- Loop Telecom and Trade Limited v. Union of India & Anr., Civil Appeal No. 1447 – 1467 of 2016 (Judgment dated 03.03.2022)
In this decision, the Hon'ble Supreme Court of India has held a telecom service provider, whose telecommunication licenses had been quashed / cancelled by an earlier decision, could not seek refund of the entry fee paid by it to the Department of Telecommunications for acquisition of such licenses. The Hon'ble Supreme Court of India invoked the principle of in pari delicto potio rest condition defendantis, to hold that the acquisition of the license was pursuant to an illegal policy would result in the party obtaining such licenses being prohibited from seeking the refund of the entry fee paid by it for the same.
- Question of law before Hon'ble Supreme Court of India:
Whether an erstwhile telecom service provider (TSP), is entitled to the refund of the entry fee paid by it to the Department of Telecommunications (DoT), towards obtaining 2G Unified Access Service Licenses in 21 license service areas (UAS Licenses). These licenses were quashed pursuant to the decision of the Hon'ble Supreme Court of India in Centre for Public Interest Litigation vs. Union of India1 (CPIL Judgment).
The Hon'ble Supreme Court of India has held that Loop Telecom and Trading Limited (Appellant) was the beneficiary of the DoT's “First Come First Serve” policy (FCFS Policy). The CPIL Judgment had categorically found the FCFS Policy to be arbitrary, illegal and which intended to unduly benefit a particular group of private bidding entities (which included the Appellant), at the cost of the public exchequer. As such, the Hon'ble Supreme Court of India held that the principle of in pari delicto potio rest condition defendantis (in equal fault, better is the condition of the possessor) [principle of in pari delicto], would be applicable and the Appellant could not claim a refund of the entry fee paid by it to the DoT.
- Background Facts:
- In September 2007, the Appellant had applied to the DoT for grant of UAS Licenses in 21 license service areas (LSA), received a letter of intent in respect thereof, and proceeded to make payment of ₹ 1.1 crore per LSA towards entry fee (which was subsequently revised upwards to ₹ 1454.95 crore for all 21 LSAs).
- Thereafter, in March 2008, the Appellant entered into the UAS Licenses with the DoT, which were valid for a period of 20 years.
- In February 2012, vide the CPIL Judgment, the Hon'ble Supreme Court of India declared that the FCFS Policy of the DoT for allocation of spectrum was illegal and proceeded to quash the UAS Licenses granted by the DoT thereunder, including those of the Appellant. On 01.06.2012, the Appellant ceased with the provision of telecommunication services after porting out all of its subscribers.
- The Appellant instituted a petition2 before the Hon'ble Telecom Disputes and Settlement Appellant Tribunal (First Telecom Petition and Hon'ble TDSAT, respectively), seeking refund of the entry fee of ₹ 1454.94 crore paid to the DoT prior to the award of the UAS Licenses (Entry Fee). At this time, the Appellant was the subject of a criminal trial pertaining to charges under Section 120 – B and 420 of the Indian Penal Code, 1860 in a case relating to the grant of UAS Licenses.
- The Hon'ble TDSAT, vide judgment dated 16.09.2015 (2015 Judgment), dismissed the First Telecom Petition and held that the quashing of the Appellant's UAS Licenses by the Hon'ble Supreme Court of India by the CPIL Judgment could not be equated to the same being void in terms of Sections 23 or 56 of the Indian Contract Act, 1872 (Contract Act). The Hon'ble TDSAT premised these findings on the fact that as the UAS Licenses had been quashed on account of the FCFS Policy being found to be arbitrary and illegal by the Hon'ble Supreme Court of India, there was no basis for the Appellant to seek restitution of the Entry Fee under Section 65 of the Contract Act. Further, the Hon'ble TDSAT held that even otherwise, assuming that the UAS Licenses were void under the Contract Act, the Appellant's claim for restitution would be governed by the principle of in pari delicto, and considering the Appellant's culpability due to knowingly obtaining the UAS Licenses in terms of the FCFS Policy, there was no basis for the refund of the Entry Fee.
- The Appellant challenged the 2015 Judgment before the Hon'ble Supreme Court of India3 but withdrew its appeal with liberty to approach the Hon'ble Supreme Court of India if the need so arose.
