India: Supreme Court's Decision On AGR: The Final Nail In The Coffin For The Telecom Industry?

A three judge bench of the Supreme Court (SC) in its ruling in Union of India v Association of Unified Telecom Service Providers of India and other connected matters (AGR Case) has put an end to a dispute spanning nearly two decades regarding the interpretation of adjusted gross revenue (AGR) by the Department of Telecommunications, Government of India (DoT). Significantly, the SC has upheld DoT's interpretation that AGR would include revenue generated by licensees from both licensed and unlicensed activities, bringing a major setback to the industry that is already languishing in debt and is currently undergoing possibly its worst phase.


In consideration of being granted a license by DoT on behalf of the Central Government, telecom service providers (TSPs) are required to pay a license fee to DoT. Initially, DoT introduced a fixed license fee regime, whereby a predefined lump sum was required to be paid by TSPs. After several representations were made by TSPs regarding financial viability and sustainability of this model, the fixed license fee regime was proposed to be done away with and substituted by a revenue-sharing based regime under the National Telecom Policy, 1999 (NTP). It was conceptualised that amounts collected in the form of license fees could be used for development and welfare measures for the telecom sector.

Telecom licenses (Licenses) were amended pursuant to the revenue-sharing based regime as suggested under the NTP and resultantly, TSPs were obligated to share a percentage (presently capped at 8%) of their AGR with the Government as licensee fee. According to the Licenses, AGR is determined by excluding certain explicitly specified items from 'Gross Revenue' (Gross Revenue). Gross Revenue is a defined term under the Licenses and some items (such as revenue on account of interest, dividend, value added services etc.) are explicitly included in the ambit of Gross Revenue. This concept of AGR was finalised and implemented in 2001 and demands for license fees based on this definition were raised on TSPs.

First round of litigation

A petition was filed in the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) by an industry association of telecom licensees or TSPs. In this matter, the stand taken by the Government that license fee was payable on overall revenue of the TSP (including revenue realized on account of non-telecom activities carried out by TSPs) was challenged. The TDSAT held that license fee should only be related to such revenue which is traceable to activities under the License. Subsequently, the Telecom Regulatory Authority of India (TRAI) issued recommendations in this regard along similar lines and finally the TDSAT too largely agreed with the recommendations of the TRAI and held that license fee should not be payable in respect of revenue earned from non-licensed activities.

TDSAT's order was challenged by the Government before SC. In its judgment dated 11 October 2011 (SC Judgment-1), the SC held that the TDSAT had no jurisdiction to decide on the validity of terms and conditions of the License (including the issue of interpretation of the definition of AGR) and consequently the portions of the TDSAT's order holding that revenue realized from non-licensed activities would be excluded from AGR, was without jurisdiction and a nullity. Further, the SC held that if the wide definition of AGR included revenue beyond the licenced activities, then it was open for the Licensees to not undertake activities for which they did not require Licence and transfer these activities to any other person or firm or company. Accordingly, several TSPs hived off divisions that were carrying out non-telecom activities to mitigate the impact of SC Judgment-1.

Second round of litigation

After SC Judgment-1, various TSPs filed petitions in different fora (i.e. High Court, TDSAT) for correct interpretation of the heads of Gross Revenue mentioned in the License, which resulted in a second round of litigation.

The issue concerning the definition of AGR was again agitated before the TDSAT. The TDSAT in its ruling dated 23 April 2015 inter alia held that the term 'revenue' in the License was no different from its corresponding definition in the Accounting Standard 9 (AS-9). The Tribunal also noted that Gross Revenue for the purpose of determining license fee would include inflow from all its business activities, whether under license or beyond license.

In another case, the High Court of Tripura held that definitions of Gross Revenue and AGR under the License were ultra vires to Section 4(1) of the Telegraph Act, as even non-licensed activities were sought to be included within the embrace of Gross Revenue, which was arbitrary, and an exercise of dominant position enjoyed by the Government and contrary to the intent of the formation of the License.

In another set of matters before the High Court of Kerala, it was held that as TSPs had entered into Licenses with the Government at their will and had availed the benefits of such Licenses, it was now not open to them to contend that levy of license fees was arbitrary or beyond the scope of the Indian Telegraph Act, 1885.

