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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE/ORIGINAL JURISDICTION

CIVIL APPEAL NO.2803 OF 2014

Bharti Airtel Ltd.                          … Appellant

Versus

Union of India … Respondent

WITH

CIVIL APPEAL NO.1969 OF 2014

Vodafone Mobile Services Ltd. & Others … Appellants

Versus

Union of India … Respondent

CIVIL APPEAL NO.2072 OF 2014

Loop Mobile India                          … Appellant

Versus

Union of India … Respondent

CIVIL APPEAL NO.5376 OF 2014

Idea Cellular Ltd.                          … Appellant

Versus

Union of India … Respondent

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CIVIL APPEAL NO.9116 OF 2014

Idea Cellular Ltd.                          … Appellant

Versus

Union of India … Respondent

WRIT PETITION (CIVIL) NO.1056 OF 2014

Bharti Airtel Ltd. & Others              … Petitioners

Versus

Union of India … Respondent

WRIT PETITION (CIVIL) NO.971 OF 2014

Vodafone Cellular Ltd. & Others … Petitioners

Versus

Union of India … Respondent

AND

WRIT PETITION (CIVIL) NO.180 OF 2015

Reliance Telecom Ltd. & Another … Petitioners

Versus

Union of India & Another … Respondents

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J U D G M E N T Chelameswar, J.

1. These five civil appeals under Section 18 of the Telecom

Regulatory Authority of India Act, 1997 (hereinafter referred to

as  the  “TRAI  Act”)  and  three  writ  petitions  raise  common

questions.  Each of the appellants or the petitioners, as the

case may be, in these matters (hereinafter collectively referred

to  as  ‘LICENSEES’)  is  a  licensee  holding  a  licence  granted

under  Section  4  of  the  Indian  Telegraph  Act,  1885  for

providing  TELEGRAPH  services  in  the  various  earmarked

service areas.  

2. It appears from the judgment of this Court in Centre for

Public Interest Litigation & Others v.  Union of India &

Others, (2012) 3 SCC 1, hereinafter referred to as  2G case,

that the first telegraph link in India was experimented in 1839

between  Calcutta  and  Diamond  Harbor  separated  by  a

distance  of  21 miles.   By an act  of  the  British Parliament,

known  as  the  Indian  Telegraph  Act,  1885,  the  privilege  of

“establishing,  maintaining and working of telegraphs” within the territory of

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British India was exclusively conferred under Section 4 upon

the Central Government – an expression which bore different

meanings at different points of time in this country, the details

of which may not be necessary for the purpose of this case.

However,  proviso  to  the  said  section  enabled  the  Central

Government  to  licence  any  person  to  exercise  the  privilege

which is otherwise exclusive to the Central Government.   

3. The  advancement  of  technology  made  wireless

communication1 possible which led to the enactment of  the

Indian Wireless Telegraphy Act, 1933.  

4. On 28th January, 1882, Major E. Baring, Member of the

Governor  General’s  Council  declared  open  three  telephone2

exchanges  in  Calcutta,  Bombay  and  Madras,  marking  the

beginning of telephone communications in India. Over the next

133 years, there has been a mind boggling advancement in the

1  Section 2.(1) ‘wireless communication’ means any transmission, omission or reception of signs, signals, writing, images and sounds, or intelligence of any nature by means of electricity, magnetism, or Radio waves or Hertzian waves, without the use of wires or other continuous electrical conductors between the transmitting and the receiving apparatus; 2 Alexander Graham Bell is commonly credited with the invention of telephone.  He obtained a patent in 1876 for an apparatus for transmitting vocal or other sounds electrically.  There is some controversy as to who was the real inventor of telephone.   There is a very strong claim by an Italian scientist called Antonio Meucci.  A resolution was passed by the United States House of Representatives in 2002 recognising that Meucci did pioneering work on the development of telephone and “if Meucci had been able to pay $ 10 fee to maintain a caveat after 1874, no patent could have been issued to Bell”.  

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telecommunication  technology.   Strangely,  there  is  no

enactment in this country dealing with the establishment and

working of telephones.  The 160 year old telegram system in

this  country  was  officially  closed  on  14th July,  2013.

Ironically,  the  Indian  Telegraph  Act,  1885  and  the  Indian

Wireless  Telegraphy  Act,  1933 still  continue  on the  statute

book. By virtue of the various amendments made from time to

time, these two enactments still continue to govern the entire

activity  of  establishment,  maintenance  and  working  of

telephones and various other telecommunication services.

Electromagnetic  Radiation  -   Waves   -   Frequencies   - Spectrum

5. `Electromagnetic (EM) radiation is a phenomenon which

occurs in the universe.  Sunlight is a familiar example of EM

radiation.   So is the light from stars.   EM radiation travels in

waves at different frequencies.    Frequency of a wave and its

length are inversely proportional.   Generally, EM radiation is

classified  on  the  basis  of  wavelength  into  radio  wave,

microwave,  terahertz  (or  sub-millimeter)  radiation,  infrared,

the visible region is perceived as light, ultraviolet, X-rays and

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gamma rays.   Waves with frequencies ranging from 300 GHz

to 3 kHz (corresponding wave length ranging from 1 millimeter

to 100 kilometers) are called radio waves.  Radio waves have

the longest wave lengths in the electromagnetic spectrum. The

entire  range  of  frequencies  in  EM  radiation  is  called  EM

spectrum.  

“EM radiation interacts with matter in different ways across the spectrum. These types of interaction are so different that historically different names have been applied to different parts of the spectrum, as though these were different types of radiation.   Thus, although these “different kinds” of EM radiation  form a quantitatively continuous spectrum of  frequencies  and wavelengths, the spectrum remains divided for practical reasons related to these qualitative interaction differences.”    

6. Any EM radiation (including radio waves) travels with the

speed of light in vacuum i.e. 299,792,458 meters per second.

The distance is called the wavelength of a Hertz radio signal

(HZ).   Megahertz (MHz) radio signal has a wavelength of 984

feet.   Wave length of radio waves is measured in units called

Hertz -a name given to the unit after Heinrich Hertz a German

scientist who in 1887 demonstrated the reality of radio waves

the existence of  which was theoretically  predicted earlier  in

1867 by  James  Clerk  Maxwell  (a  Scottish  mathematical

physicist).

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7. Radio waves can be generated artificially and used for the

transmission  of  sound  or  for  passing  information.   Radio

frequencies are divided into groups called bands which have

similar characteristics.   Artificially generated radio waves are

used for fixed and mobile radio communication broadcasting,

radar and other navigation systems, communication satellites,

computer networks etc.   

8. To  prevent  interference  between  different  users,  the

artificial generation and use of radio waves is strictly regulated

by  law,  coordinated  by  an  international  body  called  the

International  Telecommunications  Union  (ITU).   The  radio

spectrum is divided into a number of bands on the basis of

frequency and allocated to different users.

9. Till 1991, the activity of establishment, maintenance and

working  of  telephones  was  completely  controlled  by  the

Government of India.  Pursuant to the New Economic Policy

announced by the Government of India on 24.7.1991, some of

the services in telecommunication sector were opened up to

the private investment in 1992.   

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“……….the following services: (a) Electronic Mail; (b) Voice Mail; (c) Data Services; (d) Audio Text Services; (e) Video Text Services; (f) Video Conferencing; (g) Radio Paging; and (h) Cellular Mobile Telephone.  In respect  of  services  (a)  to  (f),  the  companies  registered  in  India  were permitted to operate under a licence on non-exclusive basis. For services covered by (g) and (h) mentioned above, keeping in view the constraints on the number of companies that could be allowed to operate, a policy of selection  through  a  system  of  tendering  was  followed  for  grant  of licences.”

[Para 5 of 2G case (supra)]

10. All services, which were opened up to private investment

referred to above, are EM wave based services. Therefore, they

fall  within  the  definition  of  the  expression  “TELEGRAPH”3

occurring under Section 3(1)(AA) of the Telegraph Act.  Since

the  privilege  to  conduct  the  activity  of  establishment,

maintenance  and  working  of  a  TELEGRAPH  could  be

permitted  by  the  Government  by  private  parties  under  a

licence,  there  arose  a  need  to  regulate  utilization  of

frequencies by the LICENSEES for carrying on the business in

TELEGRAPHS.   

11. Some of the frequencies are exclusively reserved for the 3  3.(1AA) ‘telegraph’ means any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature by wire,  visual  or  other  electro-magnetic  emissions,  radio  waves  or  Hertzian  waves,  galvanic,  electric  or magnetic means.  

Explanation.—’Radio waves’ or ‘Hertzian waves’ means electromagnetic waves of frequencies lower than 3,000 giga-cycles per second propagated in space without artificial guide;

                           -Substituted and re-numbered for Section 3(1) by the Act 15 of 1961

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defence and security  operations of  India which,  for  obvious

reasons, cannot be made accessible to private parties.

