2G Scam - Acquittal In Criminal Case Won't Remove The Finding That 'First Come First Serve' Policy Was Arbitrary : Supreme Court Rejects Loop Telecom's Refund Plea

The Supreme Court on Thursday dismissed the appeal filed by Loop Telecom and Trading Limited assailing the decision of TDSAT of dismissing their pleas seeking refund of Entry Fee of Rs 1454.94 crores paid for grant of Unified Access Service Licenses.

The bench of Justices DY Chandrachud, Surya Kant and Vikram Nath observed that Loop Telecom was in pari delicto (equal fault) with the Department of Telecom and the then officials of the Union government and that they were beneficiary of the ―First Come First Serve policy which was intended to favour a group of private bidding entities at the cost of the public exchequer.

"The appellant was in pari delicto with DoT and the then officials of the Union government. The appellant was the beneficiary of the ―First Come First Serve policy which was intended to favour a group of private bidding entities at the cost of the public exchequer. The contention of the appellant that it was exculpated from any wrongdoing by the judgment of this Court in CPIL (supra) is patently erroneous. The process leading up to the award of the UASLs and the allocation of the 2G spectrum was found to be arbitrary and constitutionally infirm. The need for an open and transparent bidding process for the allocation of natural resources was substituted by a process which was designed to confer unlawful benefits on a group of selected bidders by which the appellant benefitted. The appellant has tried to obviate these findings by relying on its acquittal by the Special Judge, CBI," the Court said.

Remarking that criminal trial before the Special Judge, CBI was limited to the question as to whether Loop Telecom's promoters had cheated the DoT since it was allegedly being controlled by Essar Group, the bench said,

"Hence, the acquittal of the promoters of the appellant of these criminal charges does not efface or obliterate the findings which are contained in the final judgment of this Court in CPIL (supra). Hence, as a beneficiary and confederate of fraud, the appellant cannot be lent the assistance of this Court for obtaining the refund of the Entry Fee. In any event, such a course of action before the TDSAT was clearly in the teeth of the judgment of this Court in CPIL (supra)."

Factual Background

Loop Telecom and Trading Limited ("appellant") on September 3, 2007 had applied for grant of Unified Access Service Licenses ("UASL") for twenty-one service areas by paying Entry Fee of Rs 1.1 crores and furnished a Performance Bank Guarantee and Financial Bank Guarantee for the twenty-one areas. On March 3, 2008, appellant entered into UASL agreements with the Union which came into effect from 25 January 2008.

On 2 February 2012, the Supreme Court Court by its judgment in Centre for Public Interest Litigation v. Union of India declared that the policy of the Union government for allocation of 2G spectrum on a ―First Come First Serve basis was illegal. The judgement resulted in quashing of the UASL's granted by the Union.

On 25 May 2012, the appellant instituted a petition before the TDSAT seeking, among other things, a refund of the Entry Fee of Rs 1454.94 crores, inclusive of interest.

On September 16, 2015, TDSAT while dismissing the appeal said that the appellant could not claim restitution under Section 65 of the Indian Contract Act, 1872 and that quashing of the appellant's licences by Top Court in CPIL judgment couldnt be brought under Indian Contract Act, since the UASL agreements had not become void under Sections 23 and 56 of the Indian Contract Act.

Aggrieved by TDSAT's judgment the appellant approached Top Court but later withdrew the same with liberty to approach the Court once again if it became necessary.

The appellant again approached TDSAT raising the issue of a refund of the Entry Fee, on the ground that it had been exonerated by the Special Judge, CBI which was dismissed by TDSAT on December 11, 2018 noting that the appellant had made a second attempt for claiming the same relief which had been sought earlier in the First Telecom Petition.

Aggrieved with the TDSAT orders dated September 16, 2015 and December 11, 2018, Loop Telecom and Trading Limited approached the Top Court.

Submission Of Counsels

Appearing for Loop Telecom and Trading Limited, Senior Advocate AM Singhvi contended that since the licences of the appellant were quashed by the judgment of this Court in CPIL, the appellant was entitled to a refund of its Entry Fee based on civil, contractual and constitutional principles.

