TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL NEW DELHI

Dated 24h March, 2011 Petition No.143 of 2011

M/s. Idea Cellular Limited Petitioner Vs. Department of Telecommunication & Ors.
Respondents
BEFORE:
HON’BLE MR.JUSTICE S.B.SINHA, CHAIRPERSON
HON’BLE MR. G.D. GAIHA, MEMBER
HON’BLE MR. P.K. RASTOGI, MEMBER

For Petitioner : Dr. A.M. Singhvi, Sr. Advocate

Mr. Manjul Bajpai, Advocate
Mr. Gopal Jain, Advocate
Mr. Moksha Bhat, Advocate
Mr. Kaushik Mishra, Advocate

For Respondent : Mr. A.S. Chandhiok, ASG

Ms. Maneesha Dhir, Advocate
Mr. K.P.S. Kohli, Advocate
Mr. Ritesh Kumar, Advocate

ORDER
We have heard the learned counsel for the parties at great length.

The principal question, which arises for consideration in this petition, is the legality
and/or validity of order dated 24.02.2011 passed by the respondent herein, the operative
portion whereof reads as under :-“WHEREAS, M/s. Idea Cellular Limited vide letter
dated 05.04.2010 and 12.04.2010, has inter-alia, intimated that :

Subsequent to the approval granted to the scheme of amalgamation by the Hon’ble High
Courts of Gujarat on 26.11.2009 & by the Hon’ble High Courts of Delhi on 05.02.2010,
M/s Spice Communications Limited stands amalgamated into IDEA Cellular Limited.

The treatment of overlapping licenses and the associated spectrum would be as per
applicable policy. Licenses held by IDEA Cellular for Karnataka & Punjab as also those
relating to erstwhile Spice Communications viz. Delhi, Haryana, AP & Maharashtra, are
all of non-operational.

In view of the approval granted by the Hon’ble High Court of Gujarat and Delhi to our
scheme of amalgamation, and pursuant to clause 6.3 of the license agreement, it is
requested for transfer of license held by Spice Communications Limited to IDEA Cellular
Limited.

Idea Cellular Limited as the transferee company would be responsible for meeting all
existing & future ‘Financial Dues’ & ‘Financial Liability’, if any, for the transferor
company Spice Communications Limited.
WHEREAS on the examination of the matter with consideration, it is apparent that M/s.
Spice Communications Ltd. has violated the terms & conditions of the above said UAS
licence agreement for Punjab Service Area and the Guidelines/instructions issued by
DOT in the matter.

THAT M/s. Spice Communications Ltd. has thus violated Condition 1.4, Condition 6.1
and Condition 6.2 of the Unified Access Service Licence and Clause 1 and 17 of the
Guidelines dated 22.04.2008 for Intra Service Area Merger of CMTS/UAS Licences.

Although, the Licensor has the right to take action against M/s. Spice Communications
Limited under Condition 10.2(i) for termination of License Agreement for violation of
Condition 1.4, Condition No.6.1 and Condition 6.2 of the Unified Access Service
Licence and Clause 1 and 17 of the Guidelines dated 22.4.2008 for Intra Service Area
Merger of CMTS/UAS Licences, but without prejudice to the said rights, M/s. Spice
Communication Limited is called upon to pay a sum of Rs.50 crores (Rupees fifty crores)
in terms of Condition 10.2 (ii) of the UAS License Agreement within 15 days of receipt
of this notice for above said violation of Licence conditions for Punjab Service Area, in
the event, the said amount is not paid within 15 days of the receipt of this notice, the
LICENSOR shall be within its right to take action under Condition 10.2(i) for termination
of License Agreement for violation of Condition 1.4, Condition No. 6.1 and Condition
6.2 of the Unified Access Service Licence and Clause 1 and 17 of the Guidelines dated
22.04.2008 for Intra Service Area Manager of CMTS/UAS Licences beside any other
remedy etc., which right we hereby specifically reserve against M/s. Spice
Communications Limited.

WHEREAS, the present demand is without prejudice to the rights of the LICENSOR to
take appropriate action for any other violation of the UAS License Agreement by M/s.
Spice Communication Limited.”

