1. M/s. BPL Cellular Ltd., Coimbatore, Tamil Nadu have filed a petition under Section 14 of Telecom Regulatory Authority of India, Act 1997, challenging an Order passed by the Department of Telecommunications on 26th November, 1998 under which it was laid down that the minimum hiring period for the circuit leases entered into between the parties before 15th April, 1998 shall continue for a period of 3 years whereas the fresh leases after 15th April, 1998 shall continue for a term of 1 year. The petitioner has challenged this order as arbitrary and unreasonable and has prayed for setting aside this order. The petitioner has also sought the refund of the amount realized by the respondents for the alleged “premature” surrender of the leased circuits.
2. The petitioner Company obtained a licence from the Department of Telecommunications on 19th December, 1995 to provide cellular mobile services in Kerala in the wake of the liberalized Telecommunications policy under which the Government opened the Telecommunications sector to private sector also. Earlier the establishment, maintenance and operation of Telecommunications system was the exclusive prerogative of the Government. Under the licence granted to it, the petitioner company was permitted to establish, maintain and operate Telecommunications towers, antennae, switching centres etc. so as to provide Cellular Mobile Telephone Communication in Kerala.
3. It was recognized at the outset by the Licensor, viz., the Department of Telecommunications that the new entrants would take time to establish their infrastructure. Therefore enabling provisions were made in their licence to request and obtain infrastructural support from Department of Telecommunications for which payments were to be made separately. Accordingly the petitioner Company requested and obtained 15 leased circuits from the Department of Telecommunications at various points of time from January 1997 to June 1998. Their grievance is that at no time, prior to 26th November, 1998, they had any indication or information that there was a minimum period of lese for 2 Mbps circuits and that, in the event of surrendering the leased circuits before this minimum period, the lessee was liable to pay for the entire period. The order issued by Department of Telecommunications on 15th April, 1998 reiterated that for 2 Mbps lines the minimum period of hire was 3 years. Subsequently, by another order dated 26th November, 1998 this period was reduced to 1 year with effect from 15th April, 1998 with the stipulation that circuits hired earlier than 15th April, 1998 would continue to be for a minimum period of 3 years.
4. The petitioner Company represented to Department of Telecommunications on 31st March, 1999 that the distinction made between pre-15th April, 1998 hiring contracts and those after that date was irrational and arbitrary and requested for the abolition of that distinction so as to enable them to surrender the lines taken on lease. The petitioner had already installed its own infrastructural facilities which made the continuation of most of the leases beyond a period of one year redundant.
This was not agreed to by Department of Telecommunications and the petitioner was advised to pay the rentals for the unexpired portion of the lease in case of premature surrender. An amount of Rs. 72 lakhs was also realized from the petitioner on this count. The petitioner filed a writ petition before the Kerala High Court in January, 2000 in this respect and obtained a stay to all further proceedings to realize the rental for the unexpired lease period of the surrendered leased circuits pending disposal of the original petition. Thereafter, the Kerala High Court, vide its order dated 14th June, 2001, ordered as under:
“The issues raised in the original petitions and writ appeals are now to be resolved by the Telecom Disputes Settlement and Appellate Tribunal, New Delhi constituted under Section 14 of the Telecom Regulatory Authority of India, 1997. The Tribunal has started functioning.
Under these circumstances, we permit the petitioners to withdraw the original petitions and move the Tribunal for redressal of their disputes which are involved in these writ petitions. There will be a further direction that the petitioners shall move the Tribunal not later than 10th June, 2001. As far as the interim orders are concerned, status quo as on today will continue till 13th July, 2001.
The original petitions and writ appeals are disposed of accordingly.”
5. The petitioner filed his petition by the due date and obtained an order for the continuation of status quo from this Tribunal. Opportunities were given to the parties to state their respective positions in writing and also orally, apart from filing relevant documents in support of their contentions. The arguments finally concluded on 28th January, 2003.
