TaxTMI 
TaxTMI 
2010 (11) TMI 1070
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.... the Unified Access Service Licence on 21st September, 2004 with effect from 14th November, 2003. By an addenda dated 28th February, 2006, the agreement was formally amended with retrospective effect from 14th November, 2003. The Agreement deals with local calls, national long distance calls (NLDC) and international long distance calls (ILD). Calls of each trunk group are connected through dedicated ports and are chargeable at rates different from other trunk groups. Hence, depending on the number of calls handled by a particular port, charges are levied by BSNL on Reliance, at the rate of the existing call charges payable for that particular trunk group. 3. On 24th June, 2003, the DoT issued a circular specifying that Calling Line Identification (CLI) cannot be tampered with under any circumstances and also gave directions to service providers on how to prevent such tampering. By its circular dated 28th January, 2004, the above circular of DoT coupled with IUC Regulations dated 29 th October, 2003 issued by Telecom Regulatory Authority of India (TRAI) was made effective. 4. In September, 2004, BSNL received several complaints from its subscribers in Gujarat that they were receiv....
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....Unit of BSNL for ₹ 6.89 cr. for the said period July, 2004 to September, 2004. In the said bill, the rate applied was ₹ 5.65 per minute. This demand was made on the basis that numerous calls have been detected in the POI with CLI as 281 3041000 which pertained to ISDNB PRI connection given to M/s. Raj Enterprises of Rajkot. According to Reliance, the calls received in its POIs were "grey market" calls. That, they were neither wrongly routed nor their CLIs were tampered. Ultimately, after detailed correspondence between BSNL and Reliance, petition No. 275 of 2009 was filed by Reliance against the above impugned demand. 8. By the impugned judgment, TDSAT has held that the impugned demand of BSNL under clause 6.4.6 of the Interconnect Agreement is penal in nature; that under the said clause unauthorized calls had to be detected by BSNL and that in case of such detection charges were to be levied on such calls at the highest applicable IUC; that BSNL was under an obligation to draw distinction between unauthorized calls and calls without/ modified CLI in the impugned demand which in the present case has not been done; that no opportunity of hearing was given to R....
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....amount paid under the said clause cannot be brought under Section 74 of the Contract Act. According to the learned counsel the situation in clause 6.4.6 amounts to an alternative mode of performance of the contract. Lastly, according to the learned counsel where a contract prescribes payment of a sum on default, even if the sum payable may be larger than the actual loss, when the contract is between parties with equal bargaining power, and as long as the sum payable is not extravagant, it should not be characterized as penalty. Similarly, where an agreed sum is payable upon a default if the loss accruing to the claimant from the default in question cannot be accurately or even reasonably be ascertained, then such sum cannot be classified as penalty and once a stipulation is held not to be a penalty, there is no need for actual proof of loss. 10. On interpretation of clause 6.4.6 of the Interconnect Agreement, Shri C.S. Vaidyanathan, learned senior counsel for Reliance and Shri Ramji Srinivasan, learned senior counsel for Tata Teleservices Limited, submitted that there is no dispute between the parties regarding the existence of the grey market and its operations by miscreants who ....
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....endered by interconnection is regulated by TRAI it is not open to BSNL to charge what they like. On the other hand, the TRAI regulations do not provide for quantum of damages or a penalty in case of breach of the interconnection agreement. Therefore, if clause 6.4.6 is attracted before breach, as submitted by learned counsel for BSNL, and if clause 6.4.6 is not compensatory, then the amount demanded is without consideration and would be unconscionable. According to the learned counsel clause 6.4.6 in the Interconnect Agreement confers only a contractual right. BSNL, according to the learned counsel, is neither the sovereign exercising legislative or executive or police powers nor is BSNL a regulator. It is not vested with any powers to impose any penalty for breach of contractual terms nor can BSNL be vested with such powers as BSNL is one of the several operators in the National Telecom Policy of 1994 and 1999. That, DoT or the TRAI may exercise regulatory or police powers imposing a penalty or strict civil liability for violation of any of the terms and conditions of the license when public interest so requires. However, BSNL does not have any statutory, regulatory or police powe....