12. The New Telecom Policy 1994 (NTP 1994) was announced

by the Government of India on 13.5.1994.  In furtherance of

the said Policy, 22 Cellular Mobile Telephone Service (CMTS);

6  Basic  Telephone  Service  (BTS)  licences  were  granted  to

operators:

13. In  addition,  paging  licences  were  awarded in  27  cities

and 18 State circles.

14. These licences were bundled with spectrum within which

a licensee was entitled to operate.   The licences were granted

on the basis of selection through a system of tendering.

15. On 20th November 1998, a Group was constituted by the

Government of India to review the then existing telecom policy

and suggest reforms.  Based on the report of the said Group,

the  New  Telecom  Policy  1999  (NTP  1999)  was  formulated

which became effective from 1.4.1999.

16. It took note of the fact situation as it existed on that day

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in the following words:

“The Government invited private sector participation in a phased manner from the early nineties, initially for value added services such as Paging Services and Cellular Mobile Telephone Services (CMTS) and thereafter for  Fixed  Telephone  Services  (FTS).   After  a  competitive  bidding process, licenses were awarded to a CMTS operators in the four metros, 14 CMTS operators in 18 state circles, 6 BTS operators in 6 state circles and to paging operators in 27 cities and 18 state circles.  VSAT services were  liberalized  for  providing  data  services  to  closed  user  groups. Licences were issued to 14 operators in the private sector out of which only  nine  licencees  are  operational.   The  Government  has  recently announced  the  policy  for  Internet  Service  Provision  (ISP)  by  private operators and has commenced licensing of the same.  The Government has also announced opening up of Global Mobile Personal Communications by Satellite (GMPCS) and has issued one provisional license.  Issue of licenses to other prospective GMPCS operators is under consideration.”

17. The  NTP  1999  took  note  of  the  existence  of  various

licences  granted  under  the  NTP  1994  and  made  a  policy

statement  that  the  Government  intends  to  resolve  the

problems of existing operators in a manner “which is consistent with

their contractual obligations and is legally tenable”.4

18. Pursuant  to  the  policy  statement,  the  Government  of

India  devised  a  scheme  for  the  migration  of  existing

LICENSEES under the NTP 1994 to the new regime under the

NTP 1999.  The Scheme known as Package for Migration of 4   Resolution of problems of existing operators

The  New  Policy  Framework  which  seeks  to  significantly  redefine  the  competitive  nature  of industry, would be applicable to new LICENCEES.

There are, however, multiple licences that have been issued by the Government for cellular mobile services, basic services, radio paging services, internet services etc.  It is the Government’s intention to satisfactorily resolve the problems being faced by existing operators in a manner which is consistent with their contractual obligations and is legally tenable.

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Existing LICENSEES of Cellular and Basic Telecom  Services

to  New Telecom Policy.   The terms of  the  policy  insofar  as

relevant for our purpose are as follows:-

“…..  the  following  Package  is  proposed  to  migration  of  the  existing Cellular  (Metros  and  Telecom  Circle)  and  Basic  Telecom  Service Operators to NTP-99 regime:-

(i) The cut  off  date  for  change over  to  NTP-99 regime will  be 1.8.1999.

(ii) The licensee will be required to pay one time Entry fee and License Fee as a percentage share of gross revenue under the license.  The Entry Fee chargeable will be licence fee dues payable by existing LICENCEES upto 31.07.1999, calculated upto  this  date  duly  adjusted  consequent  upon  notional extension of  effective  date  as  in  para (ix)  below, as  per  the conditions of existing licence.

(iii) The Licence fee as a percentage of gross revenue under the licence shall be payable w.e.f. 1.8.99.  The Government will take a final decision about the quantum of the revenue share to be charged as licence fee after obtaining recommendations of the  Telecom Regulatory  Authority  of  India  (TRAI).   In  the meanwhile, Government have decided to fix 15% of the gross revenue of the Licensee as provisional license fee.  The gross revenue  for  the  purpose  would  be  the  total  revenue  of  the Licensee  company  excluding  the  PSTN related  call  charges paid to DOT/MTNL and service tax collected by the licensee on  behalf  of  the  Government  from  their  subscribers.   On receipt  of  TRAI’s  recommendation  and  Government’s  final decision, final adjustment of provisional dues will be effected depending  upon  the  percentage  of  revenue  share  and  the definition  of  revenue  for  this  purpose  as  may  be  finally decided.

xxx xxxx xxxx xxxx

(xi) The period of licence shall be 20 years starting from the effective date of the existing licence agreement.”

19. In the year 2003, the Central Government came out with

an  Office  Memorandum  dated  11.11.2003  which  contained

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guidelines  for  Unified  Access  (Basic  &  Cellular)  Services

Licence (UAS Licences).  The relevant portion of the document

reads as follows:-

“Government, in the public interest in general and consumer interest in particular and for the proper conduct of telegraphs and telecommunica- tions services, has decided to move towards a Unified Access Services Li- censing regime. As a first step, as recommended by TRAI, Basic and Cel- lular services shall be unified within the service area. In pursuance of this decision, the following shall be the broad Guidelines for the Unified Ac- cess  Services License.  

(i) The existing operators shall have an option to continue under the present  licensing  regime(with  present  terms  &  conditions)  or migrate to new Unified Access Services Licence (UASL) in the existing  service  areas,  with  the  existing  allocated/  contracted spectrum.

(ii) The license fee, service area, rollout obligations and performance bank guarantee under the Unified Access Services Licence will be the  same  as  for  Fourth  Cellular  Mobile  Service  Providers (CMSPs).”

20. Some of the LICENSEES migrated to the UAS Licensing

regime.  Even under the said regime, the validity of licence was

initially for a period of 20 years from the effective date and

extendible by 10 years.5

5 3.  Duration of Licence

3.1 This LICENCE shall be valid for a period of 20 years from the effective date unless revoked earlier for reasons as specified elsewhere in the document.

4.  Extension of Licence

4.1 The LICENSOR may extend, if deemed expedient, the period of LICENSE by 10 years at one time, upon request of the LICENSEE, if made during 19 th year of the License period on terms mutually agreed.  The decision of the LICENSOR shall be final in regard to the grant of extension.

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21. Under  the  National  Telecom  Policy-2012  (for  short

“NTP-2012”),  the  Government  of  India  decided  to  “de-link”

licence  and the  spectrum for  the  purpose  of  grant  of  fresh

licences.   

22. In the meanwhile, the grant of licence and allotment of

spectrum by the  Union of  India  pursuant  to  the  two press

releases  issued  on  10.01.2008  became  subject  matter  of

litigation before this Court which eventually culminated into

2G Case.  By the said judgment, this Court set aside all the

licences  granted  pursuant  to  the  abovementioned  press

releases.

23. Union  of  India  announced  the  NTP–2012  in  which  it

sought to de-link the licences and allocation of spectrum in

respect of future licences.   Shortly thereafter on 2.2.2012, the

judgment  of  this  Court  in  2G  case  was  pronounced.  On

15.02.2012, the Minister of Telecommunication & Information

Technology issued a statement.  Insofar as the existing UAS,

CMTS and Basic Services Licences are concerned, it is stated

therein that (i) no more UAS licences linked with spectrum will

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be awarded, (ii) all future licences will be Unified Licences, (iii)

allocation of spectrum will  be delinked from the licence, (iv)

The  validity  of  existing  UAS  (&  CMTS  and  Basic  services)

licences may be extended for another 10 years at one time, as

per the provisions of the extant licensing regime with suitable

Terms & Conditions so as not to imply automatic continuance

of existing licence and related conditions including quantum

and price of any spectrum allocated.  The relevant portion of

the full text of the statement would be considered later in this

judgment.

24.  The licences granted to the various LICENSEES are due

to expire on various dates in 2014-2015.  

25. Pursuant to the judgment in 2G case, the Union of India

took steps to conduct an auction of the 900 MHz band and

1800  MHz  band  insofar  as  they  pertain  to  the  certain

operators whose licenses were coming to an end in 2014.

26. Each of the LICENSEES herein hold licences for different

service  areas.   It  appears  from the  impugned  order  of  the

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TDSAT dated 31.01.2014, which is a common order in the four

petitions filed by four different  LICENSEES (Vodafone Mobile

Service  Ltd.,  Loop  Mobile  India,  Bharti  Airtel  Ltd.  &  Idea

Cellular Ltd.).  Some of the LICENSEES hold Cellular Mobile

Telephone  Service  licence  (CMTS  licence)  while  others  hold

Unified Access Service license (UAS licence).  Both the classes

of licences stipulated that the licences are valid for a period of

20 years and provide that the Licensor may extend the period

of licence for another 10 years subject to certain conditions

specified in the licence.  The relevant conditions contained in

both the classes of  licences are broadly similar with certain

minor variations in the language employed.

