TaxTMI 
TaxTMI 
2012 (9) TMI 1239
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....bitrator rejected the claim of BML for refund of the amount of licence fee together with interest paid by it to the DOT subject to the finding that if the Telecom Disputes Settlement and Appellate Tribunal ('TDSAT') or in any further appeal/further proceedings, it was finally held that BML was not liable to pay interest for the period of 52 days, i.e., from 18th April 1996 to 11th June 1997 then the DOT would refund the said amount to BML. Background facts Prior to 29th March 2000 BML was known as M/s. JT Mobiles Limited ('JTM'). The name of JTM was changed to BML by a certificate dated 29th March 2000 issued by the Registrar of Companies ('ROC'), Karnataka. 2. On 16th January 1995, the Government of India through Ministry of Communications, DOT issued tender documents for CMTS in various telecom circles including Punjab. JTM was provisionally selected for providing CMTS in the telecom Circles of Punjab, Andhra Pradesh and Karnataka. Since the telecom service areas of Andhra Pradesh and Karnataka were proximate while that of the Punjab Circle was not, it was decided to implement the licence agreement for the Punjab Circle by a separate legal entity.....
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....) M/s. Evergrowth Telecom Ltd remains a 100% owned subsidiary of M/s. J.T. Mobiles Telecom Ltd; (2) Any variation in equity pattern and/or expansion in equity base of M/s. J.T. Mobiles Ltd. and M/s. Evergrowth Telecom Ltd will not be undertaken without obtaining permission of the Telecom Authority; (3) Foreign equity in M/s. Evergrowth Telecom Ltd. including the holding through M/s. J.T. Mobiles Ltd. will not exceed 49%; (4) The proportionate shareholdings of the individual foreign promoters/partners of M/.s. J.T. Mobiles Ltd., whose networth and/or experience have been taken into consideration for determining the eligibility and grant of the licence, in the subsidiary company viz., M/s. Evergrowth Telecom Ltd must not go below 10% for at least during the initial three years period as stipulated in the Tender conditions; (5) As in item (4) above, the shareholding of Indian promoters of M/s. J.T. Mobiles Ltd. in the subsidiary company shall not go below 10% during the first three years. (6) Resolution of the company viz., M/s. J.T. Mobiles Ltd passed as per the relevant laws/acts on the subject or any guidelines issued by any statutory au....
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.... are prepared to execute the Tripartite Agreement amongst JT Mobiles, DoT and ourselves as may be required in this regard. 7. On 26th April 1996 JTM wrote to the DOT informing it of a proposal whereby it intended to invite Essar Telecom Limited ('Essar') and an associate company of Essar Commission Limited to contribute 52% in the share capital of EGTL and JTM continued to hold 24% of the share capital in the company. The balance 24% was proposed to be offered to other non-residents. As a result the total share holding of EGTL would be 64.25% Indian and 35.75% Foreign. JTM requested the DOT for its formal approval to finalize the structure and also requested the DOT to assign the Punjab cellular licence to EGTL. 8. On 1st May 1996 the DOT wrote to JTM, as under: Dear Sir, Kindly refer your letter dated 26th April 1996 regarding share holding structure of M/s. Evergrowth Telecom Ltd. In this regard, your kind attention is drawn to letter No. 842-65(A)/95-VAS dated 18th April 1996. I have been directed to ask you to kindly confirm that you have fulfilled the conditions listed in that letter. You are also requested to submit the necessary documents in s....
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....est. 10. On 25th June 1996 a letter of intent ('LOI') was issued by EGTL to Motorola for supply of radio equipment and related services. On 19th July 1996 EGTL wrote to the DOT and sought to lease 2 MB link for cellular network. On 16th August 1996 in response to the telephonic conversion with the Deputy Director General (VAS), DOT, JTM wrote to the DOT confirming that JTM would be injecting up to Rs. 35 crores of equity in EGTL and that EGTL will remain 100% subsidiary of JTM after this equity infusion. It was added that "we understand that it is in accordance with your approval letter dated 18th April 1996." 11. On 22nd August 1996 DOT forwarded to all cellular licencees, including JTM, the proforma draft of the interconnection agreement. On 27th August 1996 EGTL executed a GSM Cellular System Equipment Purchase agreement with Motorola Inc. On 5th September 1996 Deutsche Bank wrote to EGTL regarding credit facilities for financial performance guarantee of Rs. 35 crores to be submitted to the DOT. A subscription agreement was executed by EGTL and Essar on 5th September 1996 for issuance of 98 lakhs convertible debentures of Rs. 100 each at par aggregating to Rs. 98 c....
