Bharti Airtel Limited v Union of India

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE** **WEDNESDAY, THE 28TH DAY OF MARCH 2018 / 7TH CHAITHRA, 1940** **WP(C).No. 13252 of 2012** ## **PETITIONER :** **BHARTI AIRTEL LIMITED, HAVING ITS REGISTERED OFFICE AT BHARTI CRESCENT, 1, NELSON MANDELA ROAD, VASANT KUNJ, PHASE II, NEW DELHI-110070 AND ITS KERALA CIRCLE OFFICE AT N.H.BYE-PASS, KUNDANOOR, MARADU P.O., KOCHI-682304, REPRESENTED BY REKHA AGARWAL, AUTHORISED SIGNATORY.** **BY ADVS.SRI.GOPAL JAIN (SR.)** **SRI.E.K.NANDAKUMAR (SR.) SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN SRI.KURYAN THOMAS** **RESPONDENTS :** **1. UNION OF INDIA, REPRSENTED BY THE SECRETARY TO GOVERNMENT, MINISTRY OF COMMUNICATIONS & INFORMATION TECHNOLOGY, DEPARTMENT OF TELECOMMUNICATION, NO. 20, ASHOKA ROAD, SANCHAR BHAWAN, NEW DELHI-110001.** **2. THE PRINCIPAL CONTROLLER OF COMMUNICATIONS ACCOUNT, KERALA CIRCLE, MINISTRY OF COMMUNICATIONS & INFORMATION TECHNOLOGY, DEPARTMENT OF TELECOMMUNICATIONS, PMG JUNCTION, THHIRUVANANTHAPURAM-692003.** ## **BY ADV. SRI.N.NAGARESH, ASSISTANT SOLICITOR GENERAL SRI.K.M.NATARAJ, ADDL.SOLICITOR GENERAL** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 7.3.2018, ALONG WITH WPC.16030/2012 AND CONNECTED CASES, THE COURT ON 28.3.2018 DELIVERED THE FOLLOWING:** **EL** **WP(C).No. 13252 of 2012** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS** - **P1 TRUE COPY OF THE LICENCE ISSUED BY THE DEPARTMENT OF TELECOMMUNICATIONS IN FAVOUR OF THE PETITIONER COMPANY** - **P2 TRUE COPY OF THE NEW TELECOM POLICY, 1999 (NTP 1999) P3 TRUE COPY OF THE MIGRATION PACKAGE ISSUED BY THE GOVERNMENT OF INDIA, ON 22.7.1999** - **P4 TRUE COPY OF THE LETTER DATED 29.1.2001 OF THE DEPARTMENT OF TELECOMMUNICATIONS** - **P5 TRUE COPY OF THE LETTER DATED 25.9.2011 OF THE DEPARTMENT OF TELECOMMUNICATIONS** - **P6 TRUE COPY OF THE PETITION WITHOUT ANNEXURES NUMBERED AS 32 OF 2005 FILED BY THE CELLULAR OPERTOR ASSOCIATION OF INDIA BEFORE THE TELECOM DISPUTES SETTLEMENT AND APPELLATE TRIBUNAL** - **P7 TRUE COPY OF THE ORDER DATED 7.7.2006 IN PETITION NO.7 OF 2003 OF THE TELECOM DISPUTES SETTLEMENT AND APPELLATE TRIBUNAL** - **P8 TRUE COPY OF THE RECOMMENDATIONS DATED 13.9.2006 OF THE TELECOM REGULATORY AUTHORITY OF INDIA** - **P9 TRUE COPY OF THE ORDER DATED 30.8.2007 OF THE TELECOM DISPUTES SETTLEEMTN AND APPELLATE TRIBUNAL IN M.A. NO.2 OF 2004** - **P10 TRUE COPY OF THE LETTER DATED 15.10.2007 ISSUED BY THE PETITIONER TO THE DEPARTMNET OF TELECOMMUNICATIONS FOR PAYMENT OF LICENCE FEE FOR KERALA SERVICE AREA FOR THE QUARTER-JULY-SEPT.2007** - **P11 TRUE COPY OF THE STATEMENT DATED 11.8.2011 SUBMITTED BY THE DOT'S CIVIL APPEAL EBFORE THE SUPREME COURT** - **P12 TRUE COPY OF THE LETTER RELATING TO THE PAYMENT OF LICENCE FEES FOR KERALA SERVICE AREA FOR THE QUARTER-APR'2010 TO JUNE 2010 WITH RELEVANT DOCUMENTS** - **P13 TRUE COPY OF THE JUDGMENT DATED 11.10.2011 OF THE HON'BLE SUPREME COURT IN CIVIL APPEAL NOS.5059 OF 2007, 179-180 OF 2008, ETC.** - **P14 TRUE COPY OF THE ORDER DATED 15.3.2012 IN REVIEW PETITION NO(S).194196 OF 2012 IN CIVIL APPEAL NO.1229-1230 OF 2008 AND CIVIL APPEAL NO.313 OF 2008** - **P15 TRUE COPY OF THE DEMAND NOTICE DATED 8.11.2012 ISSUED IN FAVOUR OF THE REPSONDENTS** - **P16 TRUE COPY OF THE LETTER DATED 28.6.2012 WITH ANNEXURES ISSUED BY THE PETITIONER TO THE RESPONDENT** - **P17 TRUE COPY OF THE DEMAND NOTICE DATED 30.11.2012 ISSUED TO THE PETITIONER** - **P18 TRUE COPY OF REPLY DATED 7.12.2012 SUBMITTED BY THE PETITIONER TO THE DEMAND NOTICE DATED 8.11.2012** **WP(C).No. 13252 of 2012** - **P19 TRUE COPY OF THE DEMAND NOTICE DATED 20.12.2012 ISSUED IN FAVOUR OF THE PETITIONER** - **P20 TRUE COPY OF DEMAND NOTICE DATED 15.2.2013 FOR THE YEAR 2009-10 FOR KERALA, LICENSED SERVICE AREA ISSUED BY THE RESPONDENT** - **P21 TRUE COPY OF DEMAND NOTICE DATED 19.2.2013 FOR THE YEAR 2010-11 FOR KERALA, LICENSED SERVICE AREA ISSUED BY THE RESPONDENT** - **P22 TRUE COPY OF THE COMMUNICATIONS DATED 1.3.2013 SENT BY THE PETITIONER TO THE RESPONDENT** - **P23 TRUE COPY OF THE COMMUNICATIONS DATED 5.3.2013 SENT BY THE RESPONDENT TO THE PETITIONER** - **P24 TRUE COPY OF THE DEMAND NOTICES DATED 22.8.2013 FOR THE FY 2008-09 IN RESPECT OF THE UAS, ISP-IT AND VSAT LICENSE ISSUED BY THE RESPONDENT** - **P25 TRUE COPY OF THE DEMAND NOTICE DATED 27.8.2014 FOR THE FY 2006-07 TOWARDS LICENSE FEES ISSUED BY THE RESPONDENT** - **P26 TRUE COPY OF THE DEMAND NOTICE DATED 27.8.2014 FOR THE FY 2007-08 TOWARDS LICENSE FEES ISSUED BY THE RESPONDENT** - **P27 TRUE COPY OF THE COMMUNICATION DATED 22.7.1999 ISSUED BY THE DOT** - **P28 TRUE COPY OF THE COMMUNICATION DATED 29.1.2001 ISSUED BY THE DOT** - **P29 TRUE COPY OF THE ORDER DATED 11.8.2011 OF THE HONOURABLE SUPREME COURT IN CIVIL APPEAL NO:179-180 OF 2008 AND CONNECTED CASES** - **P30 A TABULAR COMPILATION OF THE RELEVANT RECOMMENDATIONS SINCE THE YEAR 1999 TO 2015** ## **RESPONDENT(S)' EXHIBITS** - **R1(A) TRUE COPY OF THE JUDGMENT PASSED BY THE HON'BLE HIGH COURT AT GUWAHATI IN WPC. NO.2239/2011 DATED 27.5.2011** - **TRUE COPY** **P.S. TO JUDGE** ## **EL** **3.4.2018** ## **“C.R.”** ## **A.MUHAMED MUSTAQUE, J.