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....e limit cannot make clause 6.4.6 reasonable or compensatory, if all calls, irrespective of whether they are rightly or wrongly routed, or with CLI or without CLI or disguised CLI are charged at the highest IUC rates. Such a provision, according to the learned counsel, will be ex facie penal in nature. Learned counsel submitted that there is no merit in the contention of BSNL that technology does not enable tracing of every disguised call. According to the learned counsel this argument of lack of technology would be available to BSNL only to the extent that all calls of the offending subscriber, such as Raj Enterprises, may be treated as unauthorized calls. However, beyond that, calls of other subscribers, in respect of whom there is not even a whisper of illegality, cannot be clubbed with the offending calls because that would amount to imposition of penalty. Learned counsel submitted that under the Contract Act no party is entitled to recover punitive damages for any breach of contract. That, in terms of Section 73 of the Act, the party which suffers by any breach of contract is entitled to receive, from the party who has broken the contract, compensation for any loss or damage ca....
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.... In other words, BSNL is not in a position to prove which precise calls delivered from the said number were, in fact, international calls delivered as local/national calls. However, applying clause 6.4.6 BSNL seeks to charge for not only all calls delivered from said number at the highest possible IUC rates, but, additionally seeks to charge at the highest rate for all calls delivered at the concerned POI for the relevant month as also all calls for the preceding two months from entirely different numbers belonging to other subscribers where there is no allegation whatsoever by BSNL of wrong routing or tampering. In other words, even for numbers and calls with respect to which there is no allegation of breach, wrong routing or tampering, BSNL seeks to charge at the highest IUC rates which bears no nexus whatsoever with the loss or damage suffered by BSNL. It is submitted that to this extent clause 6.4.6 falls foul of section 74 and is therefore unenforceable. Charging for numbers and calls which have no nexus whatsoever with the number identified by BSNL as having been misused is to impose in terrorem penalty upon Reliance bearing no connection with the loss suffered by BSNL on acc....
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....re invalid. Learned counsel submitted that clause 6.4.6 was inserted through an Addenda signed on 28.2.2006. The said Addenda was made applicable retrospectively with effect from 14.11.2003 with the exception of applicable IUC charges including ADC and interconnection arrangements made between the parties during the intervening period which included ICU charges. That, the said clause 6.4.6 is covered in the IUC charges which was carved as an exception. Admittedly, at the relevant time, TRAI had prescribed applicable IUC charges whereby depending on the nature of the call (local, national, international) certain identified charges were applicable. The applicable IUC charges did not however contemplate charges for local/national call at the highest available international rate, which the BSNL now seeks to do purportedly by invoking clause 6.4.6. Thus, according to the learned counsel from the express terms of the Addenda itself it is clear that clause 6.4.6 falls within the chapter entitled Interconnection Charges "which is expressly excluded from retrospective operation". Learned counsel submitted that in any event such purported retrospective application of a penal provis....
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....CENSEE's network shall be capable of transmitting and receiving calling line identification which shall include Access code, Area code and Subscriber number. Chapter 6 Interconnection Charges 6.1 Interconnectivity to DOT Network 6.1.1 Provision of links to interconnect LICENSEE's network with DoT's network will be the responsibility of the LICENSEE as provided under Clause 2.1.2 and 2.1.3. 6.2 Detailed Billing 6.2.1 For every STD/ ISD call originating from the LICENSEE's network and accepted by DoT, a detailed billing and/ or bulk billing record will be generated in the LDCC TAX. For this purpose calling subscriber's identity shall be supplied by the LICENSEE for detailed billing purpose. 6.4 Access Charges 6.4.1 For purposes of calculating the access charge, the point at which the calls are delivered to DoT's network is treated as originating point. The calls will be measured from the point of entry to the destination at the applicable rate of DoT. 6.4.3 The traffic delivered on any DOT LDCC TAX from LICENSEE's LDCC TAX/ SDCC tandem/ local exchange will be measured on the incoming junctions of the DOT's LDCC TAX at the destination wise pulse ....
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...."AGREEMENT", will become effective from 14th November 2003 except the applicable Interconnection Usage Charges (IUC) including ADC, Interconnection arrangements and associated bill arrangements as prescribed by BSNL Corporate Office, during this intervening period till date of signing of this Addenda. 2. Each party, i.e., BSNL as well as the UASL, does hereby agree to: a) Interconnect its Network to the Network facilities of the other party; and b) Make available to the other party the services, facilities and information as specified in this Interconnect Agreement. c) Provide the other interconnected party with interconnection traffic carriage and fault detection of a technical and operational quality that is equivalent to that which each party provides to itself. 2(2) The UASL shall ensure that its interconnect facilities delivered at each point of interconnection (POI) conform to the applicable quality of service (QOS) standards and technical specifications for interconnection by the relevant delivery date determined pursuant to the provisions of this Agreement. 2(3) UASL shall be responsible to provide, install, test, make operational and maintain all interco....
