Supreme Court Allows Notional Increase in Infrastructure Charges for Telecom Providers: BSNL vs. Tata Communications (22 September 2022)

Date of the Judgment: 22 September 2022

Citation: Not Available

Judges: Hon’ble Mr. Justice Ajay Rastogi and Hon’ble Ms. Justice B.V. Nagarathna.

Can a telecom service provider retrospectively increase infrastructure charges for services already provided and paid for? The Supreme Court of India recently addressed this question in a dispute between Bharat Sanchar Nigam Ltd. (BSNL) and various telecom service providers. The core issue revolved around BSNL’s attempt to revise infrastructure charges retrospectively and claim a notional increase, impacting how telecom companies are billed for using BSNL’s infrastructure.

The Supreme Court bench, comprising Justices Ajay Rastogi and B.V. Nagarathna, delivered the judgment. Justice Ajay Rastogi authored the opinion for the bench.

Case Background

The case involves a dispute between Bharat Sanchar Nigam Ltd. (BSNL), a public sector undertaking, and several telecom service providers who hold licenses under Section 4 of the Indian Telegraph Act, 1885. These service providers, including M/s Tata Communications Ltd., entered into interconnection agreements with BSNL to connect their telecom networks. The dispute arose over infrastructure charges that BSNL levied for facilities like building space, power supply, and tower space provided to these service providers.

Initially, BSNL fixed rental charges for these facilities in 2001, reserving the right to revise them. Interconnect agreements were established, clarifying that BSNL was not obligated to provide infrastructure, and if it did, charges would apply as determined by BSNL. In 2006, BSNL revised these charges, effective from April 1, 2006, with a 10% annual increase. These charges were to be paid upfront each year. In 2008, the Government of India reclassified cities, which led BSNL to issue a circular on June 12, 2012, revising infrastructure charges retrospectively from April 1, 2009, with a 10% annual increase from April 1, 2010. This retrospective revision led to additional bills for previous years, which the telecom service providers challenged, leading to the present case.

Timeline

Course of Proceedings

The telecom service providers challenged BSNL’s circular dated June 12, 2012, before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). The TDSAT initially ruled that while BSNL had the right to revise rates, the revised rates under the circular dated June 12, 2012, would apply prospectively from April 1, 2013, instead of April 1, 2009. The TDSAT also directed that for the period up to March 31, 2013, the rates as per the circular dated May 30, 2006, would apply. BSNL then sought a clarification, arguing that the rates should be notionally increased by 10% annually from April 1, 2009, and then applied from April 1, 2013. The TDSAT rejected this clarification, stating that the rates applicable on April 1, 2009, should be applied from April 1, 2013, without any notional increase. BSNL then appealed to the Supreme Court.

Legal Framework

The case involves the interpretation of the following:

• Section 4 of the Indian Telegraph Act, 1885: This section grants licenses for providing telecom services. The respondents were licensed under this provision.
• Interconnection Agreements: These agreements between BSNL and the telecom service providers governed the terms of network interconnection. Clauses 2.1.9 and 6.3.3 of these agreements are particularly relevant.
• Clause 2.1.9: This clause states that each party may provide accommodation for the terminals of the other party’s equipment, subject to availability and feasibility. Rental for such space and mounting is to be determined by the provider.
• Clause 6.3.3: This clause specifies that BSNL is not obligated to provide infrastructure to the service providers, who are expected to arrange their own. If BSNL does provide infrastructure, charges are to be determined by BSNL from time to time.

These provisions establish that while BSNL is not mandated to provide infrastructure, it can do so, and the charges for such facilities are to be determined by BSNL.

Arguments

Arguments by BSNL (Appellant):

• BSNL argued that the revision of infrastructure charges was based on the Government of India’s circular dated August 29, 2008, which reclassified cities. This reclassification necessitated the revision of charges.
• BSNL contended that the Tribunal, having upheld BSNL’s competence to set charges, should not have interfered with the retrospective application of the circular dated June 12, 2012.
• Alternatively, BSNL argued that if retrospective application from April 1, 2009, was not sustainable, the charges should at least be levied with a notional increase of 10% annually from April 1, 2009, and applied from April 1, 2013.
• BSNL submitted that the circular dated June 12, 2012, included a provision for a 10% annual increase from April 1, 2010. Therefore, even if the revised rates were not applicable from April 1, 2009, the service providers should pay the notional increase from April 1, 2013.