** ========================= **W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012** ~~~~~~~~~~~~~~~~~~~~~~~~~ Dated this the 28[th] day of March, 2018 ## **J U D G M E N T** The word, 'telecommunication' had its origin to the words 'tele' in Greek which means 'over a distance' and 'communicare' in Latin which means 'to share'. When Indian Telegraph Act, 1885 was enacted by the British, its ambit and scope were limited to include telegraph lines under or over the property, whether belonging to public or private bodies. The enactment had more to do with the State's power in using the privilege of communication through the device of telegraph. On onset of wireless communication from the early 20th Century, there was a complete change in the medium of communication. The State realised the importance of the use of telegraph as a utility service so as to benefit the common man. Then W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:2:-** the focus was shifted from telegraph as a tool of Sovereign to the utility of common man of the country. On the advent of Mobile Technology, the use of GSM and CDMA technology, the utility of telecom service has become dearer to the Society. From there, its march to the progress was unstoppable. Today, telecom technology has reached its zenith, for work, business, play, socialization, entertainment, study, health, etc. Telecommunication today is converged in Information and Communication Technology known in the acronym “ICT”. Telecommunication also plays an important role in shaping business and economy of the State. Modern States look upon ICT for capacity building focusing on economic growth and social good. The world is witnessing the emergence of new business model disrupting existing markets and reshaping production and consumption through ICT enabled technology. I have drawn this prelude to this judgment for the reason that the issue arisen in the case cannot be conceived without understanding the transformation of telegraph as a medium of communication from its inception to today as ICT industry. The disruptive changes not only improved governance of public institution but also vital for country's GDP W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:3:-** growth. Mobile-cellular telephone subscriptions in India per 100 inhabitants is 86.95 (see “ICT Development Index 2017”). Indian Telecom Sector is the second largest market in the world and contributed 6.5 percent of GDP while providing direct and indirect employment to 4 million people in 2015 (Financial Express dtd. 19.12.2017). The issue in these writ petitions is as to licence fee based on revenue sharing collected from mobile operators by the Union Government. While entering into the revenue sharing regime in the year 1999, disbanding the 1994 fixed licence fee regime, the Union Government would have foreseen potential growth of the telecom sector as above. Telecommunication plays an important role in shaping the business and the economy of the State. The standard of social growth index and life quality index is gauged by the teledensity. (2) The Indian Telegraph Act, 1885 was enacted by British to impose the monarchy's will over its subjects and to have an exclusive monopoly privilege of establishing telegraphs in the country. Its object was nothing but to secure and protect monarchy's interest. If the monopoly is not secured it was feared that the very security of W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:4:-** the British State would be jeopardized by the misuse of telegraph. The telegraph enactment underwent amendment on various occasions. These amendments are more of cosmetic changes made to the enactment. The first of the amendment came into the Indian Telegraph Act was conferring power on the Union Government to permit such restrictions and conditions as it deems fit to grant licence to establish, maintain or work a telegraph within any part of India. This amendment was first introduced by Act 1914. But it took more than 8 decades for the Union Government to commercialize the telecom sector. The Government in the year 1994 announced National Telecom Policy (NTP) to make telephone available on demand and also to make telecom services available at reasonable costs. While making its policy, the Government was aware that its target could not be met out by use of Government resources, and it requires private investment and involvement of the private sector. The Government, thereafter, allowed private sector participation in a phased manner by issuing licence for paging service and cellular mobile telecom service. The Government divided the country to different telecom circles and gave licence to the operators based on W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:5:-** those circles. The basic telecom service by private operators did not achieve the objectives of the NTP 1994. Therefore, the Government revamped the policy of 1994 by issuing a new Telecom Policy in the year 1999 (for short, the "NTP 1999"). This policy was framed keeping in account the convergence of IT, media and telecom. Accordingly, the Government decided to issue Unified Licence for Telecommunication Services permitting licensees to provide all telecommunication/telegraph services covering various geographical areas. Based on the above policy, a new package was formulated. This new package allows migration of licence of existing cellular operators to Unified Licence throughout the country. That means, instead of limiting their operation to a particular circle, the licensee company can operate throughout the country. The licence fee under NTP 1994 was paid on fixed basis. On the advent of NTP 1999, the Government mandated the licensee to pay one time entry fee and licence fee as a percentage on