Before, however, we consider the respective contentions of the parties, it may be noticed
that the petitioner herein is a holder of a UAS licence inter-alia for the circles of Punjab
and Karnataka with effect from 25.01.2008.
Another company being Spice Communications Ltd. was granted a licence for Haryana,
Andhra Pradesh, Maharashtra and Delhi with effect from the said date.

The said Spice Communications Ltd. is said to have merged with the petitioner by reason
of a scheme of amalgamation of companies sanctioned by the High Court of Gujarat by
an order dated 09.12.2009, as also an order of the Delhi High Court dated 05.02.2010.

Although a large number of correspondences passed between the parties, suffice it to

notice that according to the petitioner, it had been keeping the respondent informed on
the acquisition/amalgamation/merger of Spice Communications Ltd. inter alia by letters
dated 25.6.2008, 15.7.2008, 17.7.2008, 01.8.2008, 12.5.2009, 24.9.2009, 27.11.2009 and
09.12.2009.
The respondent by a communication dated 05.5.2009 (which document has been brought
on record by the respondent herein) sought for informations from the petitioner as to from
which date it had acquired shares in the ‘Spice’ and by a letter dated 12.5.2009 the
petitioner stated that it has been holding 41.09% equity therein with effect from
17.10.2008.

It is also not in dispute that the representatives of the petitioner and the officers of the
respondent had held meetings in regard to the said proposal of merger.

The petitioner herein upon passing of the order of the Delhi High Court dated 05.02.2010
approving the scheme of merger with Spice Communications Ltd. approached the
respondent for transfer of the licence in its name by letters dated 26.4.2010 and
28.4.2010. The Hon. Minister for Communication was also informed thereabout by the
petitioner by a letter dated 22.12.2010.

As despite requests, approval of the Department of Telecommunication was not

communicated, the petitioner filed a Petition before this Tribunal, which was marked as
Petition No. 35 of 2011.

By reason of the impugned order, the respondent, during pendency of the said petition,
imposed a penalty of Rs.50 crores upon the petitioner.
Dr. Singhvi, the learned Senior Counsel appearing on behalf of the petitioner in support
of the interim prayer of the petitioner would contend :-It is incorrect to suggest that the
petitioner has violated any of the conditions of licence and/or merger guidelines;
The impugned order of penalty having been passed without issuing any notice to show
cause upon the petitioner, the same must be held to be wholly illegal. For the purpose of
arriving at the conclusion as to whether there has been a breach of contract on the part of
the petitioner or not, so as to enable the respondent to terminate the licence, it was
obligated to issue at least 60 days’ notice

On a plain construction of Clauses 10.2.1 and 10.2.2 of the conditions of licence, it may
appear that imposition of penalty for a sum of Rs.50 crores cannot be divorced from an
order of cancellation of licence.

Mr. A.S. Chandhiok, the learned Additional Solicitor General appearing on behalf of the
respondent, on the other hand, urged :-
The petitioner having admitted that it had more than 10% holding in Spice
Communications Ltd. and furthermore having suppressed the orders of rejection of
merger of licences passed by the DoT dated 07.01.2010 and 18.01.2010, the legality
whereof having not been questioned, no opportunity of hearing was necessary to be
afforded to the petitioner.

The Delhi High Court, although, reserved its judgment on 28.01.2010 and passed an
order of amalgamation on 03.02.2010, the petitioner deliberately and intentionally did not
bring to its notice the aforementioned orders dated 07.01.2010 and 18.01.2010
Before, however, adverting to the aforementioned rival contentions, we may notice some
of the conditions of licence :-

The LICENSEE shall not, without the prior written consent as described below, of the
LICENSOR, either directly or indirectly, assign or transfer this LICENCE in any manner
whatsoever to a third party or enter into any agreement for sub-licence and/or partnership
relating to any subject matter of the LICENCE to any/ third party either in whole or in
part i.e. no sub-leasing/ partnership/third party interest shall be created. Provided that the
LICENSEE can always employ or appoint agents and employees for provision of the
service.

Intra service area mergers and acquisitions as well as transfer of licences may be allowed
subject to there being not less than three operators providing Access Services in a Service
Area to ensure healthy competition as per the guidelines issued on the subject from time
to time.