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....twork Interface Standards are applicable. "PSTN" means Public Switched Telephone Network. "SHORT DISTANCE CHARGING CENTRE (SDCC)": It means a particular Exchange in a Short Distance Charging Area declared as such for the purpose of charging of long distance trunk calls as defined in the National Fundamental Plan. "UNIFIED ACCESS SERVICES": means telecommunication service provided by means of a telecommunication system for the conveyance of messages through the agency of wired or wireless telegraphy. The Unified Access Services refer to transmission of voice or non-voice messages over LICENSEE's Network in real time only. SERVICE does not cover broadcasting of any messages voice or non-voice, however, Cell Broadcast is permitted only to the subscribers of the service. The subscriber (all types, pre-paid as well as post-paid) has to be registered and authenticated at the network point of registration and approved numbering plan shall be applicable. The following abbreviations shall bear the full expression as mentioned below: UASP: UNIFIED ACCESS SERVICE PROVIDER" Chapter - 2 Technical Issues pertaining to Interconnection 2.1 Interco....
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....TY FOR STD/ ISD CALLS 2.1.15.3.1 Interconnectivity for STD/ISD calls shall be between BSNL's LDCC TAX and UASL's LDCC TAX. In case UASL does not have his own TAX in the LDCC, STD/ISD calls from UASL's SDCC Tandem/local exchange in an SDCA in the LDCA shall be handed over to BSNL's LDCC TAX by the UASL. 2.1.15.3.3 For the purpose of Inter circle and International call, the UASL shall handover the call to BSNL at the originating LDCC TAX. 2.1.16 For the purpose of transit calls originated by UASL's subscriber and meant for termination in network of any other service provider, the UASL may transmit such traffic as per rates given in Schedule I, on separate trunk groups at SDCC Tandem for local calls and originating LDCC TAX for intra and inter circle STD calls. However, BSNL reserves the right to amend the rates from time to time and also to selectively withdraw transit facility to other networks. BSNL will also be at liberty to transit and offer calls originated from other networks to UASL network. Either party shall not suppress the CLI for transit traffic also. If rates for any transit service are not available in the Schedule, the same shall be mutually agree....
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....to UASL in such switches, if otherwise feasible to do so. It is further agreed that in case of any regulatory/ judicial intervention on the above matters, the UASL shall be entitled to and be extended the same relief/ benefit given to any other operator to the extent it is applicable to the UASL under this agreement. 2.9 NETWORK INTEGRITY AND SCREENING 2.9.1 It is the responsibility of the UASL to prevent the transmission of any signaling message across the connecting network, which does not comply with, inter working specification of TEC No.G/PNI-03/01 Sept. 95 or as modified from time to time. Similarly BSNL shall also ensure the same in its network. 2.9.2 Efficient arrangement for screening function shall be established by the UASL at his Gateway exchange or elsewhere in his network to detect signals outside the inter- working specification of TEC No. G/PNI-03/01 Sept. 95 referred above. Similarly BSNL shall also ensure the same in its network. 2.9.3 Screening arrangement shall include rejection of communications or discarding information fields, which do not comply with the specification. It will be the responsibility of the UASL/BSNL that network integrity is protected an....
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....ncoming International Call, without CLI call, call with tampered CLI is handed over to BSNL at the merged trunk group, then BSNL shall charge the UASL the highest applicable IUC, as prescribed in clauses 6.4.6(a) above for unauthorised calls & 6.4.6(b) above for incoming International call, without CLI call, call with tampered CLI, for all calls recorded on this merged trunk group from the date of provisioning of that POI or for the preceding two months whichever is less. (d) In addition, BSNL shall also have the right for taking other legal actions including disconnection of POIs or temporary suspension of the interconnection arrangements under misuse. 6.4.7 All the required information in monthly certificate of details of traffic (in minutes) as prescribed in Schedule I shall be submitted by UASL to BSNL in a timely manner. This information includes outgoing STD and ISD traffic from its limited mobile/ fully mobile/ cellular access network handed over to each of private NLDOs/ ILDOs separately and incoming STD and ISD traffic to its network accepted from each of private NLDOs/ ILDOs separately. 6.5 Billing 6.5.2 At present CDR based billing system for POIs is not available in....