6. The basic submissions made by the petitioner are as under:
a) When the Telecommunications sector was first opened up to the private parties, there was a clear realization that such private parties would require assistance from the Government, (which was the sole service – provider at that point of time) at least initially, till they were able to establish their own infrastructure. While such assistance was to be on payment basis, the intention and motivation behind such assistance was expected to be a hand-holding operation to make such private service-providers self-supporting expeditiously and not on maximization of profit by any means;
b) The leased lines which were provided by Department of Telecommunications to the petitioner were from the existing resources and no new construction had been carried out. As such it could not possibly be claimed by Department of Telecommunications that facilities were specifically created for petitioner and that these became in fructuous due to premature surrender of the lease by the petitioner;
c) When the petitioner applied formally to Department of Telecommunications for the provision of data circuits it was never pointed out that there was a minimum hiring period. On other hand, the contracts were concluded by Department of Telecommunications, on receipt of applications, raising demand notes for annual rents which were duly paid.
d) The commercial on Leased Circuits, supplied by Department of Telecommunications through a printed booklet did not indicate that the minimum period of hire of 2 Mbps leased lines as 3 years. As such there was neither any mutual understanding nor formal contract between the two parties about the minimum hiring period.
e) Whatever internal circulars the Department had on this subject could not have the force of law as these were not statutory and could not possible amend or prevail over statutory rules; and
f) The only statutory rules which could have applicability over the contracts were Rules 478 and 496 of the Indian Telegraph Rules both of which stipulate a minimum guarantee period of 3 months and not 3 years.
Rule 478 reads as under:
“Quoting of rentals.-(1) The rental for the exclusive use of the circuits shall be quoted at the rates then in force.
(2) Where the circuits are provided by utilising the installations, existing at the time of the application, flat rate of rentals based on radial distance shall be charged for a period of not less than three months (hereinafter referred to in this Part as the minimum guarantee period).”
Rule 496 read as under:
“Charges. – When a telephone circuit is provided wholly by utilizing existing wires of channels, the rentals shall be calculated as given below, with minimum guarantee period of three months, namely:-
(a) Point of Point-
[Provided that the local telephone circuit and the local lead at either end of the telephone circuit shall be charged at the rate of Rs. Twelve hundred per kilometer per annum per pair for point to point circuits and at the rate of Rs. Fifteen hundred per kilometer per annum per pair for Single Party Network Mode Circuits.]
[Provided further that] where new constructions or installations are involved for the whole or part of the circuits-
(i) special rates of charges may be fixed by the Telegraph Authority taking into account the cost of construction and other relevant factors, and
(ii) longer guarantee periods may be specified.
[(c)] The charges for a month shall be equal to one-twelfth of the annual charges.
(2) Subject to the provisions of Sub-rule (1), the following charges shall also be payable by the party wherever applicable:-
(3) The rates specified in Clauses (a) and (b) of Sub-rule (1) shall not apply to telephone circuits provided for the use of Railways and Canal Administrations.]”
7. Bharat Sanchar Nigam Limited (BSNL), a 100% Government-owned Company to which Department of Telecommunications has statutorily transferred its activities for provision of Telecommunications services within the country, and Respondent No. 1 has strongly defended the action taken by Department of Telecommunications, Respondent No. 3, and has urged consideration of the fact that the petitioner, while applying or grant of 2 Mbps leased lines had furnished a clear, unequivocal and binding undertaking that it would be bound by the provisions of Indian Telegraph Rules in force from time to time and such other terms and conditions prescribed by the Telegraph Authority. BSNL has also placed on record an Order No. 4-31/86-R(Pt.) dated 17th June, 1988 which laid down that the minimum period of hire for lines/circuits of the nature taken on hire by the petitioner was 3 years and stressed that this order continued to be in force till it was modified by another order dated 26th November, 1998 when this period was reduced to 1 years with effect from 15th April, 1998. Other points urged by BSNL are as under:
a) Rule 434 of the Indian Telegraph Rules provides for annual rental charges for private wires and non-exchange lines which prescribes a minimum period of hire of 3 years;
The relevant portions of Rule 434 are in Section IX & X which read as under:
Section IX of Rule 434 reads as under:
"Charges for Private Wires Annual Rental 1.(a) Internal Private Wires .... Rs. 400 (b) External private wires .... Rs. Fifteen hundred per kilo- (with or without relay set). metre chargeable distance per annum per pair. Provided that in the case of private wires exceeding five kilometers of chargeable distance, the minimum period of hire shall be 3 years and the security for the service shall be regulated under Rule 445 and obtained from the subscriber before the provision of the service. 2. Omitted. 3. The chargeable distance of External Private Wires shall be 1.25 times of the radial distance between the two points to be connected. 4. Rental for Private Wires given on casual basis for short periods shall be levied on pro rata basis at one and a half time the rates of rentals prescribed in Sub-section 1 above. The minimum period of hire should be one month." Section X of Rule 434 reads as under: "Charges for Non-Exchange Lines Annual rental 1. Annual rental per pair .... Rs. Fifteen hundred per kilometer of chargeable distance. Provided that in the case of non-exchange lines exceeding five kilometers of chargeable distance, the minimum period of hire shall be 3 years and the security for the service shall be regulated under Rule 445 and obtained from the subscriber before the provision of the service. 2. Omitted. 3. Omitted. NOTE 1. - The chargeable distance shall be 1.25 times of the radial distance. NOTE 2. - The above rentals will apply in case of Non-Exchange lines or Private wires falling within the local area of a Telephone system, even if they exceed sixteen kilometers in length by the shortest practicable route [see also Rule 494 (1) and the note thereunder]." b) The order dated 15th April, 1998 did not reduce the minimum period of hire for the 2 Mbps lines/circuits; even for those leased circuits for which the minimum hire period was modified, no retrospective effect was given;
c) The original period fixed for minimum hire and its subsequent modification is neither irrational nor illogical. Since the cost of setting infrastructure in the initial period was high and the availability of resources with Department of Telecommunications as well as the number of subscribers to avail of such facilities were limited it was necessary to ensure that the services provided were availed of for a minimum period as a basic cost-recovery measure. Subsequently with the availability of improved technology as well as more subscribers it was possible to reduce the minimum period of hire;
d) Rule 478 of the Indian Telegraph Rules, which inter alia lays down that : “where the Circuits are provided by utilizing the installations, existing at the time of the Application, flat rate of rentals based on radial distance shall be charged for a period of not less than three months”, is inapplicable in the instant case as it deals with charging of rentals only;
e) Commercial Information on Leased Circuits, published by the Department of Telecommunications does not contain any provision which can override the provisions of either the licence agreement of the petitioner as well as the relevant provisions of the Indian Telegraph Rules and the relevant rules of Department of Telecommunications. Apart from that, the booklet/brochure relied upon by the petitioner contained a specific note that the “application of rules and tariff will be as pre detailed orders issued by Department of Telecommunications from time to time”; and
f) The petitioner had itself violated Rule 475-A of the Indian telegraph Rules which stipulated that “before surrendering the leased telegraph/speech circuits and terminal equipments, the party concerned shall give notice to the concerned controlling/billing authority do not less than thirty days.”
8. Department of Telecommunications, in its averments, confirmed the assertions made by the BSNL about the minimum period of hire of 2 Mbps leased circuits and about the binding nature of the circulars and orders issued by the department on the petitioner. The Department further confirmed that BSNL as the successor of the Department of Telecommunications was entitled to recover all the money from the petitioner on account of premature release of lease lines.
9. During the course of the arguments, the Counsel for the petitioner stressed that the data circuits which were asked for were quite separate and distinct from “Non-Exchange Lines or Private Wires” covered under Rule 434 Section IX of the Indian Telegraph Rules. According to him, the facilities asked for and obtained from Department of Telecommunications were covered by the nomenclature of “Telephone Circuits” covered under Rule 496 read with Rule 478 both of which stipulate a minimum guarantee period of three months and not three years. The leased circuits, by definition, were distinct and separate from either “private wires” or “non-exchange lines”. It was also emphasized that the Circular relied upon the both Department of Telecommunications and Bharat Sanchar Nigam Limited, viz., the Circular dated 17th June, 1988 was basically an inter-office Circular which was neither notified nor gazetted as per Section 7(5) of the Indian Telegraph Act and therefore could not be having any statutory validity. Apart from that, the said circular prescribes for a security in the shape of a bank guarantee for two years in addition to an advance rental for one year before giving any facility. No such security was either asked for or given. The Counsel further argued that invoking of the financial bank guarantee given by the petitioner to the President of India as the licensor could not be legally done by BSNL even as a successor body as it is a corporation and a service-provider. The Financial Bank Guarantee was given to the Licensor to securitize the payment of Licence fee. The fees and other financial terms for specific services were to be mutually decided between the provider and seeker separately for which the bank guarantee given to the Licensor could not be invoked. Another point stressed by the Counsel for the petitioner was that both Department of Telecommunications and Bharat Sanchar Nigam Ltd. were stressing on the minimum guarantee period indicated in Rule 434 of Indian Telegraph Rules, but were unwilling to accept the rates and tariffs mandated under the same rule on the ground that such rates and tariffs were mutually arrived at. It was pointed out that the rental prescribed under Rule 434 is only Rs. 1500/- per annum whereas the annual rental demanded and paid for was much higher.
