petitioner.
18. Mr. K.P.S. Kohli, learned counsel appearing
on behalf of the respondent, however, urged that in view of the provisions
contained in the license agreement, the petitioner could not have been granted
any exemption from payment of license fee.
It was
submitted that the petitioner having obtained extension of license up to 2.5.1996,
it could not have surrendered its license without giving notice of 365 days and in that view of the
matter, the respondent would be entitled to the license fee for the period
15.12.1994 to 3.5.1997, the break-up whereof is as under:
19. The license was granted to the petitioner
by the respondent in terms of the provisions of Section 4 of the Indian
Telegraph Act, 1885 which reads as under:
“4.
Exclusive privilege in respect of telegraphs, and power to grant licenses.
(1) Within [India], the Central
Government shall have exclusive privilege of establishing, maintaining and
working telegraphs:
Provided that the Central Government may grant a license, on such conditions
and in consideration of such payments as it thinks fit, to any person to
establish, maintain or work a telegraph within any part of [India]:
[Provided further that the Central Government may, by rules made under this Act
and published in the Official Gazette, permit, subject to such restrictions and
conditions as it thinks fit, the establishment, maintenance and working-
(a) of wireless
telegraphs on ships within Indian territorial waters [and on aircraft within or
above [India], or Indian territorial waters], and
(b) of telegraphs
other than wireless telegraphs within any part of [India].
(2) The Central
Government may, by notification in the Official Gazette, delegate to the
telegraph authority all or any of it its powers under the first proviso to
sub-section (1).
The exercise by the telegraph authority of any power so delegated shall be
subject to such restrictions and conditions as the Central Government may, by
the notification, think fit to impose.]”
20. The terms and conditions of the license,
therefore, could have been specified by the respondent. The validity of the license is not in
question. By reason of the provisions of
the said license, the petitioner was required to pay license fee in the
manner specified therein. It stands admitted that the petitioner has deposited only a sum of Rs. 5 lakhs towards
payment of license fee for the first quarter.
It even did not pay any amount towards the license fee for the first
year of the license.
21. The petitioner had entered into the said
agreement with its eyes wide open. It is
beyond any controversy that the petitioner had not rendered e-mail services in
any of the circles. It sought for and
was granted extension by the respondent for 20 weeks. It may be true that first extension was
granted almost immediately prior to expiry of the tenure of first year of the
period of license but it is evident from the records that the second extension
was granted promptly. The license does
not contain any provision in terms whereof even the respondent could grant
exemption to the petitioner from payment of the amount of license fee. The petitioner, therefore, in our opinion,
was bound to pay the license fees as prescribed in the license. For the period 15.12.1994 to 14.12.1995, the
petitioner was, thus, bound to pay a sum of Rs. 20 lakhs towards the license
fees. It was also liable to pay the
license fees for the next year.
22. The core question which, however, would
arise for our consideration is whether Clause 8.3 of Schedule ‘C’ would mean
that the petitioner was bound to inform the authority at least 365 days prior
to the expiry of license.
23. Clause 7.1 provides that the provisional
license was to be for a period of five years.
Payments were to be made in terms of Clause 6 of the Schedule ‘B’. Clause 8.8 provides for termination of
license. The license could be terminated
inter alia for breach of conditions of the license, wherefor, 90 days’ notice
was required to be issued for the reasons specified therein. Clause 8.2 provides for termination of license
due to insolvency. Clause 8.3 provides
for termination of license.
24. The said provisions, in our opinion, must
be read in their entirety. The very fact
that Clause 8.3 speaks about meeting of the criteria of quality of service on
the part of the licensee as also invocation of bank guarantee, there cannot be
any doubt, whatsoever, that the said provision would have been applicable only
after operationalisation of the services and not prior thereto.
25. The petitioner had surrendered the license
by a notice dated 2.5.1996. The petitioner
vide notice dated 9.5.1996, thus, was asked to make payment of license fee. It was clearly stipulated that if license fee
is not paid, the license issued would also be terminated after 90 days from the
issue of the said letter. It is beyond
any dispute that the petitioner did not pay any amount towards license fee. It is also admitted that no other order of
termination was issued. If the
respondent did not issue any letter of termination, despite clear breach on the
part of the petitioner in making payment of license fee, in our considered
opinion, the respondent cannot take advantage of its wrong. It, for the said purpose or otherwise, even, was
not entitled to invoke clause 8.3.
Encashment of bank guarantee for realization of the part of the license
fee, therefore, was within the power of the respondent. (See UOI vs. Millenium Mumbai Broadcast (P)
Ltd – 2006(10)SCC 510).
26. The contention of Mr. Mehta that the only
provision which was applicable in the aforementioned situation was Clause 4.2
being payment for liquidated damages cannot be accepted. The said Clause was to be invoked only in the
event a breach of contract wherefor, a reasonable sum is pre-estimated towards
damages which might have been suffered by it.
The provisions for the payment of liquidated damages clause, which could
be invoked if otherwise the petitioner was found to be guilty of breaches on
its part in performing the contract.
27. The clause for payment of interest contained
in the agreement, thus, was also invocable.
However, the respondents are not entitled to any interest on damages. [See
UOI Vs. A.L. Raliaram; AIR 1963 (SC) 1685].
28. For the reasons aforementioned, there is no
merit in this petition. It is dismissed
accordingly.
29. The counter claim filed by the petitioner
is allowed in part and to the extent mentioned hereinbefore. However, we are of the opinion that the
respondent may not be granted any interest pendente lite. The petitioner may pay the decretal amount to
the respondent within a period of 90 days from the date of this judgment
failing which the respondent would be entitled to interest at the rate of 9%
per annum. No costs.
.……………..,
J
(S.B.Sinha)
Chairperson
.……………..
(G.D.Gaiha)
Member