Singhvi further contended that quashing of the licences by Top Court amounted to a frustration of each licence, which was in the nature of a contract, in terms of Section 56 of the Indian Contract Act. In this regard he said that the appellant was entitled to a restitution of the Entry Fee paid in terms of Section 65, as the licences were quashed not on account of the fault of the appellant but due to the culpability of the Union government.

Referring to Union of India v. Karam Chand Thapar and Bros. (Coal Sales) Ltd. , Singhvi contended that the proposition that the policy of the Union of India to permit the grant of a set off of the Entry Fee amounted to an admission that a refund of the Entry Fee was payable.

Additional Solicitor General Vikramjeet Banerjee appearing for the Union argued that the Entry Fee paid by the appellant was specifically made non-refundable by the UASL Guidelines which were issued by the DoT on 14 December 2005. It was also ASG's contention that acquittal of the promoters of the appellant in the criminal case had no bearing on the refund of the Entry Fee.

In this backdrop, ASG said that the judgment of the Special Judge, CBI acquitting the promoters of the appellant was only concerned with the alleged violation of Clause 8 of the UASL Guidelines issued by DoT. He further submitted that the acquittal had no bearing on the findings of this Court in CPIL , according to which UASL and allocation of spectrum was held to be ―stage managed and violative of the principles of public law.

Supreme Court's Analysis

The bench in the judgment authored by Justice DY Chandrachud to adjudicate on the issue firstly dealt with its judgment in Centre for Public Interest Litigation v. Union of India in which the court while quashing Unified Access Service Licenses granted by the Centre had said, "the everything was stage-managed to favour those who were able to know in advance the change in the implementation of the first-come- first served policy."

Impossible To Accept Appellant's Submission That Fraud In The―First Come First Serve Policy Lay Alone At Union Government's Doorstep And That Appellant Was Free From Taint Or Wrong Doing; Decision In CPIL's Judgement Leaves No Manner Of Doubt That Appellant Was In Pari Delicto Along With Union Government

Rejecting the appellant's contention that fraud in First Come First Serve Policy was alone at Union Government's doorstep and that appellant was free from taint or wrong doing, the bench said,

"The decision of this Court held that the ―First Come First Serve‖ policy was writ large with arbitrariness, and was intended to favour certain specific entities at a grave detriment to the public exchequer. Undoubtedly, the authors of the ―First Come First Serve‖ policy were the official actors comprised within the Union government. But equally, the decision did not exculpate the private business entities who obtained UASLs and became the beneficiaries of their decision. The decision of this Court concludes in no uncertain terms that the then Minister of Communications and Information Technology wanted to favour some companies at the cost of the public exchequer, and that as a matter of fact the entire process was ―stage-managed to favour those who had access to the nitty-gritties of the policy in advance. As a result, the Court found that companies which had submitted applications in 2004 or 2006 were side-lined by favouring those who had applied between August and September 2007 and who ―succeeded in getting higher seniority entitling them to allocation of spectrum on priority basis."

Remarking that the beneficiaries for allocation of spectrum were corporate entities who were favoured and the appellant was one of them, the bench said,

"However, it is evident that all these licensees were complicit in the illegal exercise of obtaining favours for themselves by the indulgence of those in power. That, above all, was the foundation of the decision in CPIL (supra) and the justification for quashing licences and the allocation of the 2G spectrum. This Court then directed the TRAI to frame fresh recommendations for the grant of licences and for the allocation of spectrum in the 2G band in twenty-two service areas by auction, as was done for the allocation of spectrum in the 3G band. Thus, the decision in CPIL (supra) leaves no manner of doubt that the appellant was in pari delicto along with the Union government."