CMTS UAS Period of Licence:  The period of license shall be twenty years from the effective date of the existing license agreement unless terminated for the reasons stated therein.  The Licensor may extend the period of  license,  if  requested  during  19th year  from the effective date for a period of 10  years at a time on mutually agreed terms and conditions.  The decision of  licensor  shall  be  final  in  regard  to  grant  of extension.

The LICENSE shall be valid for a period of 20 years from the  effective  date  unless  revoked  earlier  for reasons as specified elsewhere in the document. The LICENSOR may extend, if deemed expedient, the period of LLICENCE by 10 years at one time, upon request of the LICENSEE, if made during 19th year  of  the  Licence  period  on  terms  mutually agreed.   The decision of  the LICENSOR shall  be final in regard to the grant of extension.

Whether the minor variations in the language employed by the

LICENSOR make any difference in the context of the right of

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the LICENSEES to seek an extension of a licence is one of the

aspects which is required to be examined by us.

27. Since both the classes of licences contemplate seeking of

an extension by  the  LICENSEE during  the  19th year  of  the

currency  of  the  licence,  the  LICENSEES  approached  the

Government  of  India  seeking  an  extension/renewal  of  their

licences.   Alleging  that  there  was  no  response  from  the

Government  of  India,  some of  the  LICENSEES went  to  the

Delhi  High  Court  filing  writ  petitions  seeking  appropriate

directions to the Government of India.  The said writ petitions

were disposed of by an order dated 22.02.2013 of the Delhi

High Court directing the Government of India to dispose of the

applications  of  the  writ  petitioners  within  a  stipulated  time

frame.  The High Court also observed that in the event of the

Government of India’s decision going adverse to the interest of

the petitioners, the petitioners would be “at liberty to take recourse to

appropriate remedy”.  

28. Pursuant to the directions of the Delhi High Court, the

applications of the petitioners were considered and rejected by

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the Government of India on different dates.  Aggrieved by the

same, the LICENSEES approached the TDSAT.  Their petitions

were  dismissed by  an order  dated 31.01.2014.   Hence,  the

appeals  under  Section  18  of  the  TRAI  Act.   Some  of  the

LICENSEES approached this  court  directly  without going to

the TDSAT by filing writ petitions invoking the jurisdiction of

this court under Article 32 of the Constitution of India.   

29. TDSAT recorded that “the right to extension of the licence is undeniably

a valuable right  of  the licensee” but held that such a right is not an

absolute  right.   If  the  LICENSOR (Union of  India)  does not

deem it expedient to grant such licence, it is under no such

obligation to grant such extension.  The expression ‘expedient’

in the context of the licences only means “public interest and

for public good”.  Therefore, the tribunal opined that it is open

to the Central Government to refuse the extension if it is of the

opinion that  the  grant  of  extension would not  be  in  public

interest or sub-serve public good.  The tribunal also opined

that “….. for the purpose of grant of extension it is Central Government alone that is

the judge of public interest  and public  good.  The Central  Government may frame a

policy or revise and existing policy in larger public interest and in case the extension of

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the existing licences militates against the new policy it would be a valid and acceptable

ground  for  refusing  extension”.   The  tribunal  also  opined  that  the

absence  of  the  employment  of  the  expression  “if  deemed

expedient”  in  the  relevant  clause  of  UAS  licence,  made  no

difference insofar as the authority of the Government of India

for rejecting the extension of the licences.  

30. In coming to such a conclusion, the tribunal took note of

the  judgment  of  this  Court  in  2G  case and  also  the

subsequent opinion of this Court dated 27.9.2012 in Natural

Resources  Allocation,  In  Re.  Special  Reference  No.1  of

2012, (2012) 10 SCC 1 and the Press Statement made by the

then Telecom Minister on 15.2.2012.  The tribunal also noted

certain  recommendations  made  by  the  TRAI  on  Spectrum

Management  and  Licensing  Framework  dated  11.5.2012

alongwith  certain  other  regulations  and  clarifications  and

concluded that:

“……… show that after deep and careful consideration of the matter, in consultation  with  the  expert  statutory  authority  in  the  sector,  the Government  has  framed  a  policy  for  management  and dispensation  of spectrum in  the  larger  public  interest.   Any  extension  of  the  expiring licenses is bound to undermine the implementation of the policy and that

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is justification enough and sufficient for the Government to decline the extension for the licenses.”

31. On behalf of the licensees, the following submissions are

made:

1. The  licences,  such  as  the  one  under

consideration  in  this  batch  of  matters,  are

nothing but contracts between the Union of India

and the LICENSEES.   They secured the licences

in  the  year  1994-95  admittedly  through  a

transparent process of bidding.  Under the terms

of  the  said  licences/contract,  the  LICENSEES

have  a  right  to  have  their  claim  for  extension

appropriately considered in terms of the contract.

Therefore,  the  respondents  are  neither  entitled

nor justified in calling upon the LICENSEES to

participate  in  the  auction  of  the  spectrum  to

obtain  the  necessary  spectrum  to  work  their

respective  licences.   Such  a  decision  of  the

respondent is violative of the contractual rights of

the LICENSEES.

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It is also the case of the LICENSEES that under

the terms of the licence, they are entitled to seek

an extension, but not a ‘renewal’ of the licence.

The employment of  the word “extension” in the

licence confers a higher right  than the right  to

seek a renewal.

2.  The  principle  that  the  State  owned  resources

cannot  be  alienated  except  by  a  process  of

auction is not a principle applicable universally

and  is  so  clarified  by  this  Court  in  Natural

Resources  Allocation,  In  Re,  Special

Reference No.1 of 2012, (2012) 10 SCC 1.

3. The decision of this Court in  2G case  by which

this  Court  found  fault  with  the  policy  of  the

Government  of  India  to  grant  licences  on  the

basis of “first come first serve” without auctioning

the  spectrum is  applicable  only  to  the  licences

granted in 2008 but not to every licence granted

under  Section  4  of  the  Indian  Telegraph  Act,

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1885.

4.  Maximization of  revenue shall  not  be the only

consideration  for  the  Union  of  India  while

deciding to hold the auction in question.  Union

of  India  was  under  an  obligation  to  ensure

continuity  of  telecom  services  to  millions  of

people  who are already utilizing services of  the

existing operators. Introducing new operators at

this stage would cause disruption in the service

to  the  customers  and  likely  to  create  an

unhealthy  competition  for  access  to  spectrum

which  would  eventually  burden  the  ultimate

consumer.    

5.  Each  of  the  LICENSEES  has  made  a  huge

investment in the infrastructure for the purpose

of  providing  services  to  its  customers.    Such

infrastructure  is  created  by  borrowing  from

various banks and financial institutions.  If the

licences of the LICENSEES are not extended, it

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would result  in a huge wastage of  the national

financial and material resources.  If the licences

of the existing operators are not renewed, such

infrastructure  would  simply  go  waste  resulting

into not only loss to the national resources but

also lead to a situation in which the recovery of

the  loans  obtained  by  various  operators  would

become doubtful.   

6. Under  the  TRAI  Act,  the  authority,  constituted

under Section 3, is under an obligation to make

recommendations either suo moto or on a request

of  the Central  Government regarding the terms

and  conditions  of  licence  to  a  service  provider

and efficient management of available spectrum.

The authority also has a duty to “ensure compliance of

terms  and  conditions  of  a  license”.   The  Government  of

India  in  violation  of  such  statutory  stipulation

ignored  the  recommendation  made  by  the

authority and put the spectrum in auction.

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  32. On  behalf  of  the  Union  of  India,  it  is  argued  by  the

learned Solicitor  General  that none of  the LICENSEES have

any  vested  right  for  either  renewal  or  extension  of  their

respective licences.   Under the terms and conditions of the

licences, the LICENSEES are only entitled for a consideration

of their claim for extension of their licences period. However,

such a right is subject to the following conditions:

i) There  must  be  a  request  from the  licensee  for

such an extension of the period of licence;

ii) Such a  request  must  be  made  during  the  19th

year from the effective date of the licence;

iii) The extension of the licence is at the discretion of

the LICENSOR as is evident from the language of

the relevant clauses of the license which states

that the LICENSOR may extend;

iv) That condition of clause 4.1 which says that “the

decision of the LICENSOR in regard to the grant

of extension is final” indicates that the discretion

vested in the LICENSOR is absolute.