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....ctive date of commissioning services and further that the date of payment of second instalment of licence fee should also be extended to coincide with the new effective date. On 31st December 1996 the Deputy General Manager (Planning) of the Ambala Circle of DOT wrote to EGTL referring to the letter dated 11th December 1996 from DOT of Delhi and stated that no objection given to EGTL has not become effective and "no correspondence can be accepted from your firm on behalf of J.T. Mobiles." 15. On 3rd January 1997 JTM wrote to the DOT expressing its surprise upon receiving the DOT's letter dated 11th December 1996 and once again confirmed its compliance with the various conditions stipulated in the letter dated 18th April 1996. On 4th January 1997 by two letters, JTM informed the DOT that it had complied with the various conditions stipulated in the letter dated 18th April 1996 and that DOT should recognise EGTL as the "legitimate entity to operate the Punjab CMTS and to conduct all the necessary communications and work with the concerned authorities for the Punjab Cellular Licence". JTM also pointed out that EGTL had already undertaken a number of actions for implementation o....
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....ed 28th April 1997 on the above subject wherefrom following has been collected and observed from the application enclosed with the letter. (i) The company has changed equity structure of joint venture company by increasing equity to 31% held by M/s. United Telecom Group and simultaneously removed M/s. PCIL from amongst the promoters. (ii) As per Clause 17 of the Licence Agreement the equity holding of M/s. PCIL an Indian promoter cannot be reduced below 10 of total aggregate for a period of 3 years from effective date. (iii) The statement that the company has decided to assign/transfer Punjab Licence to Essar Group is against the prohibition of assignment or transfer of licence as prescribed per Clause 10 of the Licence Agreement. (iv) The above is in violation of the express terms and conditions of the licence agreement. In view of the above, within ten days from the receipt of this letter, kindly explain that why action for termination of licence, under Clause 5, may not be taken due to the above noted breaches committed by you. In case reply is not received within aforesaid 10 days, then it will be presumed and taken that you have not....
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....and condition 15.1 Schedule 'B' of the licence agreement for breach of clause 17 of the licence agreement. This is without prejudice to any other remedy with the Telecom Authority may resort to under the licence agreement. This may be treated as notice of default under clause 6 and condition 15.1 Schedule 'B' of the licence agreement. 22. On 6th January 1998 JTM wrote to the TC stating that PCIL was only a nominee of RKA and the said arrangement was later terminated by RKA pursuant to which there was litigation pending in the Bangalore Civil Court and Delhi High Court between RKA and PCIL. It was on this score that permission was sought by JTM to replace PCIL and RKA and this was accepted by the DOT by its letter dated 3rd April 1996. Since the licence did not prohibit increase in equity of any shareholder, the equity of United Telecom Limited ('UTL') was increased from 11% to 31%. Since the shareholding of PCIL in JTM was nil there was no breach of licence on account of PCIL being replaced with RKA. 23. On 8th January 1998 LPA filed by PCIL was dismissed by the Division Bench of this Court observing that the issues raised in the letter dated ....
