The Telecom Disputes Settlements and Appellate Tribunal (TDSAT) recently ruled that Loop Telecom, a company controlled by the Ruias of Essar group and their associates, will not be repaid a sum of Rs 1,454.94 crore that it had claimed from the Department of Telecommunications (DoT) after the firm's licence was cancelled by the Supreme Court of India.
The September 16 order by the tribunal vindicates the stand adopted in a series of reports drafted in the office of the Comptroller and Auditor General (CAG) of India, which allege that the government provided "undue benefits" worth Rs 5,476.30 crore to four private telecommunications companies whose licenses had been cancelled: these companies are Idea Cellular, Videocon Telecom, Telewings Communication in the Unitech group, and Systema Shyam Teleservices.
Copies of the draft reports of the CAG, a Constitutional authority mandated to oversee public finances, are with this writer.
The undue benefits to the telcos were provided through a mechanism by which non-refundable, one-time entry fees that these companies had to pay -- in order to be eligible for licenses bundled with second-generation (2G) electro-magnetic spectrum used for telecommunications -- were "set off" by the DoT.
(Loop failed to get the "set-off" given to the other firms since it did not participate in the new auction for spectrum that took place after the Supreme Court cancelled 122 telecom licenses, including the ones granted to Idea, Videocon, Unitech and Sistema.)
While auditing the performance of the DoT in the Union Ministry of Communications and Information Technology, the Director General of Audit, Post and Telecommunications, in the office of the CAG, drafted a series of reports on the four private telecom companies mentioned. The reports were prepared over a period of nearly a year and a half, from the middle of 2013 till the end of 2014. These reports were drafted after the DoT responded to various questions raised by government auditors. However, none of these draft reports have been finalized by the CAG and hence, were not yet presented in Parliament (after which the reports become public documents).
The draft reports of the CAG were not just critical of the DoT for providing what it described as "undue" favours and benefits to these private telecom firms. The Department was sharply criticized for not following the orders of the Supreme Court, and for not disclosing relevant information to an Empowered Group of Ministers (eGom) headed by former Finance Minister Palaniappan Chidambaram.
In the Videocon case, for instance, one draft report of CAG found the eGoM's decision to have been "highly irregular, arbitrary, discriminatory and totally inconsistent with the terms and conditions of the bidding documents of the auction process".
When 2G spectrum was allocated in India in late-2008 and early-2009, a controversial policy of 'first come, first served' (FCFS) had been followed by the then Minister for Communications, Andimuthu Raja of the Dravida Munnetra Kazhagam (DMK). Raja had to resign his position in November 2010. He was subsequently charged and jailed.
Among the companies that had received licenses from the DoT was Loop Telecom, which had applied for UAS (Unified Access Services) licenses in 21 service areas (that is, in all areas across the country except Maharashtra) in September 2007. Later that month, the DoT issued a press note, suddenly advancing the deadline for receiving applications for licenses to October 1. In January 2008, this date was retrospectively brought forward to September 25, 2007 and a new press note stated that all applications received before that date would be considered, provided these fulfilled eligibility criteria.
All 122 licenses were cancelled by the Supreme Court in February 2012. Usually, the government allocates scarce resources through a public auction so as to provide a fair chance (or level playing field) to all bidders, and also for a fair economic demand to emerge. Contrary to such a system, the FCFS mechanism is arbitrary, and foreknowledge of bids can play a crucial role in determining the beneficiaries of these allocations.
Following writ petitions filed by social activists, mediapersons (including this writer), and other public spirited people, who argued that the allocation of UAS licenses was characterized by gross irregularities amounting to criminality, the case came into the public eye and an inquiry was conducted by the Central Bureau of Investigation (CBI) under the supervision of the Supreme Court.
A report of the CAG released on November 16, 2010 created an uproar after it stated that the total "presumptive" loss to the exchequer in the 2G spectrum scam could be as high as Rs 1.7 lakh crore. The Supreme Court order cancelling the 122 telecom licenses observed that Letters of Intent were given to companies without establishing whether or not they were eligible. In addition, the Court held that a resource as scarce as spectrum should be allocated through a fair, rational, transparent system like public auctioning, instead of following an arbitrary method like FCFS.
After the cancellation of the licenses, refunds of the license fee were demanded by certain companies. The four companies mentioned above, who benefitted to the extent of around Rs 1,500 crore each, demanded a refund of their license fees. The DoT, in its responses to the queries raised by the CAG officials, indicated that the entry fee paid by the licensees whose licenses were cancelled by the Supreme Court "would not be adjusted against auction payment due".
Scrutiny of the DoT's records by the CAG "during March-May 2013 pertaining to the auction of 2G spectrum in the 1,800 MegaHertz (MHz)/800 MHz band held in November 2012/March 2013 revealed that in pursuant to clarifications issued on 12 October, (the) Unitech group of companies, M/s. Videocon Telecommunication Limited, M/s Sistema Shyam Teleservices Ltd and M/s. Idea Cellular Limited were allowed set-off of entry fee in October 2012-March 2013".
The draft CAG reports state that:
Audit noticed that the DoT showed undue haste in processing the representations of certain companies and prepared the note for the eGoM on October 6, 2012, for placing the same before (the) EGoM for discussion in the meeting of 8 October 2012.
Crucial information on grounds for non-eligibility, criminality, and the fact that the Supreme Court had rejected a similar review petition in March 2012 were absent in this note.
Thereafter, as per an order of the eGoM dated 18 October 2012, it was decided to adjust the licence fees paid earlier towards the bid amount by the telecom service providers who managed to win spectrum by taking part in the fresh auction held as per the direction of the Supreme Court.
The concluding remarks of one of the draft reports of the CAG states:
…the decision of the government of India to adjust the non-refundable entry fee amounting to Rs 5,476.30 crore paid by the Unitech group of companies, M/s. Videocon Telecommunication Limited and M/s Sistema Shyam Teleservices Ltd to obtain UAS licenses…was inconsistent with the terms and conditions of bid documents of the 2012 UASL guidelines 2005 and (the) UAS license agreement. It not only vitiated the transparency of the entire auction process, but also was an undue favour to the private firms. Neither was any consultation done with the TRAI (Telecom Regulatory Authority of India) on the issue, nor was the approval of the Telecom Commission sought before taking the decision.
Unlike the benefits that were given to these companies, in the case of Loop, the TDSAT decided that it be denied a similar refund. The TDSAT’s response to the petition filed by senior advocate Harish Salve on behalf of Loop Telecom went into a detailed analysis of the various grounds on which the petition has been filed, and why the Tribunal felt the set-off should be denied to the company. The order was based on the premise that the entry fee was, by nature, non-refundable, that the company was still going through a process of criminal trial, and that the Supreme Court’s decision had to be upheld.
Here is an excerpt from page 17 of the TDSAT order issued by the full bench of the Tribunal, headed by Justice Aftab Alam, and comprising members Kuldip Singh and B. B. Srivastava:
…it is stated that by the CBI investigation it was established that the petitioner company is not only an associate but an alter ego of (the) Essar group of companies who in violation of clause 8 of the UASL guidelines obtained 23 licenses in 2008 which fact was concealed fraudulently by the company for getting the UAS licenses from (the) DoT… Further,…in view of the charge-sheet submitted by the CBI, the matter is completely enmeshed in the criminal trial and the petitioner’s action in claiming refund of the licence fee is aimed at somehow stalling and derailing the criminal proceedings against it.
On page 19, the TDSAT order referred to a number of clauses in the UASL guidelines and the licence itself where the entry fee is mentioned with the prefix 'non-refundable'. The tribunal thus felt that there was no question of any refund of the entry fee.
The TDSAT report formally confirms the position taken by CAG in its draft reports which are yet to be finalized. The Tribunal’s decision against granting a refund to Loop is in sharp contrast to the DoT's grant of "undue benefits" to companies in the Idea, Videocon, Sistema and Unitech groups aggregating nearly Rs 5,500 crore.
Why did the eGoM led by Chidambaram decide to refund licence fees to the four private telcos in the manner it did? Will the TDSAT judgment help the CAG expedite this process? The story is not over yet.
(To be concluded.)
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Research assistance: Shachi Seth