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33. Learned Solicitor General  also submitted that even the

limited  right  of  consideration created  under  the  contract  is

always subject to change of policy by the LICENSOR (Union of

India)  and its  statutory and constitutional  obligations.   The

Union of  India as a matter  of  policy took a decision not  to

extend the licenses of these LICENSEES, as the extension of a

license would necessarily imply the extension of the privilege

to use the spectrum which had been bundled with the original

grant.   The Government took such a decision in the light of

the decision of this Court in  2G case.   The prospect of the

exchequer getting a huge amount by putting the spectrum for

auction is a relevant consideration justifying the decision to

put the spectrum for auction.   So long as the decision to put

the  spectrum  on  auction  is  uniformly  applicable  to  all

LICENSEES across the Board, such a policy decision of the

Government  of  India  prevails  over  the  right,  if  any  of  the

LICENSEES to have their claim for extension of the license be

considered either on the same terms on which the licenses

were  granted  or  on  terms  which  the  LICENSEES  are

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suggesting.    The  learned  Solicitor  General  submitted  that

even in terms of the license conditions, the extension can only

be on “mutually agreed terms and conditions” or  “on terms

mutually agreed”.    It is not open for the petitioners to argue

that  the  LICENSOR  is  bound  to  grant  extension  on  terms

which the licensee dictates.

34. Now,  we  proceed  to  examine  the  submissions  of  the

LICENSEES.   

35. At  the  outset,  we  agree  with  the  LICENSEES  that  a

licence  granted  under  Section  4  of  the  Act  is  a  contract

between the Government of India and the LICENSEES.

36. In Union of India & Another v. Association of Unified

Telecom Service  Providers  of  India  & Others, (2011)  10

SCC  543,  relying  upon  an  earlier  Constitution  Bench

judgment  of  this  Court  in  State  of  Punjab  & Another v.

Devans Modern Breweries Ltd. & Another, (2004) 11 SCC

26,  which  in  turn relied  upon two  earlier  decisions  of  this

Court  in  Har Shankar & Others v. The Dy.  Excise and

Taxation Commissioner & Others, (1975) 1 SCC 737 and

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Panna  Lal  &  Others v. State  of  Rajasthan  &  Others,

(1975) 2 SCC 633, this Court held -  

“40.   ….Thus, once a licence is issued under the proviso to sub-section (1)  of  Section  4  of  the  Telegraph  Act,  the  licence  becomes  a  contract between  the  licensor  and  the  licensee.    Consequently,  the  terms  and conditions of the licence including the definition ….. are part of a contract between the licensor and the licensee.”

37. Therefore,  now it  is  the  settled  position  of  law  that  a

license granted under Section 4(1) of the Telegraph Act such

as  the  one  granted  to  each  of  the  LICENSEES herein  is  a

contract between the LICENSOR and the LICENSEE.

38. If the licences in question are nothing but contracts, the

next  question  would  be,  is  there  any  right  of  extension  of

licence created in favour of LICENSEE under the contract?

39. From the language of the relevant clauses of the licences

which are noted earlier, it is clear that the LICENSEES have

no automatic right of renewal/extension on the expiry of the

original tenure of the license.  The contract only provided for

extension of the period of license at the sole discretion of the

LICENSOR subject to the condition that the LICENSEE makes

an application seeking an extension during the 19th year of the

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currency of the licence.   It appears that all of the LICENSEES

did make such an application.

40. The question which requires examination is - what are

the  obligations  of  the  LICENSOR  on  receipt  of  such  an

application?  The obligations of the LICENSOR flow from two

sources,  (i)  From the  contract,  (ii)  from the  Constitution of

India  and  the  relevant  provisions  of  the  statute  (Indian

Telegraph Act, 1885).   In the event of any conflict between the

said  two sets  of  obligations,  the  further  question would  be

which one of the conflicting obligations prevail?   

41. Under the terms of the license, the LICENSOR is required

to extend the license only on “mutually agreed terms and conditions”, if

such an extension is sought in the 19th year of the currency of

the licence.   To test the correctness of the submission that

under the contract, the LICENSOR is under an obligation to

consider the extension of licence, we take an example of a case

where the LICENSEE does not make an application in the 19th

year but makes it just a few days before the expiry of the 20th

year.   Does the LICENSEE still have a right of consideration?

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In our opinion, the answer should be ‘No’ for two reasons; (i)

that such a claim is plainly unsupported by the text of the

contract,  (ii)  the  failure  to  seek  extension  in  the  19th year,

makes the continuance of the service to the public uncertain.

The  Government  of  India  cannot  afford  to  remain  waiting

without  making  alternative  arrangements,  Because  the

disruption in  the  communication in the  modern world  may

lead to many undesirable  consequences apart  from causing

inconvenience to the public.   Take the alternative possibility

of the LICENSEE not making an application for extension at

all  because  he  is  not  interested  in  the  extension  (a  very

unlikely  scenario).    Can  the  LICENSOR  insist  that  the

LICENSEE should continue to offer the service either on the

same  economic  considerations  or  otherwise?   The  answer

seems to be plain and ‘No’.   The language of the contract –

“mutually  agreed terms” –  clearly  indicates so.    Though it

requires an examination whether the LICENSOR i.e. the State

can compel the LICENSEE in a given case in exercise of its

authority either legislative or executive.     Therefore, under

the contract neither the LICENSOR nor the LICENSEE has a

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right  to  insist  that  other  party  should  continue  with  the

contract  even if  such other  party  is  not  willing to continue

except on such terms and conditions on which the other party

may desire to continue.  Such terms and conditions obviously

include  terms  and  conditions  regarding  the  economic

stipulations subject to which either of the parties is willing to

be in the contract.

42. However,  the  LICENSOR being  the  Union  of  India,  its

discretion to  stipulate  terms and conditions  is  regulated by

certain constitutional mandates apart from stipulations of any

law applicable.

43. Insofar as the constitutional mandate in the context of a

license under Section 4 of the Telegraph Act are concerned,

this Court in 2G case at para 85 held as follows:

“85. As  natural  resources  are  public  goods,  the  doctrine  of  equality, which emerges from the concepts of justice and fairness, must guide the State  in  determining  the  actual  mechanism  for  distribution  of  natural resources. In this regard, the doctrine of equality has two aspects: first, it regulates the rights and obligations of the State vis-à-vis its people and demands that the people be granted equitable access to natural resources and/or its products and that they  are adequately compensated for the transfer of the resource to the private domain; and second, it regulates the rights and obligations of the State vis-à-vis private parties seeking to acquire/use  the  resource  and  demands  that  the  procedure  adopted  for distribution  is  just,  non-arbitrary  and  transparent  and  that  it  does  not discriminate between similarly placed private parties.”

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44. The LICENSOR/Union of India does not have the freedom

to act whimsically.   As pointed out by this Court in 2G case

in the above-extracted paragraph, the authority of the Union is

fettered  by  two  constitutional  limitations;  firstly,  that  any

decision  of  the  State  to  grant  access  to  natural  resources,

which belong to the people, must ensure that the people  are

adequately  compensated and,  secondly,  the process by which such

access is granted must be  just,  non-arbitrary and transparent, vis-à-vis

private parties seeking such access.

45. By a statutory declaration made under Section 4 of the

Indian Telegraph Act, 1885, it is declared that the Government

of India shall have the exclusive “privilege for establishing,  maintaining

and working telegraphs” (which includes telephones).   The proviso to

Section 4 of the said Act authorizes the Government of India to

grant  license  to  establish,  maintain  and  work  telegraphs

(which includes telephones) “on such conditions and in consideration of such

payments” as it thinks fit.  Telephones include both wired and

wireless  telephones  like  cellular  mobile  phones,  the

establishment  and  working  of  which  necessarily  requires

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access  to  spectrum  which  again  is  controlled  by  the

Government of India as it is already declared to be a natural

resource by this Court.  It can thus, be seen that no person

other than the Government of India has any right to establish,

maintain and work telephones.    It is the exclusive privilege of

the  Government  of  India,  which  could  be  permitted  to  be

exercised by others by a grant from the Government of India.

46.  In other words, such licences are in the nature of largesse

from  the  State.    No  doubt,  the  authority  of  the  State  to

distribute such largess is always subject to the condition that

the State must comply with the conditions of Article 14 of the

Constitution i.e. the distribution must be on the basis of some

rational policy.   Even the language of the proviso to Section 4

of the Telegraph Act, which stipulates that the grant of license

should be “on such conditions and in consideration of such payments as it thinks

fit”, must necessarily be understood that the conditions must

be rational and the payments forming the consideration for the

grant of license must be non-discriminatory.   The conditions

contained in the licenses in question stipulate that the term of

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the license could be extended on mutually agreed terms, if the

Government of India deems it expedient.   The obligations of

the Government of India flowing from the Constitution as well

as a statute necessarily  require the Government of  India to

grant licences as rightly pointed by the Tribunal (TDSAT) only

“in public interest and for public good”.

47. This Court in  2G Case after elaborate discussion on the

nature  of  the  State’s  authority  to  deal  with  the  natural

resources held that  “……  spectrum  has  been  internationally  accepted  as  a

scarce, finite and renewable natural resource which is susceptible to degradation in case

of inefficient utilization.   It has a high economic value in the light of the demand for it on

account of the tremendous growth in the telecom sector.   Although it does not belong to a

particular State, right of use has been granted to the States as per international norms.”