Snapshot of the present judgment

The present proceeding before SC is a culmination of the second round of litigation described above. In its judgment in the AGR case, SC has upheld the interpretation of AGR which has been adopted by DoT from the inception. SC has based its decision on a variety of factors, but mainly on the ground that the TSP's obligation to pay license fee in accordance with the terms and conditions of the License is nothing but a contractual obligation, which needs to be honoured by TSPs.

SC has observed that the Government, while implementing the revenue-sharing regime, consciously sought the inclusion of a definition of 'revenue' which was "broad, comprehensive and inclusive" in the 'Migration Package' for migration from fixed license fee regime to revenue-sharing regime (Migration Package) to ensure fewer problems of interpretation (and consequently disputes and litigation) and to safeguard against accounting jugglery. Importantly, the SC has noted that the terms and conditions of the Migration Package, which also contained a stipulation that no dispute would be raised by TSPs as to working out of the revenue-share, was voluntarily and unconditionally accepted by the TSPs at that stage and led to substantial growth of the sector in subsequent years. In other words, since TSPs had taken advantage of the terms of the License, they are now bound to discharge their corresponding obligations.

While responding to the arguments made by TSP's that Gross Revenue should be interpreted in accordance with AS-9 (pursuant to which only gross inflow of cash, receivables that arise in the course of ordinary activities of TSPs could be included in the definition of revenue), the Court has noted that this is not permissible since a specific definition of Gross Revenue has been explicitly stipulated in the License and that this definition cannot be substituted by another definition from an external source.

With respect to the arguments advanced by TSPs that the contra proferentum rule would be attracted in the present circumstances as the license conditions were drafted by DoT, SC held that there was no element of ambiguity in the definition and therefore the occasion for applicability of this rule does not arise.

The Court has also indicated that this issue had already been finally determined in the SC Judgment-1 and thus attempts to re-open the same were barred by res judicata. Based on the stipulations in the License and referring to the Government's intent to include a broad, comprehensive and inclusive definition of 'revenue', the Court has held that the rule of ejusdem generis should be implemented while construing the heads set out in the definition of Gross Revenue and therefore, it would also include revenue generated from activities of TSPs beyond the License.

Determination regarding various heads of revenue under Gross Revenue

The Court has separately examined the validity of inclusion of specific revenue heads (as challenged by TSPs) under the definition of Gross Revenue. The determination made by the SC with respect to such revenue heads and the reasoning is captured below in Table 1.

Table 1

Revenue Head

Included in Gross Revenue (Yes/ No)


Discounts and Commissions


The definition of Gross Revenue as specified in the License cannot be diluted in any manner. Since such definition does not exclude discounts, commissions rebates etc. from the computation of Gross Revenue, exclusion of such amounts (including trade discounts, discounts on international roaming commission, discounts allowed to distributors on sale of prepaid vouchers and cash discounts) from the computation of Gross Revenue cannot be sought.

Gains from foreign exchange fluctuations


Gains from foreign exchange fluctuations form part of the actual revenue. Since the definition of Gross Revenue, also includes "any other miscellaneous revenue" such gains cannot be excluded from the computation of Gross Revenue.

Monetary gains on sales of shares


Given the definition of Gross Revenue in the License, every amount that is more than the book value of current assets of TSPs and which comes to TSPs, must be considered for calculation of Gross Revenue without netting off. This would also include any monetary gains obtained by TSPs on sale of capital assets (such as shares).

Insurance claim in respect of capital assets


Insurance claims over and above the book value of a capital asset results in an inflow of cash and must be accounted for in computation of Gross Revenue.

Negative balance of prepaid customer


For computing Gross Revenue, number of calls at full value have to be measured without any discounts or incentives provided by TSPs (including negative talk time) Consequently, this revenue head cannot be excluded from calculation of Gross Revenue.

Reimbursement of infrastructure operating expenses


Revenue from permissible sharing of infrastructure by TSPs is explicitly included in the definition of Gross Revenue under the License. Therefore, the same cannot be excluded from the computation of Gross Revenue.

Waiver of late fees


Late fee is explicitly included in the definition of Gross Revenue under the License. Consequently, the same cannot be excluded from the computation of Gross Revenue.

