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View: AGR dues case and the need to be pragmatic over fastidious

28-Jul-2021

On 23 July of this year, the Supreme Court dismissed the application filed by some telecom companies for the re-calculation of the quantum of AGR Dues, alleging certain errors in computation. The court then went on to say that this matter had been pending in courts for a long time and cannot be subject to further litigation.

This left telecom service providers in India in a tough spot, considering many players are laden with debt. So much so, that some companies may now have to start looking to monetise assets or raise funds in order to meet the payment deadline.

How did we get here?

In order to understand this, we must look at the evolution of this case right from the beginning.

A recap…

AGR stands for ‘adjusted gross revenue’. The Department of Telecom (DoT) requires Indian telecom companies to pay certain licence fees and spectrum charges in the form of a portion out of their gross revenue. AGR (Adjusted gross revenue) is the base amount used to calculate this license fee owed to the government. which is a form of “revenue share” to be paid by telecom companies to the government. However, the industry and government did not agree on how this amount should be calculated—the telecom companies wanted to keep non-telecom revenues such as rent, profit on asset sales etc out of this computation.

It was back in 2005 when the industry challenged the government’s definition of AGR. After a lengthy courtroom battle, the TDSAT (Telecom Disputes Settlement and Appellate Tribunal) in 2011 ruled in favour of the government. In 2011, the Supreme Court opined that it was open to telcos to transfer any non-telecom activities to a different entity.

A second round of litigation followed when several telecom companies filed petitions across various for a (including TDSAT and various High Courts) for the correct interpretation of the heads of gross revenue mentioned in the telecom licenses. Since these fora had pronounced conflicting judgments, it culminated in proceedings before the Supreme Court where appeals from all these matters were heard together. In October 2019, the apex court upheld the DoT’s interpretation and calculation.

So why were telecom operators up in arms against the government’s calculation anyway? One needs to only look at the amount due as computed by the DoT to understand. In 2019, news reports pegged the amount as follows —a total of around Rs 92,000 crore which comprised of the disputed actual demand of over Rs 23,000 crore, levy of Interest at over Rs 41,000 crore, a penalty of over Rs 10,900 crore and interest on penalty at Rs 16,800 crore. (approximate figures)

A death knell for telecom companies?

The October 2019 judgement by the apex court delivered a death knell of sorts to telecom companies, which were already laden with debt and experiencing perhaps the worst phase for the sector.

After finality was adduced to this issue, telecom companies have been running from pillar to post and options have been running out. Shortly after passing of the order, review petitions were filed by some telecom companies for reconsideration of the issue and extension of the original payment deadline of three months. Subsequently, other applications on similar lines were also filed from time to time. On the other hand, the DoT unilaterally sought to extend the payment deadline. None of the foregoing avenues proved to be fruitful for the telecom industry as the court remained adamant on its stance. In fact, suo motu contempt action was initiated by the court for attempting to extend the payment deadline without seeking leave.

Ultimately, after taking stock of the situation on the ground and in light of the application filed by the DoT seeking a 20-year payment plan, the court granted a 10-year window for making payments. This was subject to 10 percent of the amount being paid by March 31, 2021. News reports suggest that the aggregate value of the dues exceeds Rs 1,67,000 crores (approximately $22 billion), which can eclipse the GDP of many lower income countries.

This, by no means is affordable by the industry in its current state.

What lies ahead…

Telecom companies have contended that the DoT’s demands are ridden with significant arithmetical errors and there is considerable daylight between the DoT’s figures and the numbers computed by themselves. Some news reports suggest that DoT’s demands are more than threefold the figures postulated by the telecom companies.

It appears that during the course of the hearing, telecom companies had sought to demonstrate that there are patent errors in calculation and in fact, there are some duplicate entries as well. However, is it too late in the day to raise these questions?

Perhaps so. Ideally, such pleas and contentions should have been raised at the time of hearings leading up to the passing of the judgment in October 2019 itself. After all, the errors (if any) would have existed at that time as well.

Thereafter, the issue was finally decided by the Court and became binding on the parties. Hence, to raise these contentions at such a belated stage appears to be the last line of defence.

On the other hand, if the stance of the telecom companies is assumed to be correct, it would be a travesty if they are compelled to honour misconceived demands, especially at the cost of their survival. Some telecom companies are already underdoing proceedings under the Insolvency and Bankruptcy Code, and this pay-out obligation would be the tipping point for others.

The question now on every stakeholder’s mind is—what is next for such telecom companies? While review petitions can be filed, this route may not bear much fruit as meeting the conditions for it would be an uphill task to start with.

It seems that options are running out and not much can be done to salvage at this stage.

Be that as it may, while there is no denying that such pleas could have been raised much earlier, perhaps a more compassionate view could have been taken in the prevailing facts and circumstances. The existence of the players in the sector is paramount for nurturing competition and more importantly, protecting consumer interest.

Over the years telecom services have acquired the characteristics of an ‘essential service’, even more so in the post-pandemic world where many professionals do their jobs and students attend classes using the internet. Hence, a pragmatic rather than a fastidious approach would be ideal.

This article was first published on CNBCTV18 website. Please find the link - https://www.cnbctv18.com/legal/view-agr-dues-case-and-the-need-to-be-pragmatic-over-fastidious-10144141.htm

Harsh Walia (partners)

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