(Para 77)

48. While  recognizing  the  power  of  the  State  to  distribute

natural resources this Court held that the State is bound to

“act in consonance with the principles of equality and public trust and ensure that no

action is taken which may be detrimental to public interest”. (Para 75)

49. In para 89, the Court concluded as follows:-

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“89. “In conclusion,  we hold that the State is the legal owner of the natural resources as a trustee of the people and although it is empowered to distribute the same, the process of distribution must be guided by the constitutional  principles  including  the  doctrine  of  equality  and  larger public good.”

50. This  Court  further  held:  “………..State  and  its

agencies/instrumentalities must always adopt  a  rational  method for disposal of public

property …….”.   “It is the burden of the State to ensure that a non-discriminatory

method  is  adopted  for  distribution  and  alienation  which  would  necessarily  result  in

national/public interest”.  (Para 95)

51. This Court opined that a “duly publicized auction conducted fairly and

impartially is perhaps the best method for discharging the burden of the State to ensure

protection of public interest.”

52. The  conditions  of  licences/contracts  in  whatever

language  provided  for  consideration  for  the  extension  of  a

licence  are  necessarily  required  to  be  interpreted  in

consonance  with  the  obligation  of  the  LICENSOR/Union  of

India under the Constitution and the laws.   Otherwise,  the

contract would be rendered void for being inconsistent with

public  policy,  the  principle  expressly  incorporated  under

Section 23 of the Indian Contract Act, 1872.

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53. The decision of the LICENSOR to conduct an auction for

granting  access  to  spectrum,  obviously,  complies  with  the

second of the requirements specified by this Court in para 85

of  the  2G  Case judgment.   The  question  whether  such  a

decision also complies with the requirements of the first of the

two  facets  mentioned  therein  is  the  issue  in  this  batch  of

matters.  In other words, the adequacy of compensation which

the Government of India seeks to derive by holding an auction

for  allowing  access  to  spectrum  is  just  and  fair  in  the

circumstances.  

54. The  case  of  the  LICENSEES is  that  such a  procedure

would promote an unhealthy competition among the persons

aspiring  to  secure  such  a  spectrum.   The  cost  of  such

acquisition  would  eventually  result  in  burdening  the

consumers, i.e. the users of the telephones.  Because, higher

the amount spent by the LICENSEE in securing the spectrum

the greater the need for the LICENSEE to fix higher tariff for

the  telephone  services  in  order  to  make  the  service

commercially viable.   Though the prospect of securing a larger

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amount for the exchequer is undeniable the same would be at

the cost of  the consumers, as the burden will  ultimately be

passed  on  by  the  LICENSEE  to  the  consumers.   The

LICENSEES also submitted that in view of the fact that the

LICENSEES invested huge amount running into thousands of

crores in the last twenty years of the working of the licenses

for building the infrastructure in order to provide necessary

telecom services to the people  of  this  country,  not  only  the

LICENSEE would suffer an economic damage but the Nation

also  would  suffer  damage  in  terms  of  the  wastage  of  the

resources already created.

55. We do not doubt that the LICENSEES would necessarily

have to pass on their burden to the ultimate consumers. That

need  not  necessarily  mean  that  there  should  be  an

enhancement in the tariffs.  There is always a possibility of

maintaining the tariffs at a lower level if the consumers base

is sufficiently large, i.e. more the consumers base, more the

turnover.  Therefore, the possibility of avoidance of the need to

increase the tariffs.  It all depends upon the facts and figures.

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Adjudicating the issue without concrete facts and figures in

this  regard  only  on  some  hypothetical  basis  is  neither

permissible nor justified.

56. Let  us  examine  the  alternative  scenario.   We  shall

assume for the sake of argument that the impugned procedure

adopted by the Government of India would ultimately result in

a situation where a LICENSEE would have no choice but to

charge  higher  amounts  from the  consumers  in  order  to  be

commercially viable.  Whether such a result is desirable or not

is a question which falls within the realm of policy choices of

the  Government  of  India.   By  all  the  established  legal

principles - this Court would not embark upon an examination

of the wisdom of such policy choices.

57. At this stage, we must also deal with certain submissions

made  by  Shri  K.K.  Venugopal,  learned  senior  counsel

appearing  for  one  of  the  appellants.   The  phrase  “if  deemed

expedient”  occurring  in  Clause  4.1  of  the  Licence  must  be

understood in the light of the interpretation of the expression

“expedient”  in  Hotel  Sea  Gull v. State  of  West  Bengal  &

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Others, (2002) 4 SCC 1 wherein it was held by this Court to

mean  “whatever  is  suitable  and  appropriate  for  any  reason  for  the

accomplishment of the specified object”.  It is argued that the question

of extension of licence must be decided by the Government of

India on the basis of objective and rational criteria by taking

into  account  relevant  materials  and  eschewing  irrelevant

material.  Learned senior  counsel  in his  written submission6

gave  certain  facts  and  figures  which  according  to  him  are

relevant  in  coming  to  a  conclusion  whether  it  would  be

expedient to extend the period of licence.  It is also submitted

that the phrase “on terms mutually agreed” must also be understood

to mean that the Government of India’s decision for extension

of the licences be based only on relevant and objective criteria

such as “the quality, affordability, reach of the services provided by the petitioner and

the investments made by it during the initial 20 year period, being satisfactory, the license

would be extended by 10 years at one time”. (Written Submission) 6  It is submitted that through the past 19 years and even now on a continuing basis, Writ Petitioners have been faithfully operating their UAS license and have, as of 30 of June 2014,  invested over Rs.19,545 crores setting up a state of the art mobile network in these 6 circles; in three months period between April and June of financial year 2014 – 15 alone, the investments made by the Petitioner was Rs.544 crores, the Petitioners are providing world class service to over 717 lakh subscribers as of June 2014, the Petitioner has built an average subscriber market share of 23# (average for six circles – the shares range between 19# and 32# for various circles), the petition is offering affordable tariffs and innovative services to consumers, the Petitioner is providing direct and indirect employment to thousands of people, in last 3.5 years alone the Petitioner  has  contributed  over  Rs.11,035 crores  to  the  government  exchequer  by  way of  licence  fee, Spectrum charges, direct and indirect  taxes, etcetera between financial year 2011-12 and financial year 2014-15 (upto June 2014).  Petitioners have thus altered their position and invested thousands of Crores based on Government promise/contract.

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58. We  are  of  the  opinion  that  the  submissions  of  Shri

Venugopal  must  carry  a  great  weight  if  the  LICENSOR’S

(Government of India) obligations are regulated purely by the

terms  of  the  contract.  But  as  already  noticed  by  us,  the

LICENSOR’S  obligations  are  not  simply  confined  to  the

contract/license.  They also flow from the Constitution and the

laws of the land. Obviously, the obligations flowing from the

Constitution  stand  on  a  higher  footing  and  it  is  the

Government of India’s duty to satisfy the obligations flowing

from the Constitution and the laws of the land in preference to

obligations  flowing  from  a  contract.   It  is  a  well  settled

principle  of  law  that  where  there  is  a  conflict  between

obligations flowing from a contract and those flowing from the

law, the obligations flowing from the contract must necessarily

yield to  obligations flowing from the Constitution and laws.

We, therefore, reject the submission of Shri Venugopal.

The fifth submission of  the licensees is  required to be

rejected on the ground that it is too vague and without any

basis in the pleadings.

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59. Last issue which requires examination is the Scheme of

the Telecom Regulatory Authority of India Act, 1997 and the

role of the Authority7 created under the said Act and the legal

efficacy of its recommendations.   

60. Section 3 of the said Act contemplates the establishment

of  an authority  called  “the  Telecom Regulatory  Authority  of

India”  (for  short  “TRAI”)8.   TRAI  is  declared  to  be  a  body

corporate  with  all  necessary  and  incidental  powers  under

sub-section  (2)9. The  composition  and  the  qualification

required of the persons to be appointed as the Chairperson

and the Members of TRAI, their respective powers and other

incidental matters are prescribed in Chapter II of the Act.   

61. Section 11 (which occurs in Chapter III) enumerates the

functions of  TRAI.   The Section authorises the  authority  to

make recommendations either  suo motu or on requests made

7 Section 2(b). “Authority” means the Telecom Regulatory Authority of India established under sub-section (1) of section 3. 8 “Section 3. Establishment and incorporation of Authority.— (1) With effect from such date as the Central Government  may, by  notification  appoint,  there  shall  be  established,  for  the  purposes  of  this  Act,  an Authority to be called the Telecom Regulatory Authority of India. 9  Section 3(2) The  Authority  shall  be  a  body  corporate  by  the  name  aforesaid,  having  perpetual succession and a common seal,  with power, subject  to the provisions of this Act,  to acquire,  hold and dispose of property, both movable and immovable, and to contract, and shall, by the said name, sue or be sued.

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by the LICENSOR on the various matters enumerated therein.

Relevant among them are: (i) terms and conditions of licence to

a service provider; (ii) measures to facilitate competition and

promote  efficiency  in  the  operation  of  telecommunications

services so as to facilitate growth in such services; (iii) efficient

management of available spectrum; and (iv) ensure compliance

of terms and conditions of licence, are some of the functions

which are relevant in the context of the present controversy.

62. On 16.06.2006, the Government constituted a Committee

headed  by  Shri  Subodh  Kumar,  Additional  Secretary,

Department of Telecommunications.  The Committee consisted

of technical experts from different institutions, the Ministry of

Defence etc. and included representatives of the private mobile

telephone  service  providers.   The  Committee  submitted  its

report  on  13.05.2009  which  contained  many

recommendations.  The Committee examined the role of  the

Government  and  the  goals  before  the  government  and

recorded as follows:

“As the custodian of radio spectrum, the government must satisfactorily address a number of goals for spectrum management.  These are: efficient utilization  of  the  scarce  resource,  optimal  revenue  generation,  for  the

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public exchequer, sufficient competition in the telecom market, and rapid diffusion of telecom services.   These goals are synergistic  as well  as conflicting.”

(emphasis supplied)

It  recommended  delinking  of  the  spectrum  allocation  from

licensing and recommended that  “the  way  forward should  be  to

move  away  from  an  administratively  determined  criteria  to  a

market-driven approach.  A market-determined mechanism for spectrum

allocation  will  ensure  that  spectrum goes  to  the  entity  that  put  the

highest value on spectrum, and is best placed to ensure its optimal use”.

63. The Government of India thought it fit to seek the opinion

of TRAI on the recommendation of Subodh Kumar Committee

by its letter dated 07.07.2009.  In response, TRAI submitted a

very detailed report dated 11.05.2010.   

64. In the impugned judgment of the TDSAT, it is recorded10

that TRAI radically differed with the report of Subodh Kumar

Committee.  

65. On 10.10.2011, the Government of India (Department of

Telecommunications)  referred  the  recommendations  dated

11.05.2010 back to TRAI for reconsideration.  

10 See para 32 of the impugned order

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66. The  TRAI  reconsidered  the  matter  and  gave  certain

clarifications on 03.11.2011.

67. The judgment of this Court in 2G Case was pronounced

on  02.02.2012.   On  15.02.2012,  the  then  Minister  of

Communications  &  Information  Technology  made  a  press

statement announcing the policy of the Government of India

regarding the grant of licences under the Telegraph Act, 1885

and the allocation of spectrum.   

68. It  may  be  mentioned  here  that  the  press  statement

mentions  that  such  a  policy  statement  is  made  after

consideration of the recommendations of TRAI11.

69. In  view  of  the  statement  in  the  policy  announced  on

15.02.2012 to the effect that:

“1.        No more UAS licences linked with spectrum will be awarded.

2.        All future licences will  be Unified Licences and allocation of spectrum  will  be  delinked  from  the  licence. Spectrum,  if required,  will  have  to  be  obtained  separately.  A final  view  on implementation  of  the  Unified  License  Regime would  be  taken after receipt of detailed Guidelines and Terms & Conditions from TRAI for Unified Licence including migration path for all existing licence(s) to Unified Licence.

11 “Recommendations of TRAI on ‘Spectrum Management and Licensing Framework’ of May 11, 2010 along with its further recommendations of February 08, 2011, clarifications of May 03, 2011 and response dated  November  03,  2011  were  considered  by  the  Telecom  Commission.  After  consideration  of  the recommendations of the Telecom Commission, the Department of Telecommunications has taken following decisions: … ”

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3.        In the event of any auction of spectrum pending finalisation of the Unified Licensing Regime, UAS licence without spectrum may be issued  which  could  be  subject  to  a  requirement  to  migrate  to Unified licence as and when the regime is put in place. Detailed guidelines  for  such  UAS  licence  without  spectrum  would  be finalised after receipt of recommendations of TRAI in this regard.”

XXX XXX XXX XXX XXX

8.        The  validity  of  existing  UAS  (&  CMTS  and  Basic  services) licences may be  extended for another 10 years at one time, as per the provisions of the extant licensing regime with suitable Terms & Conditions so as not to imply automatic continuance of existing license and related conditions including quantum and price of any spectrum allocated.

9.        On extension, the UAS licensee will be required to pay a fee which will  be  Rs.2 crore for  Metro  and  ‘A’ Circles,  Rs.1 crore for  ‘B’ circles and Rs.0.5 crore for ‘C’ circles.  This fee does not cover the value  of  spectrum,  which  shall  be  paid  for  separately.  While extending the licence, the licensee shall be assigned spectrum only up to the prescribed limit or the amount of spectrum assigned to it before the extension, whichever is less. Spectrum assigned by the Government to the licensee in excess of the Prescribed Limit shall be withdrawn.”

the submission of LICENSEES is that the only clear decisions

taken are that (i) in future only unified licences will be granted

and (ii)  the allocation of spectrum will  be delinked from the

licence.  It is clear that no final policy decision was taken by

the  Government  regarding  the  method  and  manner  of

allocation  of  spectrum  even  with  respect  to  licences  to  be

granted  in  future.   Insofar  as  the  existing  licences  are

concerned,  the  policy  of  the  Government  is  that  they  are

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required to extended for another 10 years as per the provisions

of  the  “extant  licensing  regime  with  suitable  terms  and

conditions” etc.  Therefore, the decision of the Government of

India to auction the right of spectrum in the cases of those

areas where the LICENSEES held licences so far is not only

inconsistent  with  the  terms  and  conditions  of  the  policy

announced on 15.02.2012 as  the  impugned decision is  not

only in consistent with the “extant licensing regime” but also a

decision taken without consulting TRAI – a requirement which

is  mandatory  under  Section  11(1)(a)(ii)12.    The  TRAI  Act

mandates  that  the  Government  of  India  “shall  seek  the

recommendations  of  the  Authority”  while  stipulating  the

“terms and conditions to a service provider” and TRAI failed to

discharge  its  functions  stipulated  under  Section  11(1)(b)(i)

which  calls  upon  TRAI  to  “ensure  compliance  of  terms  and

conditions of licence”.      

70. The LICENSEES also argued that the impugned decision

12 Section 11. Functions of Authority—(1) Notwithstanding anything contained in the Indian Telegraph Act, 1885 (13 of 1885), the functions of the Authority shall be to—

(a) make recommendations, either suo motu or on a request from the licensor, on the following matters, namely:—

(ii) terms and conditions of license to a service provider;”

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of the Government of India to allocate spectrum by conducting

an auction is  contrary to the recommendations of  the TRAI

dated 15.10.201413 and also contrary to the policy statement

of the Minister dated 15.02.2012.  The tenor of the policy is

13   “2.5 ……………… In sum, the two crucial facts are: (i)  The supply of spectrum is constrained; and (ii) The auction is unusual in that licences are expiring and this knowledge is a priori known to all  

TSPs, enabling strategic decision-making on the latter’s part.

2.6 This has important consequences.  First, in any situation of short supply, market prices will rise.  If any new entrant or another existing licensee enters the fray, one outcome is certain; there will be frenzied bidding viz. a race to the top.  A similar escalation of prices was witnessed in the May 2910 auction when 3G spectrum was auctioned; the short supply of 3G spectrum led to a massive increase over the reserve price.  But, as pointed out above, in the upcoming auction, the short supply of spectrum is but one dimension of the problem.  The other is that incumbent operators would be willing to pay huge sums to retain their spectrum so as to protect their investments made in the LSA and ensure continuity of business. And, all industrial rivals know this; whish is why even a non-serious bidder is potentially in a position to push up the final auction price.

2.7 Second, there are only two possible outcomes of such an auction: (a) the incumbents win back the 900 MHz spectrum albeit at significantly high prices; or, (b) one or both incumbent operators lose the 900 MHz spectrum which is won by two or more other bidders.  If an incumbent operator wins back the 900 MHz spectrum but  at  a  very  high price,  it  will  seriously limit  its  ability  to  invest  viz.  given  the indebtedness of most TSPs and the availability of just a limited amount of resources, whatever extra is paid for spectrum, in effect, reduces the amount available for investment in the LSA.  The second possibility is that the incumbent loses the spectrum.  The implications here are even graver.  There will be immediate discontinuation of service in the LSA.  And a huge loss in terms of the value of investment already made in that LSA.  

2.8 Once services are discontinued, and a new entrant(s) come into the LSA, they will need time  to  roll-out  services.   This  will  obviously  pose  problems  for  consumers.   Moreover,  if  existing consumers port out under Mobile Number Portability (MNP) to another TSP in the same LSA, then, in effect, the auction would have led to a consolidation of market power (dominance) of that TSP.  (Leave aside the fact that it effectively deprives consumers of choice of service provider).