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....e operation of CMTS in Punjab by EGTL was agreed in principal. Relevant to the issue of outstanding licence fee JTM was asked to deposit a sum of Rs. 5 crores immediately, all outstanding up to the second quarter of second year by 20th March 1998, the outstanding dues of third and fourth quarter of second year by 30th June 1998 and the outstanding including those accrued up to 11th September 1998 for third year by 12th September 1998. The request for waiver of interest would be considered only after payment of the principal amount by the company. JTM was directed not to ask for any change in the effective date or take legal recourse for waiver of the licence fee and was asked to withdraw the suit filed by it and EGTL in the Delhi High Court unconditionally. 27. On 2nd April 1998 JTM wrote to the Chairman, TC enclosing a demand draft of Rs. 5 crore dated 2nd April 1998 towards part payment of the second year Punjab Circle licence fee but requested for deferment of the payment of the outstanding dues for the second year as well as for the dues accrued for the first and second quarters of the third year up to 31st March 1999. The third quarter of licence fee for the third year woul....
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....the directions in the order dated 28th May 1999 of the High Court. On 29th July 1999 EGTL wrote to the DOT seeking migration to New Telecom Policy 1999 ('NTP 1999'), withdrawal of termination letters and restoration of interconnection. It also referred to its earlier request for treatment of the period of 693 days as 'blackout' period. Prior thereto on 8th July 1999 JTM requested that the disputes be referred to arbitration. 31. As noted earlier the name of JTM was changed to BML by a certificate dated 29th March 2000 issued by the ROC, Karnataka. 32. On 19th September 2001 the DOT wrote to BML offering a modified package whereby the issue concerning payment of licence fee for the period between 18th April 1996 and 10th March 1998 was proposed to be referred to an Arbitrator. By a letter of the same date BML accepted the above offer and also paid part payment of Rs. 220 crores. On 21st September 2001 it had paid a further payment of balance of Rs. 58,48,094 by which time it had also paid a sum of Rs. 485 crores. Thus all outstanding amounts had been paid by it by that date. On 22nd September 2001 BML wrote to the Director (VAS-I), DOT confirming compliance wit....
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.... expressly or by conduct, by the Claimant? (4) Whether there was a novation of the Licence Agreement dated 26th December 1995 in view of the letter of the Respondent dated 18th April 1996, whether Evergrowth was to implement and operate the Licence Agreement and the Claimant thereby rendered itself incapable of implementing the Licence Agreement? 4(a) If not, whether there was no impediment to the operation of the Licence Agreement due to the letter dated 18th April 1996 or due to any subsequent event related thereto? (5) Alternatively, whether the Respondent had, by its letter dated 18th April 1996 and by its conduct clearly represented that the Agreement dated 26th December 1995 could be implemented by Evergrowth only and the same was acted upon by the Claimant and Evergrowth to their detriment and whether consequently, the Respondent was estopped from contending that the Licence Agreement could not be implemented by Evergrowth? (6) Whether the Respondent is estopped from contending that the letter dated 18th April 1996 did not come into effect as alleged or at all? (7) Whether the Claimant had a legitimate expectation that the Licence....
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....fee and interest for the period 22nd August 1997 to 8th January 1998 and from 8th January 1998 to 10th March 1998 or any part thereof and is entitled to refund thereof? (14) What is effect of non-filing of opinion of learned Attorney General? (15) To What Relief? Impugned Award of the Arbitrator 36. Dealing with Issues 1 to 3 together, the learned Arbitrator concluded that since DOT never agreed for assignment of the licence in favour of EGTL, it did not permit JTM to implement the contract through EGTL, nor did it permit EGTL to implement the contract in its own right. There was no justification whatsoever for JTM to proceed on that assumption. It was held that the original contract of the licence between JTM and DOT dated 26th December 1995 remained. The learned Arbitrator held that the request by JTM to the DOT seeking amendment of the licence was its 'offer', the DOT's letter dated 18th April 1996 was a 'counter offer' and JTM's letters dated 18th April 1996 and 26th April 1996 were 'further counter offers'. DOT by its letter dated 1st May 1996 had not accepted these 'further counter offers' but stuck to its origin....