- As aforesaid, the 2015 Judgment was rendered by the Hon'ble TDSAT when the Appellant was the subject of criminal proceedings, but thereafter, was acquitted of these criminal charges by the Special Judge, CBI (Special Judge) in 2017. As on date, the appeal against such acquittal is pending before the Hon'ble High Court of Delhi.
- After the Appellant's acquittal by the Special Judge, it once again approached the Hon'ble TDSAT4 seeking refund of the Entry Fee (Second Telecom Petition). The Appellant premised its argument before the Hon'ble TDSAT on the fact that the acquittal by the Special Judge had established that it had no role to play in the allocation of UAS Licenses under the FCFS Policy, and ergo, there was no basis for the in pari delicto principle to apply.
- However, vide judgment dated 11.12.2018 (2018 Judgment), the Hon'ble TDSAT dismissed the Second Telecom Petition on the ground that the issues determined vide the 2015 Judgment were being sought to be reagitated by the Appellant, and that at the time of withdrawing its appeal against the 2015 Judgment (Appellant's Appeal), the Appellant had been granted leave to approach the Hon'ble Supreme Court of India and not the Hon'ble TDSAT.
- The Appellant was permitted5 to revive its Appeal against the 2015 Judgment6 along with challenging the 2018 Judgment7.
- Summary of Appellant's Arguments:
- As the UAS Licenses were quashed pursuant to the CPIL Judgment, the Entry Fee ought to be refunded on civil, constitutional, and contractual principles.
- The Appellant was prevented from providing telecommunication services on account of the UAS Licenses being quashed.
- Such quashing amounted to frustration of each License in terms of Section 56 of the Contract Act, and ergo, the Appellant was entitled to a refund of the Entry Fee under Section 65 of the Contract Act, as the CPIL Judgment was premised on the illegalities committed by the DoT in propagating the FCFS Policy and not on account of the actions / fault of the Appellant.
- The Appellant's acquittal by the Special Judge reaffirmed that it was not culpable and as such, the rationale underpinning the 2015 Judgment had been vitiated.
- The DoT had permitted TSPs whose licenses were cancelled pursuant to the CPIL Judgment to participate in spectrum auctions held thereafter, wherein, the entry fee payable by such TSPs was set off towards the fee payable for the allotment of such auctioned spectrum.
- Rationale employed by the Hon'ble Supreme Court of
- The Hon'ble Supreme Court of India held that the CPIL Judgment clearly held that the entire process of issuing UAS Licenses under the FCFS Policy was stage managed in favour of certain entities such as the Appellant, and the Appellant was the beneficiary of the patently unconstitutional mechanism deployed for the allocation of spectrum thereunder. As such, the Hon'ble Supreme Court of India opined that although the DoT was responsible for the FCFS Policy, TSPs such as the Appellant that had benefitted thereunder could not be absolved of their responsibility in the perpetuation of such illegalities.
- Further, the Hon'ble Supreme Court of India observed that during the proceedings that culminated in the CPIL Judgment, the Appellant had defended the FCFS Policy and the UAS Licenses / spectrum granted pursuant thereto and was entirely aware that the prayer in said proceedings was the setting aside of such UAS Licenses. The Hon'ble Supreme Court of India held that the Appellant also did not reserve its rights in this respect so as to allow it to agitate its claim for such refund in separate proceedings. As the Appellant had not done so, it was precluded from attempting to claim refund of the Entry Fee subsequently.
- The Hon'ble Supreme Court of India also deprecated the approach of the Appellant in withdrawing its Appeal against the 2015 Judgment and thereafter, reviving the same along with the challenge to the 2018 Judgment, as constituting a grave abuse since it exposes the Appellant's intention to engage in forum – shopping and selectively determining the forum before which it would seek its remedies.
- It is pertinent to mention that the Hon'ble Supreme Court of India also conducted an in – depth examination of whether the Appellant could claim refund of the Entry Fee on the doctrine of frustration and principle of restitution. The Hon'ble Supreme Court of India, after analyzing the applicable case law8, concluded that when adjudicating a claim for restitution under Section 65 of the Contract Act, the court must determine the illegality which caused the agreement to become void and the role the party claiming restitution played in respect thereof. In the event that the court determines that such party was equally or more responsible for the illegality, vis-à-vis the party from whom such restitution is claimed, there shall be no cause for restitution.
- The Hon'ble Supreme Court of India categorically held that vide the CPIL Judgment, the Appellant had been held to be in pari delicto, as it was amongst the group of TSPs that were found to be complicit in obtaining benefits under the FCFS Policy at the cost of the public exchequer. As such, the Appellant was equally responsible for the illegality perpetuated under the FCFS Policy and could not be entitled to seek a refund of the Entry Fee.
- The Appellant was held to have been patently wrong qua its contention that it had been exculpated from any wrongdoing vide Special Judge's acquittal as the same was predicated on an entirely different premise that was unrelated to the validity of the FCFS Policy and the Appellant's role in propagating the illegality arising therefrom, i.e., being a beneficiary and confederate of fraud.
- ELP View:
The Hon'ble Supreme Court of India's decision in Loop Telecom has provided an interesting context and elaboration of the interplay between the doctrine of frustration and principle of restitution, especially in cases involving the claiming party's liability in the commission of fault or an illegal action (s).
An examination of this decision makes it clear that the application of Section 65 of the Contract Act has to be limited to those cases where the party claiming restitution was not in violation of the principle of in pari delicto.
Further, it appears that all claims for restitution are subject to the defence of illegality, the genesis of which is in the maxim – ex turpi causa non oritur actio (no action can arise from a bad cause). No court will assist those who aim to perpetuate illegality. In determining a claim of restitution, the claiming party's legal footing in relation to the illegal act (and in comparison to the opposite party), must be understood. Unless the party claiming restitution participated in the illegal act involuntarily or the rule of law offers them protection against the opposing party, the claiming party would be held to be in pari delicto and therefore, their claim for restitution will fail. Needless to say, the determination of the claiming party's culpability will have to be made on a case-by-case basis.
Finally, although this issue does not form the edifice of Loop Telecom decision, the judgment also examines the jurisdiction of the Hon'ble TDSAT to entertain the issue of refund of the Entry Fee. This exercise was necessitated on account of the Hon'ble TDSAT holding that since the Appellant's challenge was focused on the arbitrary and malafide actions embodied in the FCFS Policy, the quashing of the UAS Licenses was a necessary consequence of the grant of such Licenses being vitiated. The Hon'ble TDSAT found that the prayer seeking refund of the Entry Fee was outside the purview of the Contract Act and was necessitated on account of the exercise of constitutional powers by the Hon'ble Supreme Court of India, and ergo, it was outside the scope of the Hon'ble TDSAT's jurisdiction to direct such refund. The Appellant contended this approach of the Hon'ble TDSAT impinges on the wide import of its jurisdiction and exclude certain disputes falling within the ambit of public law. The Hon'ble Supreme Court of India disagreed with this interpretation of the Hon'ble TDSAT's findings and held that since the policy on the allocation of spectrum and the UAS Licenses were quashed on the ground of malafide and arbitrariness in respect of the FCFS Policy, the subsequent inquiry into the viability of the refund of the Entry Fee, would have to be agitated not before the Hon'ble TDSAT, but rather the Hon'ble Supreme Court of India.
1 (2012) 3 SCC 1
2 Petition No. 329 of 2012
3 Civil Appeal Nos. 1447 – 1467 of 2016
4 Telecommunication Petition No. 63 of 2018
5 Hon'ble Supreme Court of India order dated 07.01.2020 in Civil Appeal Nos. 1447 – 1467 of 2016
6 Miscellaneous Application Nos. 198 – 218 of 2019
7 Civil Appeal No. 893 of 2019
8 Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310; Tarsem Singh v. Sukhminder Singh, (1998) 3 SCC 471; Hollman v. Johnson, (1775) 1 Cowp 341 / 98 ER 1120; Patel v. Mirza,  3 WLR 399; Kuju Collieries Ltd. v. Jharkhand Mines Ltd., (1974) 2 SCC 533; Inmani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 2 SCR 739; and Narayanamma v. Govindappa, (2019) 19 SCC 42
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.