Further, the Licensee may transfer or assign the License Agreement with prior written
approval of the Licensor to be granted on fulfillment of the following conditions and if
otherwise, no compromise in competition occurs in the provisions of Telecom Services:-
When transfer or assignment is requested in accordance with the terms and conditions on
fulfillment of procedures of Tripartite Agreement if already executed amongst the
Licensor, Licensee and Lenders; or

Whenever amalgamation or restructuring i.e. merger or demerger is sanctioned and

approved by the High Court or Tribunal as per the law in force; in accordance with the
provisions; more particularly Sections 391 to 394 of Companies Act, 1956.”

We may also notice some of the conditions of licence :-

There shall be following conditions for sale of equity of the UAS licensee company :
There shall be Lock-in-period for sale of equity of a person whose share capital is 10% or
more in the UAS licensee company on the effective date of UAS license and whose net-
worth has been taken into consideration for determining the eligibility for grant of UAS
license, till completion of three years from the effective date of the UAS license or till
fulfillment of all the rollout obligations under clause 34, whichever is earlier.”
The matter with regard to the ‘competition’ has also been dealt with in Clauses 1.4(i) and
apart from Clause 6.2 aforementioned, which read as under :-

Any changes in share holding shall be subject to all applicable statutory permissions.
No single company/legal person, either directly or through its associates, shall have
substantial equity holding in more than one LICENSEE Company in the same service
area for the Access Services namely; Basic, Cellular and Unified Access Service.
‘Substantial equity’ herein will mean an equity of 10% or more. A promoter
company/Legal person cannot have stakes in more than one LICNESEE Company for the
same service area.”

We may also notice the relevant provisions of the merger guidelines :-

Any permission for merger shall be accorded only after completion of 3 years from the
effective date of the licences.
The duration of licence of the merged entity in the respective service area will be equal to
the remaining duration of the licence of the two merging licencees whichever is less on
the date of merger.”

The construction/interpretation of the aforementioned clauses would arise for

consideration of this Tribunal at an appropriate stage.
Suffice it to notice that whereas according to Dr. Singhvi, filing of an application for
approval of merger of licence after the scheme of merger was approved by the High
Court in terms of Sections 391 and 394 of the Indian Companies Act, 1956 is permissible
in law; according to Mr. Chandhiok the licensee company was bound to seek prior
approval therefore.

We would assume, for the purpose of this case, that Mr. Chandhiok is right that condition
No. 10.3.2 is independent of 10.3.1 and/or the provisions for imposition of liquidated
damages. We would also assume that all the three clauses can be invoked simultaneously
or in piece meal. In a given case, although the authority would be entitled to invoke the
penal clause as also the clause for termination of licence on the ground of breach of
conditions thereof, in our opinion, it was obligated to issue a notice to show cause not
only as to why any penalty should not be imposed but also on the question of the
quantum thereof. Had such an opportunity been granted to the petitioner, it could have
shown that no penalty should be imposed and in any event not the maximum amount
specified therefore.

An admission so as to bind the party who would suffer a penalty must be clear and
specific.

When an administrative action resulting in civil or evil consequences is sought to be

taken on the basis of the admission alone pursuant to or in furtherance whereof an
inference of breach of the conditions of the licence is required to be drawn, the same
must be held to be applicable wherein the licensee has clearly accepted the breach.

More significantly, any or every breach of the condition of licence ipso-facto may not
attract the penal clause. The respondent herein has been conferred a discretionary
jurisdiction in this behalf, as is evident from the fact that the word ‘may’ has been used.
In terms of the said provision, not only no penalty may be imposed, the quantum thereof
may also depend on the extent of default committed by the licensee. In a given case, the
licensor may also apply the doctrine of proportionality. It is not a case where the
principles of Section 58 of the Indian Evidence Act would be applicable. It is also not a
case where the purported admission on the part of the petitioner, prima facie, is judicial in
nature.