revenue sharing basis. The contentious issue in these writ petitions revolves around definition of “Adjusted Gross Revenue” (AGR) referred in the agreement entered into between the telecom operators and the Union Government. W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:6:-** These writ petitions are filed by the telecom operators challenging validity of the term 'AGR' referred in the licence agreement. (3) Before considering the present issue, it is necessary to give a brief account of the history of this litigation. In the year 2003, some of the operators approached the Telecom Dispute and Settlement Appellate Tribunal (TDSAT), New Delhi. The question that was considered by the TDSAT was what would be the licensor's consideration, in terms of percentage share, in the licensee's gross revenue for the licence granted under Section 4 of the ITA, 1885. The operators approached TDSAT when demands of licence fee were raised by the Department of Telecommunication (DOT) based on the definition of AGR. They questioned the validity of the definition of AGR. The crux of the issue was that whether DOT can claim share of revenue from non licensed activities of the operators. The operators contended that the licence was granted invoking Section 4 of the Telegraph Act and therefore, in computing AGR, the DOT can claim only such revenue generated by the operators using the licence. The Tribunal answered the issue in favour of the operators. The Union Government filed an appeal before the Hon'ble Supreme W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:7:-** Court. This appeal was filed under Section 18 of Telecom Regulatory Authority of India Act, 1997 (for short, the “TRAI Act, 1997”). While the civil appeal was pending before the Apex Court, the Telecom Regulatory Authority of India (TRAI) sent its recommendation pursuant to the direction of TDSAT based on the impugned order in an appeal before the Apex Court on the definition of AGR. Taking note of the recommendations of the TRAI, the Apex Court dismissed the appeal with liberty to the Union Government to raise all its contentions in appeal before the TDSAT. Thereafter, TDSAT held that in the light of the earlier order, AGR will only include revenue arising from licensed activities and not the revenue arising out of non licensed activities. This was challenged by the Union Government again before the Apex Court in a statutory appeal under Section 18 of the TRAI Act, 1997. The Apex Court considered the issue in **Union of India and Another v. Association of Unified Telecom Service Providers of India and Others [(2011) 10 SCC 543].** The Apex Court after adverting to Section 14(a)(i) of the TRAI Act, 1997 came to the conclusion that TDSAT had only jurisdiction to decide on a dispute whether the demand is in accordance with the W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:8:-** licence agreement or not and it has no jurisdiction to decide on the validity of the definition of AGR in the licence agreement. The Apex Court particularly noted the fact that the operators are making a challenge to the validity of the definition of AGR by extending revenues from non licensed activities. Faced with the dilemma as above, the operators have now changed their challenge against the definition of AGR invoking public law remedy under Article 226 of the Constitution. In all these writ petitions, the petitioners, who are licensees challenge is essentially against the inclusion of revenue from non licensed activities as a part of AGR. The petitioners are hereinafter referred to as the licensees. Though in each writ petitions challenges have been framed in a different manner, none the less, the common question is whether definition of AGR in the licence agreement will give any authority to the DOT (Licensor) to claim share in revenue generated by the operators otherwise than by using licence granted under Section 4 of the Telegraph Act. (4) The operators in all these writ petitions, except W.P. (C).No.16376 of 2012 were operators under fixed licence regime. They were operating under fixed licence fee in the circles, and after W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:9:-** the migration policy was introduced, they entered into the license agreement based on NTP 1999. The revenue sharing method was first introduced in NTP 1999. They refer to various materials and documents to bring home their argument that the licence fee is payable only as a percentage of share of gross revenue under the licence. These materials placed by them may not have any relevance as this court is only called upon to decide plain terms of definition in accordance with the AGR in the licence agreement. The writ petitioner in W.P.(C).No.16030 of 2012, Reliance Communication Ltd., an another operator first time entered into the telecom market based on the policy change. They entered into the licence agreement first time after NTP 1999. They challenge the validity of the clause in the AGR as violative of Articles 14 and 19(1) (g) of the Constitution of India. In the first set of challenges made by the operators, prior to NTP 1999, arguments have also been raised as to the character and nature of the licence agreement based on the previous licence regime to refer that the agreement was only intended to include licensed activities alone and nothing else. W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:10:-** (5) As already adverted, the common question involved in these writ petitions revolve around the definition of AGR. The validity has been called in question as violative of Articles 14 and 19(1)(g) as well as on the ground of the competency of DOT to claim share of revenue for non licensed activities under Section 4 of the Telegraph Act. Therefore, the question that was mooted was whether the DOT can demand share of revenue from non licensed activities based on a licence issued under Section 4 of the Telegraph Act. (6) The clauses in the licence agreements produced in all the writ petitions are common. Clause 19 therein defines 'AGR' as follows: ## “19. Definition of 'Adjusted Gross Revenue' 19.1 Gross Revenue: The Gross Revenue shall be inclusive of installation charges, late fees, sale proceeds of handsets (or any other terminal equipment etc.), revenue on account of interest, dividend, value added services, supplementary services, access or interconnection charges, roaming charges, revenue from permissible sharing of infrastructure and any other miscellaneous revenue, without any set-off for related item of expense, etc.” W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:11:-** (7) The Apex Court already held in **Association of Unified Telecom Service Providers'** case ( _supra_ ) that TDSAT is having all the jurisdiction to go into the facts and materials of particular demand to decide whether the demand is in accordance with the licence agreement or not. It was also held that TDSAT has jurisdiction to interpret the definition of adjusted gross revenue in the licence agreement. Therefore, the question before this Court is only regarding the validity of the definition of AGR. Rest of the issue based on demand can be decided by the TDSAT if a challenge is made in respect of the particular demand. Thus, this Court will have to consider the issue whether non licensed activities can form part of AGR, in a license agreement executed for issuing licence under Section 4 of the Telegraph Act. If this Court holds that the definition of AGR is valid, any demand issued by DOT can be examined by TDSAT to decide whether it was in accordance with the licence agreement or not. (8) The learned counsel for the licensees argued in extenso essentially, questioning the demand based on non licensed activities on three grounds. First, based on the power of the Union W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 **-:12:-** Government referable to Section 4(1) of the Telegraph Act. According to the petitioner, clause 19.1 of the licence agreement seeks to include revenue from non licensed activities which is beyond the scope of Section 4 of this Act. The second, essentially, on the ground that definition of AGR can never encompass share of revenue on non licensed activities. The third is on the ground that the revenue share from any income generated after settling the accounts ceased to have nexus with the revenue referable to the licence. This argument advance the point, utilisation of own money of the operator after settling the account cannot form part of the gross revenue for the subsequent years. I find that the question raised based on the third ground is essentially an interpretation of the definition of the AGR and it depends upon the nature of demand raised. This question is still open for the operators to canvass before TDSAT whenever demands are raised. Answer to the second question would also overlap the answer in first question. This Court cannot enter into any such finding based on the challenge on third as this challenge is not related to validity of the clause. In the light of the judgment of the Apex Court in **Association of Unified Telecom** W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:13:-** **Service Providers'** case ( _supra_ ), Operators can challenge such demand based on the nature of the demand raised, with reference to the terms and conditions set forth in the licence. Therefore, this Court is only confining its enquiry as to the validity of the clause AGR and nothing else. (9) The licensees challenge definition of AGR on the premise that certain components included in the AGR are contrary to the Indian Telegraph Act, 1885. Their argument is that non licensed activity cannot be subjected to revenue share. According to them, it is their fundamental right to carry on any business and there was no prohibition on the licensee from doing other business or making investments in non telecom activities. Thus, it is argued that the sharing can be only in regard to gross revenue obtained by them by transfer of exclusive privilege of licence by the Union Government to the licensee. The licensees rely upon Section 4 of the Indian Telegraph Act, 1885 to substantiate their arguments. It is appropriate to refer Section 4 of the Act, which reads as follows: “4.Exclusive privilege in respect of telegraphs, and power to grant licences.