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....r refund were permissible. On Issue Nos. 11 to 13 it was held that BML was liable to pay interest on the licence fee for the blackout period in terms of Condition 19.8 and that there was no question of their being equities in favour of BML in that regard. Present proceedings 39. Aggrieved by the above Award, the present petition was filed by BML on 17th February 2003. On 19th February 2003 the following order was passed by the Court: This is a petition under Section 34 of the Arbitration & Conciliation Act, 1996. The main grievance of the petitioner is that the learned Arbitrator for the period 18th April 1996 to 10th March 1998 has declined the refund of interest charged by the respondent at penal rate of 17.5% compounded monthly. Learned senior counsel submitted that the Arbitrator has erred in proceeding on the basis that once there was a contractual stipulation even in equity such penal rate could be permitted. Counsel places reliance on case of Central Bank of India v. Ravindra & Ors. (2002) 1 SCC 367. Counsel also raises the contention that the interpretation given by the learned Arbitrator to the correspondence between the parties regarding the undertaking req....
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....n its establishment under Section 14. Under Section 14N (1) of the TRAI Act as amended all appeals pending before the High Court immediately before the commencement of the TRAI Amendment Act, i.e., 24th January 2000, shall stand transferred to the TDSAT on its establishment under Section 14. Section 15 of the TRAI Act as amended excluded the jurisdiction of a civil court in respect of any matter which the TDSAT was empowered to determine. 42. At the hearing on 28th April 2010 learned Senior counsel for BML informed the Court that he was not pressing prayer (iii) of the said application for deciding the preliminary legal objections as a preliminary issue. Nevertheless he was pressing for the other reliefs including remand of the present dispute forming subject matter of the impugned Award to the TDSAT for adjudication. In the event, the preliminary objection of the Petitioner was upheld. Notice was issued on the said application by the Court. Submissions on the lack of jurisdiction of the Arbitrator 43. The first submission by Dr. A.M. Singhvi, learned Senior counsel and Mr. Harsh Kaushik, learned counsel appearing for BML pertained to the jurisdiction of the learned Arbitr....
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....atter jurisdiction went to the root of the matter and was different from an objection as to territorial and pecuniary jurisdiction. Reference was made to the decisions of the Supreme Court in Harshad Chiman Lal Modi v. DLF Universal Ltd. (2005) 7 SCC 791, Chief Engineer, Hydel Project v. Ravinder Nath (2008) 2 SCC 350 and Hira Lal Patni v. Sri Kali Nath AIR 1962 SC 199. 45. Fourthly, it was submitted by Dr. Singhvi and Mr. Kaushik that an objection that a judicial forum or Tribunal lacks inherent jurisdiction to adjudicate a dispute, can be raised at any stage. A party will not be estopped from raising such a plea because it had invoked the arbitration clause and participated in the arbitration proceedings. Reference is made to the decision in Chiranjilal Shrilal Goenka (Deceased) through LRs v. Jasjit Singh 1993 (2) SCC 507 and the decision of the TDSAT in Star (India) Pvt. Ltd. v. Bharat Sanchar Nigam Ltd. It is submitted that Section 2 (3) of the 1996 Act also acknowledges that a dispute that can be decided by a properly designated Tribunal would not be referred to arbitration. It is submitted that although the grounds urged in the petition as originally filed covered the obj....
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....tion under Section 16 (1) read with Section 16 (2) of the 1996 Act. No such objection was raised in the present petition when it was filed in 2003. After waiting for or a period of seven years, an amendment was sought to be made to incorporate such a ground by an application filed in March 2010. 48. The decisions in Kiran Singh v. Chaman Paswan and Harshad Chimanlal Modi v. DLF Universal Ltd. were sought to be distinguished by Mr. Mehra on the ground that they pertained to the provisions of the CPC and that the challenge to jurisdiction in terms of Section 16 of the 1996 Act was on a higher pedestal than Section 21 of the CPC. Section 16 of the 1996 Act permitted the learned Arbitrator to decide on his own jurisdiction. If such plea was permitted to be raised at a stage long after the passing of the Award, it would defeat the very object of expeditious adjudication of disputes under the 1996 Act. Mr. Mehra further submitted that a challenge to the Award by seeking amendment to the petition under Order VI Rule 17 CPC could not be permitted long after filing of the expiry of the maximum permissible statutory period of limitation under the proviso to Section 34 (3) of the 1996 Act.....