2.9 What is  more,  there are potential  spillover  effects  to  other  sectors.   Given the larger indebtedness of many TSPs to public sector banks  (and private sector banks), an exit from an LSA raises the prospect that some part of that TSP’s debt could become a Non-Performing Asset (NPA).  So, what the Government gains in terms of higher prices of spectrum because of short supply, may also lead to large NPAs  of  public  sector  banks  which  will  ultimately  require  Government  budgetary  support  viz.  the socialization of public costs.

2.10 to sum up; there is a very real risk that bidding could lead to an escalation of auction prices far beyond any reasonable value.  Further, even if the incumbents win back the spectrum, there will be serious limit to the investment ability of incumbents.  And, if an incumbent operator loses out to a new entrant (or, another licensee), the discontinuation of services would pose problems for consumers leave aside the losses on capital investment made by the incumbent TSP in the LSA……….”

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clear that the delinking of spectrum from licence would only

be with reference to future and the extension of the existing

licence is required to be on the basis of the “extant licensing

regime”.   In other words,  the policy is only prospective and

applying the same to existing LICENSEES would not only be

contrary to the tenor of the policy statement but also make it

retrospective in operation.

71. On the other hand, learned Solicitor General argued as

follows:

“The reliance by the operators on stray observations by TRAI is entirely misplaced.  The Petitioners have relied on observations of TRAI without placing its  final  recommendations.   In  its  final  recommendations dated 24.11.2014, TRAI did not recommend postponement of the auction.  In any event, per the first proviso to Section 11(1) of the Telecom Regulatory Authority of India Act, 1997, even the final recommendations of TRAI are not binding on the Government.”

                                           (written submission)

72. We shall first deal with the obligation of the Board on the

“retrospectivity  of  the  policy”.   We  assume  for  the  sake  of

argument that the impugned decision of the Union of India is

in  fact  contrary  to  the  tenor  of  the  policy  statement  dated

15.02.2012.   Even  then,  in  our  view,  the  impugned  action

cannot be faulted because the policy statement insofar as it

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seeks to apply only for the allocation of spectrum in future

would be contrary to the decision of this Court in 2G case and

void to that extent.

73. We now examine the other part of the submission of the

LICENSEES.  An analysis of the scheme of Section 11 of the

TRAI  Act  is  necessary.   Section  11(1)14 imposes  two  legal 14 11 Functions of Authority (1) Notwithstanding anything contained in the Indian Telegraph Act, 1885 , the functions of the Authority shall be to –  

(a) make recommendations, either suo motu or on a request from the licensor, on the following matters, namely: -  

(i) need and timing for introduction of new service provider;  (ii) terms and conditions of licence to a service provider;  (iii) revocation of licence for non-compliance of terms and conditions of licence;  (iv)  measures  to  facilitate  competition  and  promote  efficiency  in  the  operation  of

telecommunication services so as to facilitate growth in such services;  (v) technological improvements in the services provided by the service providers;  (vi) type of equipment to be used by the service providers after inspection of equipment used in

the network;  (vii)  measures  for  the  development  of  telecommunication  technology  and  any  other  matter

relatable to telecommunication industry in general;  (viii) efficient management of available spectrum;  (b) discharge the following functions, namely: -  (i) ensure compliance of terms and conditions of licence;  (ii) notwithstanding anything contained in the terms and conditions the licence granted before the

commencement of the Telecom Regulatory Authority of India (Amendment) Act, 2000 , fix the terms and conditions of inter-connectivity between the service providers;  

(iii)  ensure  technical  compatibility  and  effective  inter-connection  between  different  service providers;  

(iv)  regulate  arrangement  amongst  service  providers  of  sharing  their  revenue  derived  from providing telecommunication services;  

(v) lay-down the standards of quality of service to be provided by the service providers and ensure the quality of service and conduct the periodical survey of such service provided by the service providers so as to protect interest of the consumers of telecommunication service;  

(vi)  lay-down  and  ensure  the  time  period  for  providing  local  and  long  distance  circuits  of telecommunication between different service providers;  

(vii)  maintain  register  of  inter-connect  agreements  and  of  all  such  other  matters  as  may  be provided in the regulations; (viii) keep register maintained under clause  

(vii) open for inspection to any member of public on payment of such fee and compliance of such other requirement as may be provided in the regulations;  

(ix) ensure effective compliance of universal service obligations;  

(c) levy fees and other charges at such rates and in respect of such services as may be determined by regulations;  

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obligations on TRAI.  Under sub-section (a) TRAI is obliged to

make  recommendations  with  respect  to  eight  matters

enumerated therein either  suo motu or  on a  request  of  the

LICENSOR.   Under  sub-section  (b),  TRAI  is  obliged  to

discharge  various  functions  numbering  nine  specified

thereunder.

74. For example, under Section 11(1)(a)(ii) while it is one of

the functions of the TRAI to make recommendations regarding

the terms and conditions of  a  licence to a service  provider,

whereas under sub-section (b)(i), it is the function of the TRAI

to  ensure  compliance  of  terms  and  conditions  of  the

LICENSEES.   

75. The first proviso to sub-section 11(1) makes a categoric

declaration that the recommendations of the TRAI with respect

to matters enumerated under sub-section (1)(a) “shall not be binding

upon the Central Government”.

PROVIDED that the recommendations of the Authority specified in clause (a) of this sub-section shall not be binding upon the Central Government:

No doubt, the second proviso to Section 11(1) mandates that

(d) perform such other functions including such administrative and financial functions as may be entrusted to it by the Central Government or as may be necessary to carry out the provisions of this Act:  

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the Government of  India shall  seek the recommendations of

the TRAI in respect of certain matters specified under clause

(a) in respect of new licence to be issued.  One of such items

with reference to which such consultation is mandatory is the

terms and conditions of a license to a service provider [under

Section 11(1)(a)(ii)].

“PROVIDED  FURTHER  that  the  Central  Government  shall  seek  the recommendations  of  the  Authority  in  respect  of  matters  specified  in sub-clauses (i) and (ii) of clause (a) of this sub-section in respect of new licence to be issued to a service provider and the Authority shall forward its recommendations within a period of sixty days from the date on which that Government sought the recommendations.”

The  only  other  part  of  Section 11  which is  relevant  in  the

context of the present issue is the fifth proviso to Section 11(1)

which reads as follows:

“PROVIDED also that if the Central Government, having considered that recommendation of the Authority, comes to a prima facie conclusion that such recommendation cannot be accepted or needs modifications, it shall refer  the recommendation back to  the Authority for its  reconsideration, and the Authority may, within fifteen days from the date of receipt of such reference,  forward to the Central  Government its recommendation after considering  the  reference  made  by  that  Government.  After  receipt  of further recommendation if any, the Central Government shall take a final decision.”

From the tenor of the said proviso, it can be seen that once

recommendation is made by TRAI [with reference to matters

enumerated in clause (a)], the Government of India may either

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accept  the  recommendation  or  may  come  to  a  prima  facie

conclusion that such a recommendation cannot be accepted or

needs certain modifications.  Upon reaching such prima facie

conclusion, the Government of India is required to refer the

matter  back  to  TRAI  and  TRAI  is  obliged  to  reconsider  its

earlier  recommendation  and  forward  its  opinion  to  the

Government  of  India.   On  receipt  of  such  a  reconsidered

opinion of TRAI, the Government of India is required to take a

final decision.  In our opinion, the fifth proviso only stipulates

the procedure to be followed by both the bodies – TRAI and the

Government of India – in the decision making process but it

does not whittle down the vigour of the first proviso which in

no certain terms declares that the Government of India is not

bound  by  the  opinion  of  the  TRAI  insofar  as  the

recommendations made by TRAI with respect to matters falling

under Section 11(1)(a).

76. We do not propose to examine the submission of learned

Solicitor  General  that  the  recommendation  of  TRAI  dated

15.10.2014  relied  upon  by  the  LICENSEES  are  primary

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recommendations, are not final.  Even assuming for the sake

of arguments that the recommendations of TRAI are final, the

Government of India is not bound by the same in view of the

first proviso to Section 11(1) of TRAI Act.  The obligation of the

Government of India arising under the second proviso thereof

to  seek  opinion  of  TRAI  is  only  to  ensure  that  there  is  a

rational process of decision-making where the factors relevant

are examined by an expert body before the Government takes

a final decision on any one of the matters enumerated under

Section 11(1)(a).  As pointed out by Subodh Kumar Committee,

the Government is required to address the multiple goals for

spectrum management  such  as  efficient  utilisation,  optimal

revenue generation, sufficient competition, obviously to avoid

monopoly in the telecom market etc.  As rightly observed by

Subodh  Kumar  Committee,  these  goals  are  simultaneously

“synergistic as well as conflicting”.  Therefore, the Parliament stipulated

that  such  issues  are  initially  examined  by  an  expert  body

leaving it open to the Government to take a final decision as to

which one of these various ‘synergistic as well as conflicting’

factors must outweigh by the other factors.   Apart from that,

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from the language of the 2nd proviso (supra) the obligation to

consult TRAI arises only in the case of “new licence” but not

the renewal/extension of an existing licence.