Mr. Chandhiok would submit that the petitioner has admitted that it had been holding
41.09% of equity shares in Spice Communications with effect from 17.10.2008. The said
letter dated 12.5.2009 was issued in response to the respondent’s letter dated 5.5.2009.
The question as to whether the petitioner had informed the respondent thereabout, either
in writing or in a meeting, can be the subject matter of evidence which may be adduced
by the parties.

Submission of Mr. Chandhiok that the consequence of amalgamation and/or proposed

demerger would be different. That may be so.
However, prima facie, the Gujarat High Court, as also the Delhi High Court have
approved the scheme of amalgamation. As at present advised, we are not in a position to
accept the submission of Mr. Chandhiok that the Delhi High Court was not informed
about the orders of rejection passed by the respondent being dated 07.01.2010 and
18.01.2010. The effect of a judgment and order passed by the High Court in exercise of
its jurisdiction under Section 391 and 392 of the Indian Companies Act is that the
transferor company loses its entity as it ceases to have business.

The High Court had issued notice. The respondent, pursuant thereto, could have brought
to the notice of the High Court that it has refused to sanction the merger of licence.
Pursuant to an order passed by the learned Company Judge of the Delhi High Court, New
Delhi, the transferor company has ceased to exist.
What would be the effect thereof vis-à-vis the conditions of licence must be considered
only at the hearing.

If the petitioner has misled the Court, the respondent could have brought the same to its
notice. Whether the purported suppression on the part of the petitioner would nullify the
order of merger of Spice Communications with it, would require serious consideration of
this Tribunal.

Mr. Chandhiok would urge that the petitioner has violated the 3rd condition as contained
in clause 1.4 (ii), as it had been holding more than 10% of shares in ‘Spice’.

The cause of action for filing the petition has arisen only during pendency of another
petition filed by the petitioner.
On the aforementioned premise, this Tribunal has to consider as to whether the principles
of natural justice were required to be complied with.

Mr. Chandhiok would urge relying on the decision of the Supreme Court of India in State
of Punjab Vs. Ajidhik Nath 1981 3 SCC page 251 that the principles of natural justice
were not required to be complied with.

The aforementioned decision of the Supreme Court of India, in our opinion, is not
applicable to the facts and circumstances of the present case in as much as the respondent
having been conferred the discretionary jurisdiction, the principles of natural justice, in
our opinion, prima facie were required to be complied with.
In State of Punjab (Supra), the Apex Court held :-“8. Thus, the proposition is by now
well-settled that although an opportunity of being heard has to be given to a liquor vendor
when his licence is sought to be cancelled, the same principle of natural justice does not
come into play when the demand is merely for payment of a sum becoming due under the
conditions subject to which the licence was granted, and this proposition fully covers
those appeals. The demands for payment of the amount of still-head duty which had
become due under the contracts accepted by the respondents and had remained unpaid
were demands arising under Condition 8 above extracted and had, therefore, resulted
from the terms of those contracts. No question of affording to the respondents any
opportunity of being heard thus arises and the impugned judgment is, therefore, liable to
be reversed.”

In a case of this nature, the distinction between an ‘Administrative Order’ and a ‘Quasi
Judicial Order’ would also lose all relevance. In State of Orissa V. Binapani Dei, (1967) 2
SCR 625 the Apex Court held : - “12. It is true that some preliminary enquiry was made
by Dr S. Mitra. But the report, of that enquiry officer was never disclosed to the first
respondent. Thereafter the first respondent was required to show cause why April 16,
1907 should not be accepted as the date of birth and without recording any evidence the
order was passed. We think that such an enquiry and decision were contrary to the basic
concept of justice and cannot have any value. It is true that the order is administrative in
character, but even an administrative order which involves civil consequences, as already
stated, must be made consistently with the rules of natural justice after informing the first
respondent of the case of the State, the evidence in support thereof and after giving an
opportunity to the first respondent of being heard and meeting or explaining the evidence.
No such steps were admittedly taken, the High Court was, in our judgment, right in
setting aside the order of the State”.

