In its ruling in Union of India v. Assn. of Unified Telecom Service Providers of India1 and other connected matters (AGR case), a three-judge bench of the Supreme Court (SC) put an end to a nearly two-decade-long dispute over the Department of Telecommunications, Government of India's interpretation of adjusted gross revenue (AGR) (DoT).
1. Union of India v. Assn. of
Unified Telecom Service
Providers of India
Supreme court’s interpretation of adjusted gross revenue
(AGR)
2. • In its ruling in Union of India v. Assn. of Unified Telecom Service Providers of India1 and
other connected matters (AGR case), a three-judge bench of the Supreme Court (SC) put an
end to a nearly two-decade-long dispute over the Department of Telecommunications,
Government of India's interpretation of adjusted gross revenue (AGR) (DoT).
• In its ruling in Union of India v. Assn. of Unified Telecom Service Providers of India and other
connected matters (AGR case), a three-judge bench of the Supreme Court (SC) put an end to
a nearly two-decade-long dispute over the Department of Telecommunications, Government
of India's interpretation of adjusted gross revenue (AGR) (DoT). Significantly, the SC has
maintained the Department of Transportation's view that AGR includes revenue generated by
licensees from both licenced and unlicensed operations, dealing a severe blow to a sector
that is already heavily in debt and in the midst of its worst period.
3. Table of Contents
Section A
01 Background
02
Section B
Litigation in the First Round
03
Section C
Second Round of Litigation
04
Section D
Analysis of the Present Judgment
05
Section E
Determination of AGR
& Computation of Interest and Pen
06
Section D
Conclusion.
5. This concept of AGR was finalised and implemented in 2001 and
demands for licence fees based on this definition were raised on TSPs.
Telecom service providers (TSPs) are required to pay a licence fee to DoT
Initially, DoT introduced a fixed licence fee regime, whereby a predefined
lump sum was required to be paid by TSPs.
Telecom licences (licences) were amended pursuant to the revenue-
sharing based regime.
According to the licences, AGR is determined by excluding certain
explicitly specified items from “gross revenue” (gross revenue).
A new revenue-sharing based regime under the New Telecom Policy, 1999
(NTP) was introduced.
7. A petition was filed
in
the Telecom Dispute
s Settlement and
Appellate Tribunal
(TDSAT) by an
industry association
of telecom licensees
or TSPs. In this
matter, the stand
taken by the
Government that
licence fee was
payable on overall
revenue of the TSP
(including revenue
realised on account
of non-
telecom activities
carried out by TSPs)
was challenged.
The Tdsat held
that licence fee
should only be
related to such
revenue which is
traceable to
activities under
the licence.
Subsequently, the
Telecom Regulatory
Authority of India
(TRAI) issued
recommendations
in this regard
along similar lines
and finally the
Tdsat too largely
agreed with the
recommendations
of the TRAI and
held that licence
fee should not be
payable in respect
of revenue earned
from non-licensed
activities.
Tdsat's order
was
challenged by
the
Government
before SC
the SC held
that the Tdsat
had no
jurisdiction to
decide on the
validity of
terms and
conditions of
the licence
8. Further, the SC held that if the wide definition of AGR included
revenue beyond the licensed activities, then it was open for the
licensees to not undertake activities for which they did not
require licence and transfer these activities to any other person or
firm or company. Accordingly, several TSPs hived-off divisions
that were carrying out non-telecom activities to mitigate the
impact of SC Judgment.
10. After SC Judgment
various TSPs filed
petitions in different fora
(i.e. High Court, TDSAT)
for correct interpretation
of the heads of gross
revenue mentioned in the
licence, which resulted in
a second round of
litigation.
The issue concerning the
definition of AGR was
again agitated before the
Tdsat, The Tdsat in its
ruling held that the term
“revenue” in the licence
was no different from its
corresponding definition
in the Accounting
Standard 9 (AS-9).
11. The High Court of
Tripura held that
definitions of gross
revenue and AGR under
the licence were ultra
vires to Section 4(1) of
the Telegraph Act, 1885,
as even non-licensed
activities were sought to
be included within the
embrace of gross revenue
as arbitrary.
The High Court of
Kerala, it was held that
as TSPs had entered into
licences with the
Government at their will
and had availed the
benefits of such licences,
it was now not open to
them to contend that levy
of licence fees was
arbitrary or beyond the
scope of the Telegraph
Act, 1885.