--(1)Within India, the Central W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:14:-** Government shall have the exclusive privilege of establishing, maintaining and working telegraphs: Provided that the Central Government may grant a license, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India.” (10) The case of the licensees is that what was transferred by the Union Government is their exclusive privilege of establishing maintaining and working telegraphs as referred in Section 4(1). The licensees, particularly, referred proviso to Section 4(1) to raise an argument that the power of the Union Government to fix such terms and conditions “as it thinks fit” is only referable to the licence activities and not beyond that. (11) The main defence put forward by the Union Government is that the licensees, after accepting unconditional terms of the contract are precluded from challenging the same, invoking public law remedy. It is the case of the Union Government that gross revenue and AGR have been formulated by the department taking into account all factors to get a fair share of value for parting exclusive privilege of the Union Government. Therefore, the stand of the Union W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:15:-** Government is clear that they consciously included non telecom activities as part of AGR in the migration package. (12) Raising the challenges and defending such challenges, I heard Shri Gopal Jain, Shri Ramesh Babu, learned Senior Counsel and Shri Santosh Mathew, Shri P.Sanjay and Shri A.Kumar learned counsel appearing on behalf of the licensees. I also heard learned Additional Solicitor General of India for the Union Government Shri K.M.Nataraj ably assisted by learned Central Government Counsel Shri Suvin R.Menon. (13) Before going to the questions involved, it may be proper to refer the judgment of the Madras High Court as well as the Tripura High Court relied upon by the parties. In a challenge made to the validity of AGR, the Division Bench of Madras High Court in W.A.No.1454 & 1455 of 2014 took the view that contractual terms cannot be varied at the instance of one party alone and negatived the challenge regarding validity of AGR. The Tripura High Court in W.P.(C).No. 31/2013 by the judgment dated 16.5.2017 took a different view holding that definition of gross revenue and adjusted gross revenue are ultra vires to the proviso to Section 4(1) of the W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:16:-** Telegraph Act, 1885. The Court also observed that gross revenue shall not include revenue from the activities unrelated to the licensee company. There is no dispute to the fact that the definition of AGR includes revenue from non licensed activity. It is in that background, the question that will have to be considered is whether non licensed activities can form part of AGR or not. (14) Before proceeding to consider the issue as above, it is appropriate to refer the power of this Court on judicial review in regard to the challenge regarding validity of the terms and conditions in a contract. Though, the writ petitions are maintainable, this Court has to consider whether the power of judicial review can be invoked to invalidate the terms and conditions of a contract. (15) The juristic basis of judicial review is referable to the doctrine of ultra vires. The judicial review is evolved within constitutional frame to keep public authorities within the bounds of law. The Executive, the Administrative branch of the State is having vast powers under the Constitution. The courts duty is to ensure that the Executive takes decision within the limits set by law. The power of judicial control over such decision is only to the extend to find out W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:17:-** whether such decision conforms to the rule of law. Modern Government, due to expanded role of the State also engage in commercial activities. Legislation also have conferred exclusive privilege to the Government in doing business in certain fields. No law prevents the Government in undertaking commercial activities like business or trade. The source of power of the Executive to enter into a contract is referable to the Constitution. The administrative sphere and commercial sphere of the Government, therefore, will have to be distinguished. It is necessary that every administrative decision must conform to the rule of law. On the other hand, the commercial contract entered into by the State will have to be understood from the perspective of freedom of will or mobility of will of the parties. Freedom of will, goes both to the making of terms and contract. The parties are not at the compulsion to accept the terms and conditions of the Contract. (16) The arguments of the learned counsel for the licensees, essentially, revolve around the power of the Union Government to issue licence. The power of the Union Government is referable to Section 4 of Indian Telegraph Act, 1885. That power certainly, W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:18:-** refers to the power of issuing licence for establishing, maintaining and working of telegraphs. The question is whether the grant of such licence on such terms as the Union Government deems fit would give any right to the Union Government to include sharing of revenue on non lisensed activities will have to be answered after referring to the power of judicial review of this court. As already adverted, the administrative decision will have to be distinguished from the Governmental contract. A contract cannot be challenged based on the grounds available to challenge administrative action or decision. (17) The contract entered into between the Union Government with the licensee is not a statutory contract. As seen from the contract itself, it was executed by the Union Government invoking its power under Article 299 (1) of the Constitution of India. The executive power of the Union or State to enter into contract for the purpose of trade or business is either referable to