The Narendra Modi government should takes steps to soften the verdict’s impact and restore investor confidence.
The Supreme Court’s order rejecting review petitions by the telecom companies challenging its verdict in the Adjusted Gross Revenue (AGR) case and a threat to initiate contempt proceedings against their top executives was unfortunate. Notwithstanding the legal merits, the 17-year-old litigation across four different governments at the Centre — one led by Atal Behari Vajpayee, two by Dr Manmohan Singh and two by Narendra Modi — sends the wrong signals to the global investor community. This order, coming weeks after the government delivered a public snub to Amazon CEO Jeff Bezos during his India visit, does not make a good read for global investors.
This dispute is rooted in the 1999 National Telecom Policy regime, which allowed telecom companies to migrate to revenue-sharing contracts from the earlier fixed annual fee. Though it was intended to boost telecom services in the country, it left the definition of revenue to a later date. Clause 3 of the 1999 migration package, as quoted by the Supreme Court October 24 ruling, reads: “On receipt of Trai’s recommendation and government's final decision, the final adjustment of provisional dues will be effected depending upon the percentage of revenue share and the definition of revenue for this purpose as may be finally decided.”
The government’s argument of the telecom companies unconditionally accepting the contract is misplaced as the definition of the revenue itself was not clear and the parties to the contract had the right to disagree to it when the definition of the revenue — to include all revenue that hadn’t arisen out of telecom operations — was decided. While the government seems to have reserved to have a final say, the reference to Trai’s recommendation makes one believe expert opinion on the matter would be given due deference. However, the Vajpayee government included non-operational income in sharable revenue in contrast to Trai's 2000 recommendations. Though the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) rejected the government's contention on the definition in 2006, the then government of Dr Manmohan Singh took this to the Supreme Court - complicating the process instead of accepting the recommendations of expert bodies like Trai and TDSAT.
Though the Supreme Court may be correct to set aside TDSAT’s rejection of the government’s definition citing the tribunal’s lack of jurisdiction and telecom companies’ unconditional acceptance of migration, an investor with basic understanding of the Indian Contract Act may wonder how could the acceptance be construed as unconditional when the definition of revenue itself — the fundamental component of the contract — was not decided at the time of signing! As per the Contract Act, both parties have a right to disagree if there is a material change in terms of the contract and seek negotiations or specific legal redressal. When such basic legal remedy to an investor, who spent lakhs of crores of rupees, was overlooked, citing lack of jurisdiction, how could investors find courage to invest their money in India?
The Narendra Modi government should takes steps to soften the verdict’s impact and restore investor confidence, either by deferring the payment schedule of telecom firms for other dues or waiving the interest and penalty for the period when the definition was under litigation. Otherwise, the shutdown of even one telecom giant would wipe out 12,500 direct jobs and several thousand ancillary ones, and pull the banking sector into yet another mess with the default of over `1 lakh crores in loans.