13. In its judgment, SC has
upheld the interpretation
of AGR which has been
adopted by DoT from the
inception. SC has based
its decision on a variety
of factors, but mainly on
the ground that the TSP's
obligation to pay license
fee in accordance with
the terms and conditions
of the license is nothing
but a contractual
obligation
SC has observed that the
government, while
implementing the
revenue-sharing regime,
consciously sought the
inclusion of a definition
of “revenue” which was
“broad, comprehensive
and inclusive” in the
“migration package”
14. SC also has noted that
the terms and conditions
of the migration
package, which also
contained a stipulation
that no dispute would be
raised by TSPs as to
working out of the
revenue share, was
voluntarily and
unconditionally accepted
by the TSPs at that stage
and led to substantial
growth of the sector in
subsequent years.
With respect to the
arguments advanced by
TSPs that the contra
proferentem rule would
be attracted in the
present circumstances as
the licence conditions
were drafted by DoT, SC
held that there was no
element of ambiguity in
the definition and
therefore the occasion
for applicability of this
rule does not arise.
15. The Court has also
indicated that this issue
had already been finally
determined in the SC
Judgment of UOI v
Assn. of Unified
Telecom service
providers of India and
thus attempts to reopen
the same were barred by
res judicata.
Based on the stipulations in
the license and referring to
the Government's intent to
include a broad,
comprehensive and
inclusive definition of
“revenue”, the Court has
held that the rule of
ejusdem generis should be
implemented while
construing the heads set out
in the definition of gross
revenue and therefore, it
would also include revenue
generated from activities of
TSPs beyond the license.
17. Included in AGR
Discounts
and
commissions
Gains from
foreign
exchange
fluctuations
Monetary
gains on
sales of
shares
Insurance
claim in
respect of
capital assets
Negative
balance of
prepaid
customer
Reimbursem
ent of
infrastructur
e operating
expenses
Waiver of
late fees
18. Included in AGR
Non-
refundable
deposits
Income from
interest and
dividend
Bad debts
written off
Interest from
inter-
corporate
loan
Revenue
under IP-1
registration
Income from
management
consultancy
services
19. Not Included in AGR
Gains from
roaming charges
and public
switched
telephone
network (PSTN)
pass through
charges
Licensee fee
demand where
spectrum is not
granted
Liability written
off
20. Computation of Interest and Penalty
• With respect to the question of quantum and computation of interest, SC has upheld the
claim of interest made by DoT, while relying on the provisions of the licences that lay
down the consequences for delay in payment of licence fees.
• on the question of penalty, SC has inter alia held that TSPs have deliberately acted in
an unfair manner by deferring payment of the disputed amount of licensee fees despite
SC Judgment in UOI v Assn. of Unified Telecom service providers of India and
therefore cannot contend that payment has been delayed on account of a bona fide
dispute.
• Consequently, the respondents are required to cumulatively pay within a period of three
months, an amount which, according to several news reports, is in excess of INR 900
billion or 90,000 crores.
22. • By this case the matter of AGR dues is finally settled but it will have far-reaching
ramifications as far as the sustainability of the sector is concerned. It must be borne
in mind that the telecom sector in India is perhaps witnessing its worst phase in
history and therefore, the SC's decision in the present case is expected to have an
amplified effect due to its timing.
• As a next course of action, TSPs could consider approaching the SC for a review of
its judgment in the AGR case, However, despite any potential relief which may be
obtained by TSPs in such proceedings, a case for governmental intervention is
becoming increasingly clear to ensure the sustainability of the
Indian telecom industry as a whole.
• While the Government is expending some efforts towards reviving
the telecom industry and it is also one of the main objectives enshrined under the
National Digital Communications Policy, 2018, suitable action is warranted on part
of the Government, especially in wake of this decision of the SC.
Editor's Notes
1. Table of contents
2. Our company
3. Our evolution
4. What sets us apart?
5. Guiding principles
6. Quote
7. Market share
8. Buyer persona profile
9. Buyer journey
10. Sales funnel
11. Competitor analysis
12. SWOT analysis
13. Goals
14. Strategy
15. Key action items
16. Timeline
17. Budget
18. KPI overview
19. Our team