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.... anticipates the arbitral Tribunal lacking jurisdiction to deal with an issue that is within the exclusive jurisdiction of the TDSAT, then the failure by BML to raise an objection as to jurisdiction before the learned Arbitrator and participating in the arbitral proceedings throughout should be taken to be waiver by BML of its right to object under Section 4 of the 1996 Act. 51. Under Section 16 (2) of the 1996 Act, the objection as to the jurisdiction of the arbitral Tribunal has to be raised not later than the submission of statement of claims, by either party. Such objection can be raised even by a party which invokes the arbitration clause and files a statement of claims. The word 'jurisdiction' under Section 16 is wide enough to include objections as to the subject matter jurisdiction. Indeed it is not confined to pecuniary or territorial jurisdiction. The failure to raise such objection and permit the arbitral proceedings to reach its logical stand would clearly preclude a party from raising such objection at a later stage. Under Section 16 if such an objection is raised and rejected by the arbitral Tribunal the party raising such objection would have to wait till ....
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....the abovementioned grounds that even vaguely suggests the ground of lack of inherent jurisdiction of the learned Arbitrator rendering the Award liable to be set aside under Section 34 (2) (b) (i) of the 1996 Act. The broad sweeping plea that the Award is contrary to the public policy of India and therefore liable to be set aside under Section 34 (2) (b) (ii) of the 1996 Act cannot also be said to cover a plea as to lack of inherent jurisdiction. In Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., the Supreme Court has delineated the scope of that expression. The lack of inherent jurisdiction of the Arbitrator to adjudicate the dispute has to necessarily be pleaded specifically. It has to be shown to lead to a patent illegality vitiating the impugned Award. 54. There is another reason why the strict view must be taken of scope of challenge to the Award under the 1996 Act. If all grounds of challenge are not taken to the impugned Award at the time of filing of the petition under Section 34 of the 1996 Act, and are permitted to be raised at any time, then the legislative intent behind prescribing a maximum time limit under the proviso to Section 34 (3) of the 1996 Act would be....
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....ich would include the arbitral proceedings in the instant case, should be transferred to TDSAT, then it ought to have made a specific provision to that effect. 57. Sections 14, 14M and 14N of the TRAI Act are silent as to the transfer of pending arbitral proceedings to the TDSAT. The said provisions read as under: 14. Establishment of Appellate Tribunal - The Central Government shall, by notification, establish an Appellate Tribunal to be known as the Telecom Disputes Settlement and Appellate Tribunal to - (a) adjudicate any dispute - (i) between a licensor and a licensee; (ii) between two or more service providers; (iii) between a service provider and a group of consumers; Provided that nothing in this clause shall apply in respect of matters relating to - (A) the monopolistic trade practice, restrictive trade practice and unfair trade practice which are subject to the jurisdiction of the Monopolies and Restrictive Trade Practices Commission established under sub-section (1) of section 5 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969); (B) the complaint of an individual consumer mai....
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....ther Authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. 58. Section 14 of the TRAI Act states 'any dispute' between a licensor and a licensee; two or more service providers; and a service provider and a group of consumers will be adjudicated exclusively by the TDSAT. The expression 'any dispute' has to be read along with Sections 14M and 14N to determine which of such disputes that are pending as on 24th January 2000 would get transferred to the TDSAT. Section 14M refers to the 'authority' which under Section 2 (b) is the TRAI. Under Section 14M, cases pending before the TRAI immediately before 24th January 2000 shall stand transferred to the TDSAT upon its establishment. The proviso to Section 14M states that the disputes which were already being adjudicated prior to 24th January 2000 would continue to be adjudicated by the TRAI till the TDSAT is actually established, and would be transferred to it immediately upon its establishment. Section 14M does not talk of all pending arbitral proceedings. Section 14N deals with cases pending before the High Court. Arbitral proceedings are not covered u....