the statute or to the executive power. There is no challenge as to the source of power exercised by the Union Government. In the absence of any challenge regarding source of power and the challenge being confined to the terms of the W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:19:-** contract, the court must alert itself as to the dichotomy between public law and private law. In a public law remedy, the court has to consider the challenge to the focal of a public element of such challenge. If the court is of the opinion that the matter exclusively falls in a private field of the contract, the court should stop its enquiry further, entering upon the nature of the challenge which could be availed by the parties before the civil court or in other forums. In **Joshi Technologies International INC v. Union of India and others [2015 7 SCC 728],** the Apex Court succinctly referred the distinction between public law and private law elements in a contract and clearly laid down that the court can examine the controversy arising out of a contract only if such controversy involves a public law element. Therefore, it is necessary to distinguish a challenge laid against terms of contract from an administrative action or decision for the purpose of examination of involvement of the public law element. (18) As seen from the pleadings, the contract was entered based on a policy decision of the Union Government. There are two stages of contract viz., (i) pre-stage which would reflect the decision or W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:20:-** policy of the Government and; (ii) post-stage when a contract is entered into between the parties. In the pre-stage, it is open for any aggrieved to challenge such decision or policy of the Government, if such decision is repugnant to the statutory provisions or on the ground of offending fundamental rights of the citizens. However, in the post-stage, the contract stands on a different footing. The parties have absolute freedom in entering into a contract. The freedom of will in a contract clearly applies to the terms of the contract as well. The Doctrine of Fairness or Doctrine of Ultra Vires cannot be applied to lay a challenge against the contract through the public law remedy. The doctrine of fairness or doctrine of ultra vires would not apply in a contract entered into between the State and private parties. There is no law that prevents the State from making a bargain in commercial contract and the parties agreeing for such demand. (19) The thrust of challenge laid by the licensee is with reference to the power of the Union Government to give licence under Section 4(1) of the Indian Telegraph Act. No doubt, the power referable to the Union Government under Section 4(1) can be only in respect of W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 **-:21:-** granting licence for establishing, maintaining or work relating to telegraph. The consideration that can be claimed by the Union Government under Section 4(1) is relatable to the licensed activity. Section 4 or any other provisions under the Indian Telegraph Act do not speak about entering into a statutory contract by the Union Government. Therefore, it is clear that this provision is only an enabling provision to issue licence. Mere reference of the statutory power itself will not make a contract a statutory contract. The Union Government invoked their power under Section 4 to enter into a contract to issue licence. In a contract it is possible to include the terms and conditions with reference to the statutory provisions and with reference to the executive power. It is in addition to terms referable to the statutory provisions, certain terms of contract have been made not referable to the statutory provisions. As already adverted, “merely because a contract entered in exercise of the enabling power, that contract cannot be treated as a statutory contract”; as laid down by the Apex Court in **India Thermal Power Ltd. v. State of M.P. and others [(2000) 3 SCC 379]** and **Kerala State Electricity Board and another v. Kurien E.Kalathil [AIR** W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:22:-** **2000 SC 2573]** . Therefore, the argument that the contract should confine only to such terms and conditions as referable to the Statute is fallacious and misconceived. (20) The challenge put forward by the licensee is that the contract includes share in revenue of non licensed activities. This challenge refers to the enabling power of the Union Government to give licence under Section 4. The argument is raised as though the contract can be entered into by the Union Government only with respect to the terms and conditions that could have been entered by the Union Government, referable to Section 4(1) of the Indian Telegraph Act. In a contract involving terms and conditions referable to the statutory provisions and referable to the executive power, the court will have to examine the matter with respect to the statutory provisions as well as with reference to the executive power of the Union Government. In so far as the sharing of revenue on licensed activities is concerned, there is no quarrel or dispute. The Telegraph Act itself confers such power on the Union Government to issue licence on such conditions as 'it thinks fit'. The question is, 'Do inclusion of non licensed activities for sharing of revenue will make such terms in W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:23:-** contract as arbitrary or not?'