77. The impugned decision of the Government, which in fact

resulted in huge inflow of revenue in the auctions conducted

during the pendency of this litigation, cannot be said to be a

totally irrational or irrelevant consideration in the context of

the spectrum management, more particularly, in the light of

decision of this court in 2G case.  

78. In this context, we need to examine two more decisions

relied  upon by  the  respondents.   They  are  -  Kerala State

Electricity Board v. M/s. S.N. Govinda Prabhu and Bros. &

Others,  (1986)  4  SCC  198  and  Natural  Resources

Allocation, In Re. Special Reference No.1 of 2012, (2012)

10 SCC 1.  Learned counsel for the LICENSEES relied heavily

on these two decisions in support of their submissions that: (i)

alienation of assets owned or controlled by the State need not

necessarily be only through the process of public auction, and

(ii) profiteering should not be the prime consideration of the

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State or State-owned bodies.

79. In  Kerala State Electricity Board (supra), this Court

opined that “a public utility monopoly undertaking …….. may not be driven by

pure profit motive – not that profit is to be shunned but that service and not profit should

inform its actions. It is not the function of the Board to so manage its affairs as to earn the

maximum  profit”.   It  was  a  case  where  the  enhancement  of

electricity tariffs under the Electricity Supplies Act, 1948 was

challenged.   The  principal  ground  of  attach  which  was

accepted  by  the  High  Court  was  that  the  Kerala  State

Electricity Board acted outside its statutory authority15.  The

judgment  essentially  turned  on  the  interpretation  of  the

language of the Electricity Supplies Act.   

80. The  said  Act  stipulated  the  principles  on  the  basis  of

which tariffs are required to be fixed and factors which are

required to be taken into consideration.  It  also obliged the

State  Electricity  Board  to  conduct  its  operations  in  an

economical viable manner.  Section 51 of the Act, as amended 15  The principal ground of challenge and that which was accepted by the High Court was that the Kerala State Electricity Board acted outside its statutory authority by  formulating a price structure intended to yield sufficient revenue to offset not merely the expenditure properly chargeable to the revenue account for the year as contemplated by Section 59 of the Act but also expenditure not so properly chargeable.  Had Section 59 been strictly followed and had items of expenditure not chargeable to the revenue account for the year been excluded, the revised tariff would have resulted in the generation of a surplus far beyond the contemplation of Section 59 of the Act.

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from time to time (in 1978 and 1983) eventually stipulated –

“to provide that each Board shall have a surplus which shall not be less than three per cent,  or such higher percentage as the State Government may specify, of the value of the fixed assets of the Board in service at the beginning of the year;”

Interpreting the said section, this Court held  

“We are of  the view that  the failure of the Government  to  specify the surplus which may be generated by the Board cannot prevent the Board from generating a surplus after meeting the expenses required to be met. Perhaps, the quantum of surplus may not exceed what a prudent public service undertaking may be expected to generate with out sacrificing the interests it is expected to serve and without being obsessed by the pure profit  motive of the private  entrepreneur. The Board may not allow its character as a public utility undertaking to be changed into that of a profit motivated private trading or manufacturing house. Neither the tariffs nor the resulting surplus may reach such heights as to lead to the inevitable conclusion that the Board has shed A its public utility character. When that happens  the  Court  may  strike  down  the  revision  of  tariffs  as  plainly arbitrary.  But  not  until  then.  Not,  merely  because  a  surplus  has  been generated, a surplus which can by no means be said to be extravagant. The court will then refrain from touching the tariffs. After all, as has been said by this  court  often  enough ’price  fixation’ is  neither  the  forte  nor  the function of the court.”

81. We fail to understand as to how the general observation

that the “public utility monopoly undertaking …….. may not be driven by pure profit

motive” made while examining the tariffs fixed in exercise of the

powers vested by a statute are relevant in the context of the

present case.  In our view, the decision is wholly inapplicable

to the facts of the present case for the following reasons:

(i) Even in the case of tariffs fixed pursuant to the

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powers conferred by a statute this Court held

that it would not  interfere unless such tariffs

result  in  a  generation  of  surplus  revenue

reaching “such heights as to lead to the inevitable conclusion

that the Board has shed its public character” and the tariffs

are “extravagant”.  

(ii) Persons  seeking  to  avail  the  benefit  of  the

supply of electricity are left with no option but

to  make  payments  in  accordance  with  the

tariffs fixed by the Electricity Board, because

the electricity board had a monopoly over the

generation and distribution of electricity.

82. In the case in hand, the LICENSEES are not compelled to

pay any specific tariffs fixed by the LICENSOR (Union of India),

for  availing the right  to use the spectrum.  If  the price  for

securing allocation of spectrum is likely to go up because of

the procedure of auctioning to have access to spectrum, it goes

up because of the market forces.  Because there are people

who are willing to acquire such a right paying a higher price

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on the assessment that they would be able to carry on the

business  profitably  even  after  paying  higher  amounts  for

acquisition  of  spectrum.   The  LICENSEES  are  corporate

houses with enormous economic power, which enables them

to  secure  adequate  expert  advice  in  the  matter  of  financial

planning.   We  cannot  believe  that  they  would  make  any

investment  without  making a  reasonable  assessment  of  the

possible return on such investment.    There is no compulsion

by the State in this regard.  Therefore, in our view, the reliance

placed  on  the  Kerala  State  Electricity  Board (supra)  is

wholly untenable.

83. Reliance  is  placed  on  the  observations  made  in  the

Special  Reference (supra)  in  paragraphs  82  and  146  in

support of the submissions of the LICENSEES that auction is

not the only method of disposal of natural resources.  In our

opinion,  the  LICENSEES’  reliance  on  these  paragraphs  is

wholly  misconceived.   These  two  paragraphs,  instead  of

supporting the case of the LICENSEES, are destructive of their

contention.

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“82. Further, the final conclusions summarized in paragraph 102 of the judgment (SCC) in 2G case make no mention about auction being the only permissible and intra vires method for disposal of natural resources; the findings  are limited  to  the  case  of  spectrum.  In  case  the  Court  had actually  enunciated,  as  a  proposition  of  law,  that  auction  is  the  only permissible method or mode for alienation/allotment of natural resources, the same would have found a mention in the summary at the end of the judgment.

146. To summarize in the context of the present Reference, it needs to be emphasized that this Court cannot conduct a comparative study of the various methods of distribution of natural resources and suggest the most efficacious mode, if there is one universal efficacious method in the first place. It  respects the mandate and wisdom of the executive for such matters. The methodology pertaining to disposal of natural resources is clearly an economic policy. It entails intricate economic choices and the Court lacks the necessary expertise to make them. As has been repeatedly said, it cannot, and shall not, be the endeavour of this Court to evaluate the efficacy  of  auction  vis-à-vis  other  methods  of  disposal  of  natural resources. The Court cannot mandate one method to be followed in all facts  and  circumstances.  Therefore,  auction,  an  economic  choice  of disposal  of natural  resources,  is  not  a  constitutional  mandate.  We may, however,  hasten  to  add  that  the  Court  can  test  the  legality  and constitutionality  of  these  methods.  When  questioned,  the  Courts  are entitled to analyse the legal validity of different means of distribution and give a constitutional answer as to which methods are 135 Page 136 ultra vires and intra vires the provisions of the Constitution. Nevertheless, it cannot and will not compare which policy is fairer than the other, but, if a policy or law is patently unfair to the extent that it falls foul of the fairness requirement of Article 14 of the Constitution, the Court would not hesitate in striking it down.

(emphasis supplied)

84. In para 82, this Court was categoric that the findings of

2G case were limited to the case of spectrum.  Similarly, in

para 146, this Court observed that this Court “respects the mandate

and  wisdom  of  the  executive”  in  the  matter  of  choosing  the  most

suitable  method  of  distribution  of  natural  resources.   This

Court noted that this is clearly a matter of an economic policy

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entailing  an  intricate  economic  choice  and  the  Court  lacks

necessary expertise to make such choice.  In the light of the

observation in para 82 that at least in the matter of disposal of

spectrum,  auction is  the  only  “permissible  and  intra  vires method  for

disposal”.    Therefore,  the  submission  of  the  LICENSEES  is

required to be rejected.

85. For all the above-mentioned reasons, we see no merit in

these appeals and writ petitions.   Therefore, all the appeals

and writ petitions are dismissed.   There shall be no order as

to costs.

….………………………….J.                                                       (J. Chelameswar)

…….……………………….J.         (R.K. Agrawal)

New Delhi; May 14, 2015  

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