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....nfirm that EGTL would "always" remain a 100% subsidiary of BML was erroneous as there was no such requirement in the NOC. The learned Arbitrator had read into the letter dated 18th April 1996 a stipulation that was non-existent. Further, EGTL remained a 100% owned subsidiary of JTM throughout. There was enough evidence on record to show that BML had unequivocally accepted the conditions of the NOC dated 18th April 1996. The terming by the learned Arbitrator of the NOC dated 18th April 1996 as an 'offer' and the response thereto by BML as its 'counter offer' was erroneous and contrary to the pleadings as well as the wording of those very documents. BML and EGTL sought approvals in their subsequent letters only pursuant to the Condition No. 2 of the NOC. It is submitted that JTM never stated that it would maintain only 12.24% equity. The learned Arbitrator ignored the proportionate foreign equity of BML of 11.76% and therefore, came to a wrong finding. In its letter dated 1st/2nd May 1996 BML had conveyed to DOT its acceptance of each of the conditions of the letter dated 18th April 1996. The letter dated 23rd January 1998 was only a reiteration of that acceptance. Th....
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....irement would also invite invalidation of the Award. To the extent that the requirement of the law even under the 1996 Act is that the Arbitrator cannot travel beyond the contract, or read something into it which does not exist, it is no different from the legal position that emanates under the Arbitration Act 1940. 65. In Continental Construction Co. Ltd. v. State of Madhya Pradesh (1988) 3 SCC 82, the Supreme Court observed that an Arbitrator cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. In Bharat Coking Coal Ltd. v. M/s. Annapurna Construction AIR 2003 SC 3660 the Court explained that "the role of the arbitrator is to arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parameters of the contract, his award cannot be questioned on the ground that it contains an error apparent on the face of the record." In Associated Engineering Co. v. Government of Andhra Pradesh AIR 1992 SC 232 the Supreme Court set aside an Award after finding that the Arbitr....
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....o. 2 and given by the Telecom Authority, it would obviously result in a variation in the equity pattern and/or expansion in the equity base of JTM. If Condition No. 1 were to be rigidly interpreted, then Condition No. 2 was plainly inconsistent and unworkable. On the other hand, Condition No. 2 itself envisaged that there was no requirement under Condition No. 1 that EGTL would remain a 100% subsidiary of JTM "throughout' or "always." 68. While the letter dated 18th April 1996 of JTM did confirm the acceptance of Condition Nos. 3 to 7 its request for amendment of Conditions 1 and 2 to clarify the possible anomaly cannot be viewed as a refusal, repudiation or non-acceptance by JTM of Conditions 1 and 2. In any event, with JTM confirming by letter dated 1st/2nd May 1996 that EGTL "is a 100% subsidiary of JTM", Condition No. 1 stood satisfied. The letter dated 24th April 1996 from EGTL also assured that the equity held by JTM in EGTL would not be diluted below 24% at any time and foreign equity would not exceed 49% of the total issued capital including foreign equity held by JTM. In the letter dated 26th April 1996 JTM sought approval of the proposal to have Essar contributing ....
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....read with letters dated 1st/2nd May 1996 and 3rd and 4th January 1997 as well as by its subsequent conduct in seeking permission of the DOT in terms of the Condition No. 2. Neither of the parties proceeded on the basis or even contended that the request by JTM to the DOT seeking amendment of the licence was its 'offer'; that the DOT's NOC letter dated 18th April 1996 was a 'counter offer' and that JTM's letters dated 18th April 1996 and 26th April 1996 were 'further counter offers'. There is force in the contention of BML that this approach to the evidence has led to the impugned Award erroneously deciding Issues 1 to 3. Consequently, it is not possible to accept the submission of the learned ASG that the view expressed by the learned Arbitrator on Issues 1 to 3 was a plausible one. 71. Issue No. 4 concerned the novation of the agreement dated 26th December 1995. The NOC letter dated 18th April 1996 conveyed DOT's conditional acceptance of the request of JTM to permit EGTL to operate the licence agreement. The finding of the learned Arbitrator that there was no novation of the licence agreement was as a direct consequence of his findings on Is....