10. The Counsel for the Respondent No. 1 laid emphasis on the fact that the licence agreement signed by the petitioner was very clear that the petitioner was to be charged for all the facilities/resources availed by it from DoT/MTNL (Mahanagar Telephone Nigam Limited) as per the prevalent rules and guidelines of the Department of Telecommunications and such rules/guidelines did provide that the minimum period of hire for lines/circuits of the nature taken on hire by the petitioner was three years. The said orders further provided that in case such lines/resources were returned/surrendered prematurely, the subscriber would be obliged to pay the rent for the entire remaining unexpired period. It was argued that the Department did not insist on obtaining bank guarantee for 2 years in addition to one year’s advance rent as the petitioner had already furnished a financial bank guarantee of Rs. 10 crores as a part of the licence agreement which covered not only the licence fees but also all other charges that may be due from the petitioner. It was further argued that the leased data circuits provided to the petitioners were covered under Section IX and X of Rule 434 of Indian Telegraph Rules which deal with charges for private wires and non-exchange lines and which clearly stipulate a minimum guarantee period of 3 years. These Sections have been already quoted and reproduced earlier in page 10.
Lastly, it was stated that while there were good and valid reasons to reduce the minimum guarantee periods to 1 year from 3 years by the order dated 26th November, 1998, there was no case to give any retrospective effect to that order beyond 15th April, 1998. The Counsel for Respondent No. 3 supported these contentions and had nothing further to add.
11. We find grey areas in the submissions made by both the sides. Firstly, it is not at all clear whether the lease arrangements entered into by the petitioner with the respondents were covered under Rule 434 Section IX or Section X of Indian Telegraph Act. Rule 434 Section IX and Section X deal with charges for Private Wires and Non-Exchange Lines, respectively. These two terms, viz., “Private Wires” and “Non-Exchange Lines”, have been defined under the Indian Telegraph Rules as under:
“Rule 2(II). : Private Wires are those which connect two subscribers through a departmental exchange system whether a private relay set is installed at the exchange or not and are not connected to the local telephone system and to the general trunk net work;
Rule 2(33a) : ‘Non-exchange lines’ are those which connect two subscribers without any departmental exchange intervening.”
From the application forms annexed by the Petitioner to its petition it may be seen that what was asked for was Data Circuit. Such circuits were more in the nature of long-distance telephone circuits between two cities as may be evidence by the following list of leased lines obtained by the petitioner which have been listed in the petition:
The leased data circuits taken by the petitioner were between two exchanges to DoT/BSNL at two different cities. Thus it is difficult to accept the contention that the circuits leased between two exchanges of BSNL located in two different cities were covered within the ambits of “Private Wire” or “Non-exchange Liens” as defined under Indian Telegraph Rules. Consequently the applicability of Rule 434 in the instant cases is not warranted.
12. We have taken note of the contention of Respondent No. 1 that by its order dated 17th June, 1988 the minimum period of hire for 2 Mbps lines was 3 years and the hirer was required to pay for the entire period in case of premature surrender. The relevant question is whether this was made known to the petitioner or the petitioner was expected to have a knowledge of this. From the copy of the Order No. 4-31/86-R(Pt.) dated 17th June, 1988 placed on record by Respondent No. 1 it is seen that it is a Circular issued by one Shri D.V.B. Rao, Assistant Director General (Costing), Rates Section, Department of Telecommunications and addressed to All Heads of Telecom Circles; All Heads of Metro, Major and Minor Telephone Districts; General Manager, MTNL, Bombay/New Delhi. Copies were endorsed to a host of officials, all belonging to the Department of Telecommunications. It was therefore basically an office circular for internal use and not a document released to the general public.
The said Circular also stated inter alia that formal amendments to the Indian Telegraph Rules wee under issue and that gazette notifications would be supplied. It further stated that the existing provisions of the P&T Manual Volume XII so far as they were applicable to the cases covered under these rules shall be taken as having been amended to the extent indicated in the amendment to the rates as per gazette notification and that formal corrections will issue in due course. No documents have been filed or no gazette notifications have bene furnished to indicate that conditions relating to minimum guarantee period of 3 years for hiring of 2 Mbps leased data circuits and the penalties for premature surrender were ever notified for general information for public knowledge.
