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SC scraps UPA’s Licence Raja by Krishnadas Rajagopal

Sending a clear message that the 2G spectrum allocation of 2008 is a scam and not the result of a government policy decision, the Supreme Court today quashed the grant of 122 UAS licences and allocation of spectrum to 12 private companies.

Even as the trial in the 2G case progresses in a Patiala House trial court in Delhi, a bench of Justices G S Singhvi and A K Ganguly held former telecom minister A Raja and his department guilty of “virtually gifting away an important national asset at throwaway prices”.

The bench also slammed the telecom regulator, TRAI, accusing it of doublespeak for giving the first-come-first-served (FCFS) policy of spectrum allocation a go-by in the name of “level playing field” without emphasizing on transparency in allocation through an auction process. But no one was more strongly indicted than Raja himself, the court even saying that officers were “cowed” down fearing his “wrath”.

The bench imposed a fine on the private telecom companies saying they tweaked the “power circles” at the expense of the public exchequer. The court, however, did not put a figure to the financial loss involved, saying the Public Accounts Committee was already looking at the CAG report.

These findings have been included despite the court saying that observations and conclusions in the judgment will neither influence special judge OP Saini, in whose court the trial is on, nor affect the “pending investigation” by the CBI, Directorate of Enforcement and others agencies or, for that matter, prejudice the defence of the accused, including Raja, who are facing prosecution. In this verdict, the SC has confined itself to the civil liability of those involved and beneficiaries in the grant of licences bundled with spectrum allocation. The special court will decide on their criminal liability.

Countering the private companies’ argument that if the FCFS allocation of spectrum has “resulted in violation of the institutional integrity, then all the licences granted 2001 onwards should be cancelled,” it said those who have got licences between 2001 and September 24, 2007 are not parties in these petitions and their legality has not been questioned before this Court.

The judgment comes on petitions filed by Centre for Public Interest Litigation (CPIL), an NGO, Janata Party chief Subramanian Swamy and others.

The court, in the judgment, endorses advocate Prashant Bhushan’s arguments that spectrum is a national asset and cannot be distributed by adopting the principle of FCFS on the basis of the application received by the DoT without any advertisement and without holding auction.

To this end, the court invoked the international principle of Public Trust Doctrine to explain why spectrum is considered a “finite natural resource” owned by the public and not to be spent as “largesse” by public officials and political entities on their whims and personal gains.

“Spectrum has been internationally accepted as a scarce, finite and renewable natural resource which is susceptible to degradation in case of inefficient utilisation. It has a high economic value in light of the demand for it on account of growth in the telecom sector. Although, it does not belong to a particular State, the right of use has been granted to the States as per international norms. It is hence to that extent a national asset,” Justice Singhvi, who wrote the judgment, observed.

“What needs to be emphasised is that the State and/or its agencies/instrumentalities cannot give largesse to any person according to the sweet will and whims of the political entities and/or officers of the State,” said Justice Singhvi invoking a 1996 case law New India Public School v. HUDA.

Justice Singhvi said his judgment is inspired by the 1997 MC Mehta case verdict, which says that “natural resources are vested with the Government as a matter of trust in the name of the people of India and it is the solemn duty of the State to protect the national interest and natural resources must always be used in the interest of the country and not private interests.”

Basing his judgment on this principle, the Bench declared the allocation of spectrum to the 12 companies as illegal and non-existent in four months.

The court gave the TRAI two months to make fresh recommendations for grant of licence and allocation of spectrum in 2G band in 22 Service Areas by auction, as was done for allocation of spectrum in 3G band.

The Central Government shall consider the recommendations of TRAI and take appropriate decision within the next one month and fresh licences be granted by auction, the court said.

Of the dozen telcos, Etisalat, Unitech Wireless Group and Tata Teleservices Ltd will have to pay Rs 5 crore each for having benefited by a “wholly arbitrary and unconstitutional action taken by the DoT,” the court said. Special mention was given to the fact that they reaped “many thousand crores in the name of fresh infusion of equity or transfer of equity” through off-loading their stakes.

Loop Telecom Pvt Ltd, STel, Allianz Infratech (P) Ltd and Sistema Shyam Tele Services Ltd have also been directed to pay a cost of Rs 50 lakh each “because they too had been benefited by the wholly arbitrary and unconstitutional exercise undertaken by the DoT” in 2008. Fifty percent each of the costs imposed shall go to help legal aid and the Prime Minister’s Relief Fund, respectively.

The court traces the roots of the scam to the August 28, 2007 recommendations given by TRAI on spectrum allocation which led to the “scarce commodity” being allocated cheap to private players.

“Although, while making recommendations on 28.8.2007, TRAI itself had recognised that spectrum was a scarce commodity, it made recommendation for allocation of 2G spectrum on the basis of 2001 price by invoking the theory of level playing field,”

The TRAI turning its back on the implications of the FCFS policy was in contravention of the Cabinet endorsement of the recommendations of the Group of Ministers (GoM on October 30, 2003 that DoT and Ministry of Finance were required to discuss and finalise the spectrum pricing formula, the court said.

“To say the least, the entire approach adopted by TRAI was lopsided and contrary to the decision taken by the Council of Ministers and its recommendations became a handle for the then the Minister of C&IT and the officers of the DoT who virtually gifted away the important national asset at throw away prices. This becomes clear from the fact that soon after obtaining the licences, some of the beneficiaries off-loaded their stakes to others, in the name of transfer of equity or infusion of fresh capital by foreign companies, and thereby made huge profits.”

The bench goes on to add: “We have no doubt that if the method of auction had been adopted for grant of licence which could be the only rational transparent method for distribution of national wealth, the nation would have been enriched by many thousand crores”.

With this, the court concludes that it has “no hesitation to record a finding that the recommendations made by TRAI were flawed in many respects and implementation thereof by the DoT resulted in gross violation of the objective of NPT 1999.”

Saying this, the court proceeds to attack the FCFS policy itself: “There is a fundamental flaw in the principle of first-come-first-served inasmuch as it involves an element of pure chance or accident”.

“Any person who has access to power corridor at the highest or the lowest level may be able to obtain information from the Government files or the files of the agency/instrumentality of the State that a particular public property or asset is likely to be disposed of or a contract is likely to be awarded or a licence or permission would be given. He would immediately make an application and would become entitled to stand first in the queue at the cost of all others who may have a better claim,” court reasons. On the other hand, the court said a transparent auction of a public asset lets no room to “scuttle the claim of worthy applicants”.

“When it comes to alienation of scarce natural resources like spectrum etc., the State must always adopt a method of auction by giving wide publicity so that all eligible persons may participate in the process. Any other methodology for disposal of public property and natural resources/national assets is likely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values,” it said.

The Fallout
 
Affected Telcos: Uninor, Loop Telecom, Sistema Shyam, Etisalat DB, S Tel, Videocon, Tata Tele, Idea, Swan.

Subscribers Hit: 6 crore, but just 5 per cent of the total base. Overall, tariffs may rise leading to larger bills.

What Users Can Do: Shift to another service provider through mobile number portability. It takes about 30 days.

Spectrum Implication: Scrapping of licences frees up 540 Mhz of 2G spectrum, including in Delhi, Mumbai markets. Spectrum likely to be available for existing telcos not affected by case. Fresh auction by the end of May.

Sector Implication: Some telcos may seek judicial review. Telecom market is no longer as hot as it was three years ago. Re-auctioning is likely to see limited interest. Foreign players might decide to wait and watch.