In a situation of this nature, moreover, the principles of law laid down by the Apex Court
in State of Bihar Vs. Industrial Corporation (P) Ltd. & Others 2003 (11) SCC page 465
may be attracted. In that case, it was held :-Coming to the first ground, it is not disputed
that no opportunity of hearing of any kind was afforded to the respondents herein before
the penalty was sought to be imposed and recovered. It is also admitted that there was no
adjudication of the alleged breach of Condition 8 of the tender notice. In A. Mohd.
Basheer v. State of Kerala it was held that unless there is a determination of breach of
contract and damages are quantified, no damages can be imposed and recovered. In G.M.,
North East Frontier Rly. v. Dinabandhu Chakraborty this Court held that the Government
cannot be a judge in its own cause in the absence of any statutory provision empowering
it to act as such. In Vishnu Rice Mill v. Regional Food Controller, Bareilly it was held by
the Allahabad High Court as under: (All LJ p. 594, para 13)

“ Learned Standing Counsel, however, contended that the State Government was justified
in withholding both the price payable to the petitioner and the release certificate claimed
by the petitioner if it could be shown that the petitioner had failed to perform its
obligation under the agreement between the parties. Learned Standing Counsel placed
reliance upon clause 9 of the said Order which has been quoted above. In our opinion,
this contention of the learned Standing Counsel is not tenable. Clause 9 itself shows that
even though the State Government has a statutory authority to direct a rice miller to
convert State Government’s paddy into rice, still, the terms and conditions on which the
government paddy will be converted into rice by the licensed rice miller will be ‘such
terms and conditions as may be agreed upon’. The agreement itself containing the terms
and conditions cannot be said to be a statutory contract merely because the State
Government has a right under clause 9 to direct a rice mill to convert paddy into rice. It
has been stated above that along with the counter-affidavit Annexure CA 1 has been
annexed, which is said to be the agreement between the parties. In clause 11 of the said
agreement there is a provision for arbitration in case of dispute, difference, or question
touching or arising out of the agreement or the subject-matter thereof. In our view, if the
State Government has any grievance that the licensed miller has failed to fulfill the terms
and conditions of the said agreement between the parties, it is not open to the State
Government to seek its redress in respect of such grievance by withholding the release
certificate under clause 3(4) or by withholding or by making any deduction from the price
which is payable by the State Government to the petitioner under clause 7 of the said
Order.”

In the present case, what we find is that before creating a demand of penal duty or
penalty, there was no adjudication by any authority as regards the breach committed by
the respondents. We also find that no opportunity of any kind was offered to the
respondents before the demand as regards the penal duty was pressed against the
respondents. The matter was not even examined as to what was the reason for shortfall in
the production of rectified spirit. The Molasses Act does not provide for imposition of
such penalty in the event of shortfall of spirit. It must, therefore, necessarily be held that
the imposition of the impugned penalty being against the principles of natural justice is
illegal and void.

Mr. Chandhiok would, however, submit that in that case, breach itself was in dispute and
admittedly no opportunity of hearing had been given.
In this case, we are concerned with the applicability of the decision of High Court
rendered by reason of a judgment in rem.
In that view of the matter, the question as to whether the petitioner has committed any
beach of the conditions of licence vis-à-vis order of the High Court would fall for
consideration of this tribunal.

We, therefore, are of the opinion that the petitioner has made out a triable case. The
balance of convenience, keeping in view the equities between the parties, which can be
adjusted in future also, lies in favour of the petitioner.

Mr. Chandhiok would urge that in the event the operation of the impugned order is
stayed, the Petition No. 35 of 2011 will stand allowed.
We do not think so. In the event the operation of the order is stayed, this petition may
have to be heard along with the said petition.
The respondent indisputably will, in both these petitions, get an opportunity to defend its
action.

We are of the view that for the imposition of penalty of a sum of Rs.50 crores on the
petitioner, prima facie the principles of natural justice were required to be complied with.
The effect of non-compliance of principles of natural justice is well known. The order
would be a nullity. It cannot be given effect to, subject to just exceptions.
We, therefore, are of the opinion that the impugned order need not be given any further
effect till further order.

This order, however, shall be without prejudice to the rights and contentions of the parties
and subject to any other or further orders which may be passed hereinafter.
J (S.B. Sinha) Chairperson
(G. D. Gaiha) Member
(P.K. Rastogi) Member