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....d to have been accorded. (b) ceases to carry on business. (c) Either Party is unable to discharge its obligation under this agreement. However, in case of Force Majeure procedure as indicated below shall be followed: FORCE MAJEURE Neither party shall be liable for any breach of this Agreement (other than a breach for non payment) caused by an act of God, insurrection or civil disorder, war or military operations, national emergency, fire, flood, lightning, explosion, subsidence, industrial dispute of any kind. The Party affected by such force majeure shall promptly notify the other Party of the conditions and the details thereof. If as a result of force majeure, the performance by affected Party of its obligation under this agreement is only partially affected, such Party shall nevertheless remain liable for the performance of those obligations not affected by such force majeure. If the force majeure lasts for more than the continuous period of 90 calendar days from the date of the notification, and continues to prevent the affected Party from performing its obligation in a whole or in material part, the either party shall be entitled to, terminate this agreement by giving not ....
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....fic from cellular/ WLL(M) to fixed networks are enclosed in Appendix-D. 11. The CLI based barring facility has been activated by BSNL at the PoIs wherever technically feasible to ensure that the traffic handed over to BSNL is in the appropriate trunk groups only. Wherever it is technically not feasible to activate CLI based barring, periodic monitoring of the incoming trunk groups shall be done by BSNL to ensure this objective. In case of wrongly routed calls IUC shall be charged as below: (a) Unauthorised calls i.e. calls other than specified for that trunk group if detected, for which the applicable IUC (including ADC) is higher than the IUC (including ADC) applicable for calls prescribed in that trunk group, then BSNL shall charge the concerned private operator the highest applicable IUC (including ADC), as applicable for such unauthorized calls, for all the calls recorded on this trunk group from the date of provisioning of that POI or for the preceding two months whichever is less. (b) Wherever it is technically not feasible to activate CLI based barring, the calls received by BSNL without CLI or modified/ tampered CLI from concerned private operator, shall be charged the....
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....** *** Appendix - D Procedure for billing and recovery of ADC in respect of inter circle cellular / WLL (M) originated calls, ISD calls (incoming and outgoing both) and intra circle cellular (WLL(M) to fixed networks routed other than other than through BSNL as NLDO/ ILDO/ transit operator. 1. As per TRAI's IUC Regulation dated 6th January, 2005 for such inter and intra circle calls that are routed through the BSNL as either NLDO or transit operator, the ADC amount is received directly by BSNL from the call originating operator. For ILD calls routed through BSNL as NLDO, it receives ADC from call originating operator in case of outgoing calls and the ILD operator for the incoming calls. However, BSNL has also to receive ADC from cellular/ WLL(M) originating inter circle calls, the originating ILD calls in cellular/ WLL (M) networks and terminating ILD calls carried by other NLDO/ ILDO, or a combination thereof for the ILD calls. In addition to above BSNL has also to receive ADC from cellular/ WLL (M) originating intra circle calls to fixed networks not routed through BSNL... (iii) NLD Interconnect Agreement between BSNL and Reliance dated 1st November, 2002 Chapter - 1 D....
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....epted by BSNL at POI, a detailed billing record wherever possible or bulk billing record will be generated in the SDCC Tandem. The RIL shall supply calling subscriber's identity for detailed billing purpose. Findings (i) Introduction 12. Telecommunication is all about transferring information from one location to another. This includes telephone conversations, television signals, computer files and other types of data. To transfer the information, you need a channel between the two locations. This may be a wire pair, radio signal, optical fiber, etc. Telecommunication companies receive payment for transferring their customer's information, while they themselves pay to establish and maintain the channel. (ii) Relevant technical terms used in the Interconnect Agreement r/w the addenda (a) Gateway Mobile Switching Centre (GMSC): It is a special kind of MSC that is used to route calls outside the mobile network. Whenever a call for a mobile subscriber comes from outside the mobile network or the subscriber wants to make a call to somebody outside the mobile network, the call is routed through GMSC. In short, it serves as an interconnection between MSC and PSTN (network). ....
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....unting and tracing requirements. Thus, we have two kinds of POIs, namely, international POIs and local POIs. Similarly, we also have two kinds of CLIs, namely, local and international CLIs. (g) Calling Line Identification (CLI): CLI means information generated by the Network capability which identifies and forwards the calling number through the interconnected BSNL's/ UASL's network. (h) Gateway Switch: It is a switch which has the capability to perform Gateway functions like sending and receiving signals, sending and receiving various types of information to the other operators' network in a multi- operator environment such as operators' identity, charging area information, etc. as well as transportation of CLI, generating call data records (CDRs) for an off line billing system giving all necessary details of the call for proper settlement of accounts in a multi-operator environment and security monitoring functions. (i) National Long Distance Service Operator (NLDO): means the telecom operator who provides the required digital capacity to carry long distance telecommunication service within the scope of license which may include various types of services suc....