Arguments by Telecom Service Providers (Respondents):

• The service providers did not question BSNL’s right to revise rates but argued that the circular dated June 12, 2012, could not be applied retrospectively from April 1, 2009.
• They contended that if the circular could not be applied retrospectively, then no notional increase of 10% per year should be charged from April 1, 2013.
• The service providers argued that if the notional increase was allowed, it would indirectly impose charges that could not be directly levied, and this would create an undue financial burden on them, as they had not charged their customers for the period from April 1, 2009.
• They supported the Tribunal’s decision that the rates applicable on April 1, 2009, should be applied from April 1, 2013, without any notional increase.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the rates prescribed by BSNL under the circular dated June 12, 2012, could be applied retrospectively from April 1, 2009.
2. Whether the rates should be effective from April 1, 2013, as held by the Tribunal.
3. Whether BSNL is entitled to claim a 10% notional increase every year from April 1, 2009, to be applicable from April 1, 2013.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

On Retrospective Application of Laws:

• The Court noted the principle that legislative bodies have the power to legislate both prospectively and retrospectively. However, administrative or executive orders cannot be applied retrospectively without legislative competence.

Legal Provisions Considered:

• Section 4 of the Indian Telegraph Act, 1885: This provision was mentioned as the basis for the licenses held by the respondent telecom service providers.
• Clauses 2.1.9 and 6.3.3 of the Interconnection Agreements: These clauses were examined to understand the terms of infrastructure provision and charges.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court relied on the principle that only laws can be made retrospectively if expressly provided by the Legislature. Administrative orders cannot be applied retrospectively.
• The Court examined Section 4 of the Indian Telegraph Act, 1885 and Clauses 2.1.9 and 6.3.3 of the Interconnection Agreements to determine the contractual obligations and rights of the parties.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by a combination of legal principles and practical considerations. The court emphasized that while BSNL had the authority to revise charges, it could not do so retrospectively through an administrative circular. However, the court also recognized BSNL’s right to fix charges and allowed a notional increase from April 1, 2013, based on the principle that BSNL has the competence to fix rates. The court aimed to balance the interests of both BSNL and the telecom service providers, ensuring that BSNL could recover costs while preventing retrospective financial burdens on the service providers.

Fact:Law Ratio

Logical Reasoning:

The Court considered alternative interpretations, such as applying the revised rates retrospectively or denying any notional increase. However, it rejected these interpretations to strike a balance between the parties’ rights and obligations.

The Court’s decision allows BSNL to recover its costs through a notional increase from April 1, 2013, while protecting the service providers from retrospective charges for past periods. The Court reasoned that since BSNL had the competence to fix rates, it could notionally increase them from April 1, 2013, even if the retrospective application was not allowed.

“…administrative/executive orders or circulars, as the case may be, in the absence of any legislative competence cannot be made applicable with retrospective effect.”

“…the appellant is well within its rights to make their charges leviable on notional fixation by increase of charges by a certain percentage every year in terms of circular dated 12th June, 2012 from each of the service provider as being notionally applicable from 1st April, 2013.”

“That such notionally increased charges can indeed be leviable on the service providers and to this extent, the order passed by the Tribunal, in our considered view, is not sustainable in law and deserves to be set aside.”

The Court’s decision was unanimous, with both judges agreeing on the outcome and the rationale. The judgment clarified that while retrospective application is not permissible for administrative orders, notional increases based on a competent authority’s power to fix rates are valid.

Key Takeaways

• BSNL cannot apply its revised infrastructure charges retrospectively from April 1, 2009, as per the circular dated June 12, 2012.
• BSNL is permitted to apply a notional increase of charges from April 1, 2013, based on a 10% annual increase or any other reasonable mechanism.
• Telecom service providers are not liable to pay additional charges for the period prior to April 1, 2013, based on the revised rates.
• The judgment clarifies the limits of retrospective application of administrative orders and the extent of an entity’s power to fix charges.

Directions

The Supreme Court modified the orders of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). BSNL was allowed to revise the notional rates based on a 10% increase every year as per the circular dated June 12, 2012, applicable from April 1, 2013. BSNL was also allowed to raise additional demands/bills based on this notional increase. If the service providers failed to pay, BSNL could take action as per the agreements between the parties.

Development of Law

The ratio decidendi of the case is that while administrative orders cannot be applied retrospectively, an entity with the competence to fix rates can apply a notional increase based on a reasonable mechanism. This judgment clarifies the distinction between retrospective application of laws and the permissible scope of rate revisions by competent authorities. There is no change in the previous position of law, but the judgment clarifies the application of existing principles to the specific facts of the case.

Conclusion

The Supreme Court partly allowed BSNL’s appeals, holding that while BSNL could not apply the revised infrastructure charges retrospectively from April 1, 2009, it could levy a notional increase in charges from April 1, 2013, based on a 10% annual increase or any other reasonable mechanism. This decision balances the interests of BSNL and the telecom service providers, preventing retrospective burdens while allowing BSNL to recover costs.