Gains from roaming charges and Public Switched Telephone Network (PSTN) pass through charges


Deduction of roaming charges and PSTN passthrough charges from Gross Revenue on actually paid basis is permissible under the License and therefore such charges can be excluded while computing Gross Revenue. However, such charges must be actually passed over to Licensees in different services areas for such deductions to be permissible.

Non-refundable deposits


Non-refundable deposits are revenue received by TSPs in advance from customers and consequently cannot be excluded from the computation of Gross Revenue.

Licensee fee demand where spectrum is not granted


When the spectrum itself has not been issued, licensed activity cannot commence. Merely on the basis that the license has been issued (with no revenue earned) sharing of revenue cannot be demanded.

Income from interest and dividend


Income from interest and dividend is explicitly included in the definition of Gross Revenue under the License. Consequently, the same cannot be excluded from the computation of Gross Revenue.

Bad debts written off


Bad debts written off by TSP cannot be deducted during the computation of Gross Revenue. However, such debts if are recovered subsequently they cannot be brought to charge for a second time for computing license fee.

Liability-written of


Liability would be treated as expense for the TSP, however under the prevailing License conditions such amount cannot be excluded from computation of Gross Revenue. If such liability is written off in the future, it cannot be brought to charge for a second time for computing license fee.

Interest from Inter corporate loan


Income from interest is explicitly included in the definition of Gross Revenue under the License. Consequently, the same cannot be excluded from the computation of Gross Revenue.

Revenue under IP-1 Registration


Under the definition of Gross Revenue, income from licensed activities, non-licensed activities and other miscellaneous revenue has to be included in the computation of Gross Revenue. Consequently, income of TSPs from IP registration under the CUG license is required to be included in such computation.

Income from management consultancy services


Income from management support and consultancy services provided by a licensee cannot be excluded from the computation of Gross Revenue. Further, income from cable landing stations operated by TSPs is also required to be included in Gross Revenue.

Computation of interest and penalty

With respect to the question of quantum and computation of interest, SC has upheld the claim of interest made by DoT, while relying on the provisions of the Licenses that lay down the consequences for delay in payment of license fees. Similarly, on the question of penalty, SC has inter alia held that TSPs have deliberately acted in an unfair manner by deferring payment of the disputed amount of licensee fees despite SC Judgment-1, and therefore cannot contend that payment has been delayed on account of a bona fide dispute. Consequently, the Respondents are required to cumulatively pay within a period of three months, an amount which, according to several news reports, is in excess of INR 900 billion or 90,000 crores.

Khaitan comment

The issue relating to definition and scope of AGR has been finally put to rest by the SC vide its judgement in the AGR Case. While this has undoubtedly brought a degree of finality to this aspect, it will have far-reaching ramifications as far as the sustainability of the sector is concerned. It must be borne in mind that the telecom sector in India is perhaps witnessing its worst phase in history and therefore, the SC's decision in the present case is expected to have an amplified effect due to its timing.

In any case, the telecom sector currently is comprised of a select number of players, who are also finding it difficult to sustain themselves amidst steep competition, unfavorable policy changes and heavy debts. On the other hand, costs of operations are mounting, and profitability seems distant. Under these circumstances, this significant liability is likely to set back many TSPs, and even drive some of them out of existence. The debilitating financial impact of this judgment may also become a considerable roadblock in implementing technology-driven policy reforms being planned by the Government.

As a next course of action, TSPs could consider approaching the SC for a review of its judgement in the AGR Case. However, despite any potential relief which may be obtained by TSPs in such proceedings, a case for governmental intervention is becoming increasingly clear to ensure the sustainability of the Indian telecom industry as a whole. While the Government is expending some efforts towards reviving the telecom industry and it is also one of the main objectives enshrined under the National Digital Communications Policy, 2018, suitable action is warranted on part of the Government, especially in wake of this decision of the SC. If adequate steps are not taken to mitigate the impact of this decision, the industry will most certainly cripple under this financial burden, which will be disastrous not only for the economy but also the public at large as the provisioning of services will be impacted. It is ironic that the demand for license fees, the objective of which was to further the development and welfare of the sector in the first place, may eventually lead to its potential downfall.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions