UOI v Association of Unified Telecom Service Providers of India vis a vis AGR Issues

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Written by: Kajal Kumari

Background:

The telecom sector was liberalized under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee. To provide relief from the steep fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model. Under this, mobile telephone operators were required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC).

License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the latter.

The definition of AGR has been under litigation for 14 years. In 2005, the Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation. However, DoT argued that AGR includes all revenues from both telecom and non-telecom services.

The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income, or profit on the sale of any investment or fixed assets.

In 2015, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) stayed the case in favor of telecom companies and held that AGR includes all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income. However, setting aside TDSAT’s order, the Supreme Court upheld the definition of AGR as stipulated by the DoT in October 2019.

As per the government definition, AGR includes rental receipts, dividend income, and income from any other-activity arising out of the telecom license the company has. Later on, the Court rejected a 20-year payment timeline proposed by the central government and supported by telecom companies. Instead, it has given 10 years’ time to repay the AGR dues.

Directions Issued by Court:

The telecom operators would make the payment of 10% of the total dues as demanded by the Department of Telecom by 31st March 2021. The yearly installments would commence from 1st April 2021 up to 31st March 2031. The installments would be paid by 31st March every year.

In the event of any default in making payment of annual installments, interest would be levied as per the agreement along with penalty and interest on penalty automatically without reference to the court.

Besides, it would be punishable for contempt of court.

Compliance with the court order should be reported by the telcos and the telecom department every year on 7th April.

Supreme Court of India in Union of India v Association of Unified Telecom Service Providers of India ordered the payment of AGR to the Department of Telecommunications (DoT). The estimated dues owed by the telecom companies amount to 1.3 lakh crores.

The judgment held that revenue for the calculation of the AGR would be determined in a manner so as to include revenue from licensed operations of the licensee and also for activities that would go beyond the licensed activities. This was contrary to the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) order as it was only limited to licensed activities.

Adjusted Gross Revenue:

Adjusted Gross Revenue is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT). It is divided into spectrum usage charges and licensing fees, pegged between 3-5 percent and 8 percent respectively.

How is it calculated ?

As per DoT, the charges are calculated based on all revenues earned by telecom companies – including non-telecom related sources such as deposit interests and asset sales. Telcom companies, on their part, insisted that AGR should comprise only the revenues generated from telecom services. And thus here arises the conflict.

Conclusion:

Asking Telecom Operators to make the payment of 10% of the total AGR dues as by 31.3.2021, the 3-judge bench of Arun Mishra, SA Nazeer, and MR Shah, JJ gave 10 years to the Telecom Service Providers to complete the payment of their AGR dues.

The Union of India on the representation made by the telecom service providers and Indian Banks’ Association, had decided to provide the facility of making payment in installments within 20 years. The Court, however, said that the period of 20 years fixed for payment is excessive.

Also Read: Alternative Dispute Resolution & Its Importance


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