. The licensees **'** argument that, this demand is against the statutory provisions will not hold good, as it is not a statutory contract. It cannot also be said that such inclusion is referable to the power under the statutory provisions. It is obvious that the Union Government had decided to invoke such executive power for the simple reason that the contract includes sharing of revenue on non licensed activities. This term in the contract would have to be declared as bad to the extent of inclusion of non licensed activities for sharing of revenue, if not, it was executed complying the formalities under Article 299 (1) of the Constitution. Therefore, the petitioner cannot avail a challenge against the inclusion of certain terms of contract which have been included in a contract not referable to the power under the Statute by relying on the statutory provisions. (21) The point that also arises for consideration is whether by exercise of an executive power, such inclusion of terms in a contract is possible or not. As already adverted, a contract cannot be challenged with reference to the statutory provision when such a contract is expressly made invoking the executive power. The W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:24:-** petitioner's arguments seems to be that the terms and conditions in a contract should confine to the statutory provisions alone which gave power to the Union Government to issue licence. This Court cannot confine the regime of the contract to the statutory provisions alone as the contract was not a statutory contract. Therefore, the contract also cannot be construed as solely relying on the statutory provisions alone **.** The licensees have no case that the Union Government cannot exercise its executive power in respect of items which are included in the contract relatable to non licensed activities. (22) The next argument of the petitioner is that the terms and conditions including non licensed activities in a contract for revenue sharing are arbitrary and therefore, the Union Government can demand sharing of revenue only in respect of licensed activities. In **State U.P. and Others. v. Sheopat Rai and Others.[1994 Supp. (1) SCC 8]** in the context of licence fee, it was held by the Apex Court that licence fee is not regulatory or compensatory in nature. The petitioner's attempt to challenge non licence fee, stating that it is arbitrary as the licensee company has every right to engage in any business of their choice and the Union Government cannot demand W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 **-:25:-** share of revenue of such activities. The parties, who entered into contract should be aware of the fact that the contract includes share of revenue on non licensed activities as well. The contractual obligations are voluntarily incurred. Is it possible for one of the parties to the Government contract to avoid contractual obligations invoking public law remedy? The answer must be negative. Arbitrariness of an administrative decision subjected to judicial review is to uphold the supremacy of rule of law. The contract entered into with the Government can be avoided only on any of the grounds as referable under the Indian Contract Act. The rule of law in that sense is confined to the sphere of statutory provisions in the Contract Act. The court cannot import a theory of arbitrariness while construing a contract entered with the Government. The Apex Court in **Puravankara Projects Ltd. v. Hotel Venus International and Others [(2007) 10 SCC 33]** reiterated that the courts do not have the power to import doctrine of fairness to impose, amend or alter express terms of contract between parties. In **Indian Oil Corporation Ltd. v. Amritsar Gas Service [(1991) 1 SCC 533]** the Apex Court after referring to the difference between administrative W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:26:-** law and contractual law succinctly held that the terms and conditions of a contract cannot be questioned invoking public law based on Article 14 of the Constitution. In **Puravankara Projects Ltd. v. Hotel Venus International and Others [(2007) 10 SCC 33],** the Apex Court referred and relied on the following passage of its earlier decision in **New Bihar Biri Leaves Co. v. State of Bihar, [(1981) 1 SCC 537]** : **“48.** It is a fundamental principle of general application that if a person of his own accord, accepts a contract on certain terms and works out the contract, he cannot be allowed to adhere to and abide by some of the terms of the contract which proved advantageous to him and repudiate the other terms of the same contract which might be disadvantageous to him. The maxim is _qui approbat non reprobat_ (one who approbates cannot reprobate). This principle, though originally borrowed from Scots Law, is now firmly embodied in English Common Law. According to it, a party to an instrument or transaction cannot take advantage of one part of a document or transaction and reject the rest. That is to say, no party can accept and reject the same instrument or transaction (Per Scrutton, L.J., _Verschures Creameries Ltd._ v. _Hull & Netherlands Steamship Co._ [(1921) 2 KB 608 (CA)]; see _Douglas Menzies_ v. _Umphelby_ [1908 AC 224]; W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:27:-** see also S _troud’s Judicial Dictionary_ , Vol. I, p. 169, 3rd Edn.).” In **Asstt. Excise Commr. v. Isaac Peter [(1994) 4 SCC 104],** the Apex Court cautioned mixing up administrative law and fairness with terms of the contract. The Apex Court in **Sterling Computers Ltd. v.