Telecom AGR Case: Scope But Not Hope For A Telecom Rescue, Say Legal Experts
Government withdraws letter directing no coercive action against telcos for failing to pay AGR dues by January 23 deadline
As India’s top two telecom companies scramble to find thousands of crores in funds to pay adjusted gross revenue dues, their only hope is if the central government comes to their aid and devises at least a time reprieve. The “ball is squarely in the government’s court,” said lawyer Mukesh Butani in response to the emergent situation prompted by a Supreme Court miffed that its October 2019 order had not yet been complied with.
In a strongly worded order issued today, the apex court threatened the companies and a government official with contempt proceedings. Companies, for not complying with the court’s January 23, 2020 payment deadline, and the government official, a desk officer in the Department of Telecommunications, for ordering that payment shouldn’t be insisted upon. The court has shown a “certain level of despair that its orders have been overruled by a desk officer,” explained Sidharth Luthra. It would not have come to this if the government had acted sooner, the senior advocate pointed out.
The government had all of this time, perhaps to bring a legislation or policy, allowing them to sidestep the Supreme Court order in terms of timeline, or by legislation or subordinate regulation. Or if permissible at all, to extend the timeline for payment of dues or provide another mechanism for payment. That having been done, it could be argued that it’s not contempt because a legislative action had overtaken the court.Sidharth Luthra, Former Additional Solicitor General and Senior Advocate, Supreme Court
Friday’s court order implies companies have till March 17, 2020 to pay up or else their managing directors will have to appear in court.
But, faced with judicial fury, the government seems to be pushing for immediate payment. Already, one of the 22 telecom circles for which these telecom companies hold licenses has issued an order that gives them up to midnight on Friday to pay up, reports news agency PTI.
Meanwhile, Bharti Airtel Ltd. in a letter to the telecom department on Friday evening said it will deposit Rs 10,000 crore by Feb. 20, 2020, and the balance before the next date of hearing, i.e. March 17, 2020. Vodafone Idea Ltd. said in a statement issued on Saturday that it’s assessing the amount and will do so in a few days.
The aggregate amounts due are significantly large—just the two incumbent telecom companies Vodafone Idea and Bharti Airtel— together owe more than Rs 88,000 crore. This further burdens a sector already hurting due to very low tariffs, high statutory dues and piling debt. In December 2019, Kumar Mangalam Birla, chairman of the Aditya Birla Group, a co-promoter of Vodafone Idea, had warned that the company would shut if the government didn’t offer relief on payment of such statutory dues.
Government To The Rescue?
Demanding immediate payment is a knee-jerk reaction by the government, Luthra said, adding that there is still scope for legislation to be brought to either extend the time period for payment or even re-look at the basis of the liability. “Now the difficulty is that there’s the timeline of today, and if that timeline isn’t adhered to, will these companies be able to effectively function at all or not? Are we going to see a change in the telecom industry which is going to be effected post-midnight? These are serious concerns that need addressing. These are economic concerns. It is up to the administration, up to the government, to consider how they would act.”
I don’t think it (government) can overturn the AGR definition at this time, said veteran lawyer HP Ranina. “The only legislation would be procedural and fixing a time frame for paying the amount. And on March 17 they will (can) inform the Supreme Court that the legislation has been passed. And if the Parliament has passed a certain legislation it is something generally the court will accept because it’s an executive action and normally courts do not interfere in executive matters.”
To be clear, so far, except for the telecom department order to turn a temporary blind eye to non-payment, the government has offered no long-term resolution, by either approaching the court to modify its payment deadline or devising legislative relief.
But given the economic consequences, it’s time the government takes action, said Butani, managing partner at BMR Legal.
We covered the implications, if any on the larger economy, we covered the implications on availability of services. But I think what is equally important, in today’s environment, is what implication it has for banks and institutions who are the biggest lenders to the telecom companies. So a more holistic view has to be taken by the government. That’s why I mentioned earlier that the ball lies squarely in the hands of the government. And it’s taken me by surprise if the government has just given a day to fork out the dues.Mukesh Butani, Managing Partner, BMR Legal
Butani suggested the government can also look at options such as extending the recently proposed tax dispute settlement mechanism—Vivaad Se Vishwaas Bill—to cover telecom disputes, and allow concessions on interest and penalty which has to be paid on the AGR dues. Proposed in the Union Budget 2020, the Vivaad Se Vishwas bill allows for settlement of tax disputes by payment of dues and forgoes the penalty and interest component of the disputed tax paid before March 31, 2020. Earlier, this week the Cabinet agreed to extend the scheme to cases pending in the Debt Recovery Tribunal.
Luthra though was sceptical the government would come to the rescue of telecom companies. “The fact that they have asked for the payment today (Friday) creates doubt, and will make it rather difficult for them to get a legislation through because you can’t have conflicting decisions being taken contemporaneously. And that will show things in a very poor light when things would come in court.”
Watch | HP Ranina, Sidharth Luthra and Mukesh Butani in conversation with Menaka Doshi
Contempt Consequences
As for the Supreme Court’s contempt proceedings against the government official, veteran lawyer HP Ranina said it was justified as the government order amounted to “open defiance of the order of the highest court” and “undermines the rule of law”. The desk officer has to file a reply with the Supreme Court.
Possibly, the desk officer may point out that he was instructed by someone higher up to make that order. Because can a desk officer pass such an order without getting any approval or sanction from a higher authority? That’s again another issue. So if the desk officer gives a statement that he had acted on the basis of an order of a superior authority then that authority will also be in very serious trouble.HP Ranina, Advocate, Supreme Court
If telecom companies pay up before March 17 they may escape further judicial ire. If the government legislates relief in the interim, and spares the telecom companies from payment, then it would be best if the centre approached the court, explained the relief and reasons for it and sought protection from contempt, Luthra said.
All this in a case that pended for 14 years and was finally decided in October 2019 when the Supreme Curt ruled that non-core revenue be included in revenue on which government levies apply. While the judgment predominantly impacted the telecom sector, it also imposed large liabilities on several other companies, including those owned by the government. Efforts to seek a review of the judgment failed.
That the court set out a payment deadline in its October orders attracted some criticism, given the substantial economic impact across companies. Critics argued the court should have just ruled on the definition of Adjusted Gross Revenue and left the recovery of dues to the government to implement as it saw fit.
A few years ago, we had Justice Sikri, who talked about the economic impact of judicial decision making. This is one of the classic cases where that element seems to have not been examined in its entirety. Of course, it’s an order of the Supreme Court, the government is bound by it, every citizen or whoever it is directed to has to comply. There is a legal issue that arises when courts pass certain decisions which have larger financial ramifications. Of course, make sure that the law is being complied with, but at the same time, the part directing period of payment ought to have been considered in terms of the economic impact that if these companies can’t pay then what is the consequence that will befall. Not only for the companies but also for the citizens who have been obtaining services from these companies.Sidharth Luthra, Former Additional Solicitor General and Senior Advocate, Supreme Court