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....ns under which two licensees or service providers interconnect their networks to allow their respective subscribers to have seamless access to each other's networks. It is a binding contract that binds each contracting party with respect to interconnection arrangements including commercial, technical and operational. However, the scope and content of each such contract may vary. Under the said Agreement, IUC payments are divided into four heads: (i) originating charges; (ii) carriage charges; (iii) termination charges; and (iv) ADC payments. ADC payment, as a concept, is a fee paid by cellular, UAS, national long distance and international long distance subscribers. This payment is in the nature of tax as no service is rendered in return. ADC payments are to cross subsidize BSNL for developing its fixed network in non-lucrative areas. The licensee(s) makes ADC payments based on their adjusted gross revenues. These payments are later on transferred to BSNL. An IUC charge is, thus, a payment by one service provider to another for the use of network elements to originate, transit or terminate calls. BSNL receives ADC payments for international calls made to fixed numbers. These pa....
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....and the other side is that of Reliance. The Calling Line Identification (CLI) means information generated by the network capability which identifies and forwards the calling number through the interconnected BSNL's network. Under clause 2.1.13, Trunk Group is a part of POI. One must keep in mind that the above aspects are not only technological, they are maintained for billing and accounting purposes. They generate data(s) in the form of CDRs and billing records in detail at the International Gateway Exchange of ILDO (International POI), at the NLDO Trunk Automatic Exchange of NLDO (National POI) and Local Telephone Exchange of BSO (Local POI for our understanding). At each stage, the billing record is generated so that if an UASL is riding on the network of BSNL, the former has to pay for the incoming international call in terms of duration, etc. and even in the case of local calls or national calls which includes the distance parameter. Under clause 2.1.13, the fully mobile, limited mobile and fixed services network of UASL shall be having separate POIs with BSNL, which shall be treated separately for set up costs, port charges, etc. Under clause 2.1.15.3.3, for the purpose o....
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....ble for such unauthorized calls. In such a case, BSNL would be free to charge the UASL the higher IUC for all calls recorded on these POIs from the date of provisioning of that POI [at Vadodara in this case] or for preceding two months, whichever is less. Similarly, under clause 6.4.6(b), if the UASL masks or disguises the international call as local call that UASL will have to pay the higher IUC rate meant for international calls to BSNL from the date of provisioning of that POI or for preceding two months, whichever is less. Thus, if there is masking of CLI for the calls generated and forwarded from the telephone of UASL, then it would be the primary duty of that UASL to prevent such misuse and failing which BSNL would be free to invoke clause 6.4.6. It is important to note that clause 6.4.6 restricts the charge to last two preceding months. The charge under clause 6.4.6 is not dependent upon number of calls and even the period of misuse of services is restricted to last two preceding months. Thus, when an international call, as in this case, lands on the local POI of the UASL it knows the nature of the call. There is a difference between an international CLI and the local/nation....
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....timate of damage. (iv) Whether clause 6.4.6 represents penalty or pre- estimate of reasonable compensation for the loss? 17. According to Chitty on Contracts "whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for breach. The question to be always asked is whether the alleged penalty clause can pass muster as a genuine pre-estimate of loss". (See para 26-126 of Chitty on Contracts, 30th edition) The fact that damage is difficult to assess with precision strengthens the presumption that a sum agreed between the parties represents a genuine attempt to estimate it and to overcome the difficulties of proof at the trial. According to the Law of Contract by G.H. Treitel (10th edition), a clause is penal if it provides for "a payment stipulated as in terrorem of the offending party to force him to perform the contract. If, on the other hand, the clause is an attempt to estimate in advance the loss which will result from the breach, it i....
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....n the international market at a lower rate and in that sense loss is caused to BSNL. Similarly, as stated above, masking takes place as international CLI can easily be identified even when an international call lands on the local POI of the UASL, hence, the defaulting UASL resorts to masking. Hence, an international call coming from the masked number alone cannot be taken into account. Thus, in our view, clauses 6.4.6(a) and 6.4.6(b) provide for pre-estimate of damages. It is so also for one more reason. The clause, as stated above, restricts the higher IUC rate made applicable for calls only for last two preceding months and not for last three years or the longer period. These time lines is an indicia showing that clause 6.4.6 is not penal but a pre-estimate of reasonable compensation for the loss foreseen at the time of entering into the agreement. Lastly, it may be noted that liquidated damages serve the useful purpose of avoiding litigation and promoting commercial certainty and, therefore, the court should not be astute to categorize as penalties the clauses described as liquidated damages. This principle is relevant to regulatory regimes. It is important to bear in mind that ....