13. We have taken note of the fact that there was no formal intimation to the petitioner about the minimum guarantee period when the lease lines were asked for. In a communication No.TR/93-1/Corr/CMTS/98-99/78 dated 6th December, 1999 addressed by Shri S. Nagalingam, General Manager, Kerala Telecommunications circle, Thirvananthapuram, to Shri C. Karunakaram, Vice-President, BPL Mobile Communications Limited (which has been annexed by the petitioner to its petition), it has been stated, inter alia, that “…..Normally when a demand is received for any facility, the terms and conditions are quoted to the prospective customer and only after his acceptance of the same, steps to provide the facilities are taken. If in any exceptional case this procedure had not been followed in respect of M/s. BPL it may be due to the pleading of urgency and pressure exerted by them on the respective SSA Heads for early provision of the facility, relegating the requirements of observing the prescribed procedure to a secondary stage and out of goodwill the SSA heads might have obliged. Even in that case, the presumption is that the hirer is aware of the commercial conditions of hiring the circuits.” We are afraid that a such a presumption is unwarranted in view of the facts that the circulars relied upon were internal and the only commercial document in the shape of a brochure brought out by the Telecommunications Department for general and public information, according to their own admission, did not give any indication either about minimum guarantee period for hiring of leased circuits or about penalties for premature surrender of lease. We also have no corroborative evidence to suggest that there was any pleading of urgency or pressure exerted by the petitioners which compelled the Respondent No. 1 to ignore the “prescribed procedure.”
14. We have stated earlier that we have found grey areas in the submissions of both the parties. Thus it is not clear to us as to why the petitioner paid readily the annual rentals at a much higher rate when according to it the relevant rates prescribed under the Indian Telegraph Rules were much less. The petitioner has also not clarified as to why it has not observed the mandatory requirements of Rule 475-A of Indian Telegraph Rules which states as under:
“Rule 475-A : Notice of surrender for leased Telegraph/Speech Circuits : Before surrendering the leased Telegraph/Speech circuits and terminal equipments, the party concerned shall give notice to the controlling/billing authority to not less thirty days.”
The petitioner had unambiguously agreed in its application form submitted to Department of Telecommunications to abide by the provision of Indian Telegraph Rules and has not resiled from that position. There is therefore no ground at all for non-observance of the provisions of Rule 475-A of Indian Telegraph Rules.
15. As a result of all that is stated in the earlier paragraphs we hold that it has not been conclusively established that the contracts for leased data circuits between the petitioner and the respondents were covered under Rule 434 of the Indian Telegraph Rules and that the minimum guarantee period and penalties for premature surrender as indicated in Rule 434 were applicable to these contracts. We also hold that the petitioner had no reason whatsoever for the non-observance of Rule 475-A of Indian Telegraph Rules in view of its categorical undertaking to abide by the provisions of these Rules.
16. We therefore hold that the action of BSNL, Respondent No. 1, to refuse to accept the surrender of leased lines by the petitioner after a period of one year was strictly not in terms of either the Indian Telegraph Rules or the implicit terms of the contractual arrangement between both the parties. We further hold that Respondent No. 1 was entitled to treat the letters intimating the surrender of leased lines as a notice period of 30 days for termination and make realizations of amounts from the petitioner on a pro-rata basis accordingly. Hence we order that the balance amount out of Rs. 72 lakhs already realized by Respondent No. 1 should be refunded after adjusting the amount due from the petitioner for the thirty days notice period. This payment should be made within 30 days from this order. There will be no order as to costs.
17. Throughout the hearing, as well as in the various averments made, in this case we found the Department of Telecommunications relying heavily on internal circulars which by definition were not public or published documents. The Department has also interposed conditions stipulated under such internal circulars with statutory conditions stipulated under Indian Telegraph Rules which has often caused not only confusion, but contradiction as well. Whatever be their utility or validity during a period when the government was the only service-provider, it is imperative to take a fresh look at the rules, orders and procedures when the environment and circumstances have changed radically wherein the corporatised wing of the government is one of the service-providers and in competition with others. We would therefore like to suggest to the Department of Telecommunications and TRAI to urgently consider revision of obsolete rules, practices and procedures to make them more in tune with technological and other changes and more user-friendly. Several time-consuming and costly litigations could be avoided in the process and the benefits would be widespread.