TDSAT Held That, Contractual Term Stipulating That Entry Fee Was Non- Refundable Would Not By & In Itself Preclude Claim For Refund Based On CPIL Judgement

With regards to the aspect of Entry Fee, the bench while referring to the observations made by TDSAT said,

"There is much to commend in the above line of reasoning of the TDSAT. The Entry Fee, under the terms of the UASL Guidelines and the UASL agreements, was a one-time non-refundable fee. The TDSAT held that the submission of the Union of India would have credence if the licences were terminated for breach or if the licensee were to voluntarily surrender the licence. However, this was a case where the licence was held to be unlawful, due to its grant being in breach of the constitutional mandate under Article 14. All the licences and the allocation of spectrum came to be cancelled by the decision in CPIL (supra) on the ground that the policy and the process followed by the Union government were arbitrary, and unjustified benefits had been granted to the licensees. Thus, the TDSAT held that, strictly speaking, the contractual term stipulating that the Entry Fee was non- refundable would not by and in itself preclude the claim for refund on the basis of the judgment of this Court in CPIL (supra), which held that the entire process leading up to the award of the licences was arbitrary and constitutional. The TDSAT having entered the above finding, for the rest of the discussion, this judgment will also proceed on that premise."

TDSAT Has Correctly Come To Conclusion That Appellant's Claim For Refund Of Entry Fee Could Not Have Been Entertained

The bench to adjudicate on the issue as to whether TDSAT had the jurisdiction to entertain the claim for a refund of the Entry Fee referred to section 14(a), 15, 16, 18 of the TRAI Act.

Reliance was also placed on the judgements in Union of India v. Telecom Regulatory Authority of India (1998) 46 DRJ 557, Cellular Operators Association of India v. Union of India (2003) 3 SCC 186, Union of India v. TATA Teleservices (Maharashtra Ltd) (2007) 7 SCC 517, Tarsem Singh v. Sukhminder Singh 1998 (3) SCC 471.

In this regard, the bench said,

"The appellant has argued that if the TDSAT's conclusion on the jurisdiction were to be accepted, it would impinge on the expanse of its jurisdiction and will exclude certain disputes falling within the ambit of public law. However, this argument is not a correct reading of the conclusion that TDSAT has arrived at. De hors the decision in CPIL (supra), the appellant's dispute over the terms of the license with the Union of India (licensor) would fall within the jurisdiction of the TDSAT under Section 14(a)(i), as affirmed by this Court in Tata Teleservices (supra). The respondent's argument that the appellant is no longer a ―licensor‖ after the quashing of the licenses would be a restrictive reading of the jurisdiction of the TDSAT in view of the decision in Tata Teleservices (supra). However, since the policy on the allocation of spectrum and the licences were quashed on the grounds of mala fides and arbitrariness in the Union government's policy, the subsequent enquiry into viability of the refund of the Entry Fee would have to be agitated before the same Court."

The Court further said, "The appellant made no effort to urge during the course of the submissions before the Court in CPIL (supra) that they should be allowed a refund of Entry Fee in the event that the Court were to quash the process and the award of licences. Significantly, the appellant did not seek the permission of this Court at that stage to reserve their liberties of agitating a claim for refund of Entry Fee in separate proceedings. Besides having such a course of action open to them before the judgment was delivered, the appellants had their remedies open in law even after the decision by seeking liberty of adopting independent proceedings for agitating the refund of the Entry Fee. Not having done this at any stage in, or in connection with, the proceedings relating to the decision in CPIL (supra), the appellant cannot be permitted to do so subsequently."

Policy Decision Adopted By Union Government Cannot Be Allowed To Be Questioned At Appellant's Behest Who Sought A Refund Simpliciter In Proceedings Before TDSAT

With regards to appellant's contention that policy of the Union of India to permit the grant of a set off of the Entry Fee amounted to an admission that a refund of the Entry Fee was payable, bench said

"The appellant did not challenge the policy per se at that stage, nor did it attempt to enter into the fray at that stage when a fresh auction was held. In these circumstances, the policy decision adopted by the Union government cannot be allowed to be questioned at the behest of the appellant who sought a refund simpliciter in proceedings before the TDSAT. As held by a Constitution Bench in R K Garg v. Union of India, a greater free play in the joints must be accorded to decisions of economic policy where the legislature or the executive is called upon to make complex choices which cannot always conform to a straitjacket or doctrinaire solution."