** **M.N.Publications Ltd. And others [AIR 1996 SC 51]** have taken the view that while exercising the power of judicial review, the court cannot examine the details of the terms of the contract which have been entered into by the public bodies of the State, but it can only examine the decision making process and not the decision itself. (23) The Union Government had the monopoly and exclusive privilege of establishing and maintaining telegraph lines. If the State wants to have a share in any of the business carried on by the licensee, the Court cannot stop the bargaining power of the Government for parting with such exclusive privilege. The party autonomy in contractual matters is referable to the bargaining powers of both the parties. One of the parties, after entering into the contract cannot bargain that the Union Government should confine their bargaining power only in respect of licensed activities. The W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:28:-** bargaining power of the Union Government will have to be understood from the perspective of the contract with reference to the power to enter into such contract and not with reference to any enabling power to issue a licence. The source of power emanating from Article 299(1) of the Constitution was exercised as non licensed activities are not covered by the statutory provisions and therefore, it cannot be said that such bargain should have bearing only on what was given as licence. As seen from the definition of 'AGR' under clause 19, items of non licensed activities are specified for the purpose of revenue sharing. The settlement of accounts is done quarterly. Therefore, it is possible for the licensee to utilise the revenue generated from licence activities for income generating investments. That is the reason why interest, dividend, value added services are referred to in clause 19 of the licence agreement. Value added services have nothing to do with the licensed activities, and such services are indispensable for any ICT industry. In an open competition, in a fair market, competency and efficiency of licensee would depend upon the value added services given. It is to be noted that the Government had shouldered a risk by agreeing for W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:29:-** revenue sharing. If the Government insisted for a fixed licence regime, it would have to be satisfied with a fixed revenue. In a calculative move with a risk like in any business ventures, the Government agreed for revenue sharing. In that process, there is a risk of losing revenue as well, in case, the licensee suffers loss due to adversities in the market or otherwise, which the Government need not have faced in fixed licence fee regime. In **Association of Unified Telecom Service Providers'** case ( _supra_ ), it was observed by the Apex Court that it was open for the licensees not to undertake the activities for which they do not require licence under Section 4 of the Telegraph Act and transfer those activities to any other person or firm or company. It was further observed that such inclusion was as a consideration for parting with the exclusive privilege of the Union Government in respect of telecommunication activities. (24) The Union Government was well aware by exploiting the licence that the licensee is venturing into a business which otherwise would have been exclusively run by the State. That element of business can be subject of bargaining, based on free will of parties and it cannot be tested on the anvil of the source of the enabling W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:30:-** power to issue licence. The obligations and rights of the parties will have to be tested within the framework of the contract. The terms and conditions in a contract cannot be interpreted like any other statutory provisions. This Court cannot overlook the growth gained by the telecom licensees based on the licence given to them. The Union Government's bargaining power to share non licensed activities was anticipating potential growth of the telecom sector as an ICT Industry. Viewed from that angle, this Court cannot view that the Union Government was promoting any illegitimate bargain for granting licence. (25) The freedom of will in a contract clearly applies to the terms of the contract. The parties have absolute freedom in entering into a contract. If the parties have conceded in a contract to share a revenue which was generated not referable to the licence conferred upon them by the Government, the court cannot substitute the free will of the parties by deleting or amending such terms in the contract. In **Har Shankar & Ors. v. The Dy. Excise & Taxation Commr. & Ors. [AIR (1975) 3 SC 254]** and followed in **the judgment in the State Bank of Haryana and Others v. Jage Ram and Others** W.P.(C).Nos.13252/2012, 16030/2012, 16376/2012 & 22716/2012 ## **-:31:-** **[(1980) 3 SCC 599],** the Apex Court categorically held that the writ jurisdiction cannot allowed to be invoked to avoid obligations voluntarily incurred. Thus, the challenge to clause 19.1 of the licence agreement entered into between Union Government and the licensees must fail. Accordingly all the writ petitions are dismissed. No costs. Sd/- ## **A.MUHAMED MUSTAQUE, JUDGE** ms