Exemption for PSUs: Can Private Entities Take a Leaf from This Book

In October 2019, the Hon’ble Supreme Court of India passed its judgment in the matter relating to adjusted gross revenue (AGR) and license fees payable to the Department of Telecommunications (DoT). While the judgment brought an element of finality to a dispute that spanned nearly two decades, it appears that many holes are yet to be plugged.

A slew of review petitions and applications for extension of the payment deadline (originally of 3 months from the date of the judgment) followed and were dismissed. When the DoT sought to independently extend the payment deadline set by the Court, a suo motu contempt petition was initiated since leave of the Court was not taken by DoT before granting this extension.

On the other hand, the judgment was inter alia used as a basis by DoT to raise demands on entities that held licenses under Section 4 of the Indian Telegraph Act, 1885, but were not party to the proceedings. Importantly, such entities included public sector undertakings (PSU) as well as entities that are not engaged in the provisioning of telecom services per se.

In the hearing held in respect of the contempt petition on 11 June 2020, a question was posed by the Hon’ble Supreme Court to the Solicitor General (appearing on behalf of inter alia DoT) as to how demands were raised against PSUs on the basis of the judgment. The Court further pointed out that the licenses were different and the judgment did not deal with the issue of PSUs.

In this regard, the Court drew reference to an affidavit filed by the DoT itself. In the said affidavit, after examining the definition of gross revenue under inter alia the Unified Access Service License (UASL) and the National Long Distance (NLD) license, DoT affirmed that “it is clear that the terminology ‘other miscellaneous’ do not form part of the License Agreement” for NLD. Further, the DoT submitted that “most of the Public Sector Undertakings, therefore hold licenses, under which the relevant terms and clauses, may not be similar to the Access Service license apparently analysed and interpreted by this Hon’ble Court in judgment dated 24.10.2019”, thereby acknowledging that PSUs holding NLD license are not to be treated at par with licensees holding UASL license.

Notably, DoT submitted that PSUs are not providing mobile services the way in which commercial service providers are providing them. Further, DoT noted that “the requirement of license by these PSUs may be based upon some of their own internal requirements and not for commercial exploitation the way in which other telecom service providers require the services”.

On this basis, the Court asked DoT to reconsider the demands raised on PSUs. Finally, during the hearing held on 1 September 2020, DoT withdrew demands made against PSUs considering that they are “non-telecom entities involved in providing services such as power transmission, oil and gas exploration, and refining, Metrorail service, etc., and that they are not into the business of providing mobile services to the general public”.

This gives rise to the question whether similarly placed entities, which are not involved in the business of providing mobile services to the general public or have taken the license for internal requirements (i.e. not for a commercial purpose) would be able to draw any benefit from this finding. It has recently come to light that the Internet Service Providers Association of India is contemplating to approach the Court for seeking clarity in this regard.

There are multiple entities that have borne the brunt of DoT’s demands post passing of the judgment and are now shrouded by a cloud of uncertainty. For such entities, revenue generated on the basis of telecom licenses (if any) forms a very minuscule portion of their overall revenue. To apply the definition of ‘gross revenue’, which is no longer a subject of the challenge per the Court’s judgment, on all entities (including those that were not a party to the proceedings) would not only be a travesty of justice, it would also leave an indelible and devasting impact on them, given the current economic situation.

It is an opportune moment for telecom licensees that have not yet received demand notices from DoT to assess their standing from a legal standpoint and seek appropriate clarity from the Court. In doing so, the terms and conditions of the relevant license will have to be carefully scrutinized considering that not all licenses permit licensees to utilise spectrum, provide mobile services or approach customers directly. It may also be relevant to verify whether DoT is raising such a demand for the first time. There is no doubt that the view taken by the Court has provided a silver lining to guard against any untoward demand or action that may be forthcoming.

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The article has been authored by Harsh Walia, Partner, Khaitan & Co, Rajat Jariwal, Partner, Khaitan & Co and Shobhit Chandra, Principal Associate, Khaitan & Co