Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2010 (11) TMI 1070

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ess Service Licence on 21st September, 2004 with effect from 14th November, 2003. By an addenda dated 28th February, 2006, the agreement was formally amended with retrospective effect from 14th November, 2003. The Agreement deals with local calls, national long distance calls (NLDC) and international long distance calls (ILD). Calls of each trunk group are connected through dedicated ports and are chargeable at rates different from other trunk groups. Hence, depending on the number of calls handled by a particular port, charges are levied by BSNL on Reliance, at the rate of the existing call charges payable for that particular trunk group. 3. On 24th June, 2003, the DoT issued a circular specifying that Calling Line Identification (CLI) cannot be tampered with under any circumstances and also gave directions to service providers on how to prevent such tampering. By its circular dated 28th January, 2004, the above circular of DoT coupled with IUC Regulations dated 29 th October, 2003 issued by Telecom Regulatory Authority of India (TRAI) was made effective. 4. In September, 2004, BSNL received several complaints from its subscribers in Gujarat that they were receiving ILD call .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ₹ 6.89 cr. for the said period July, 2004 to September, 2004. In the said bill, the rate applied was ₹ 5.65 per minute. This demand was made on the basis that numerous calls have been detected in the POI with CLI as 281 3041000 which pertained to ISDNB PRI connection given to M/s. Raj Enterprises of Rajkot. According to Reliance, the calls received in its POIs were grey market calls. That, they were neither wrongly routed nor their CLIs were tampered. Ultimately, after detailed correspondence between BSNL and Reliance, petition No. 275 of 2009 was filed by Reliance against the above impugned demand. 8. By the impugned judgment, TDSAT has held that the impugned demand of BSNL under clause 6.4.6 of the Interconnect Agreement is penal in nature; that under the said clause unauthorized calls had to be detected by BSNL and that in case of such detection charges were to be levied on such calls at the highest applicable IUC; that BSNL was under an obligation to draw distinction between unauthorized calls and calls without/ modified CLI in the impugned demand which in the present case has not been done; that no opportunity of hearing was given to Reliance and, lastly, the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... the said clause cannot be brought under Section 74 of the Contract Act. According to the learned counsel the situation in clause 6.4.6 amounts to an alternative mode of performance of the contract. Lastly, according to the learned counsel where a contract prescribes payment of a sum on default, even if the sum payable may be larger than the actual loss, when the contract is between parties with equal bargaining power, and as long as the sum payable is not extravagant, it should not be characterized as penalty. Similarly, where an agreed sum is payable upon a default if the loss accruing to the claimant from the default in question cannot be accurately or even reasonably be ascertained, then such sum cannot be classified as penalty and once a stipulation is held not to be a penalty, there is no need for actual proof of loss. 10. On interpretation of clause 6.4.6 of the Interconnect Agreement, Shri C.S. Vaidyanathan, learned senior counsel for Reliance and Shri Ramji Srinivasan, learned senior counsel for Tata Teleservices Limited, submitted that there is no dispute between the parties regarding the existence of the grey market and its operations by miscreants who use the telecom .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ted by TRAI it is not open to BSNL to charge what they like. On the other hand, the TRAI regulations do not provide for quantum of damages or a penalty in case of breach of the interconnection agreement. Therefore, if clause 6.4.6 is attracted before breach, as submitted by learned counsel for BSNL, and if clause 6.4.6 is not compensatory, then the amount demanded is without consideration and would be unconscionable. According to the learned counsel clause 6.4.6 in the Interconnect Agreement confers only a contractual right. BSNL, according to the learned counsel, is neither the sovereign exercising legislative or executive or police powers nor is BSNL a regulator. It is not vested with any powers to impose any penalty for breach of contractual terms nor can BSNL be vested with such powers as BSNL is one of the several operators in the National Telecom Policy of 1994 and 1999. That, DoT or the TRAI may exercise regulatory or police powers imposing a penalty or strict civil liability for violation of any of the terms and conditions of the license when public interest so requires. However, BSNL does not have any statutory, regulatory or police powers to impose strict civil liability. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... or compensatory, if all calls, irrespective of whether they are rightly or wrongly routed, or with CLI or without CLI or disguised CLI are charged at the highest IUC rates. Such a provision, according to the learned counsel, will be ex facie penal in nature. Learned counsel submitted that there is no merit in the contention of BSNL that technology does not enable tracing of every disguised call. According to the learned counsel this argument of lack of technology would be available to BSNL only to the extent that all calls of the offending subscriber, such as Raj Enterprises, may be treated as unauthorized calls. However, beyond that, calls of other subscribers, in respect of whom there is not even a whisper of illegality, cannot be clubbed with the offending calls because that would amount to imposition of penalty. Learned counsel submitted that under the Contract Act no party is entitled to recover punitive damages for any breach of contract. That, in terms of Section 73 of the Act, the party which suffers by any breach of contract is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose i .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... o prove which precise calls delivered from the said number were, in fact, international calls delivered as local/national calls. However, applying clause 6.4.6 BSNL seeks to charge for not only all calls delivered from said number at the highest possible IUC rates, but, additionally seeks to charge at the highest rate for all calls delivered at the concerned POI for the relevant month as also all calls for the preceding two months from entirely different numbers belonging to other subscribers where there is no allegation whatsoever by BSNL of wrong routing or tampering. In other words, even for numbers and calls with respect to which there is no allegation of breach, wrong routing or tampering, BSNL seeks to charge at the highest IUC rates which bears no nexus whatsoever with the loss or damage suffered by BSNL. It is submitted that to this extent clause 6.4.6 falls foul of section 74 and is therefore unenforceable. Charging for numbers and calls which have no nexus whatsoever with the number identified by BSNL as having been misused is to impose in terrorem penalty upon Reliance bearing no connection with the loss suffered by BSNL on account of alleged wrong routing or tampering a .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 6 was inserted through an Addenda signed on 28.2.2006. The said Addenda was made applicable retrospectively with effect from 14.11.2003 with the exception of applicable IUC charges including ADC and interconnection arrangements made between the parties during the intervening period which included ICU charges. That, the said clause 6.4.6 is covered in the IUC charges which was carved as an exception. Admittedly, at the relevant time, TRAI had prescribed applicable IUC charges whereby depending on the nature of the call (local, national, international) certain identified charges were applicable. The applicable IUC charges did not however contemplate charges for local/national call at the highest available international rate, which the BSNL now seeks to do purportedly by invoking clause 6.4.6. Thus, according to the learned counsel from the express terms of the Addenda itself it is clear that clause 6.4.6 falls within the chapter entitled Interconnection Charges which is expressly excluded from retrospective operation . Learned counsel submitted that in any event such purported retrospective application of a penal provision such as clause 6.4.6 violates Article 20(1) of the Constitut .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nsmitting and receiving calling line identification which shall include Access code, Area code and Subscriber number. Chapter 6 Interconnection Charges 6.1 Interconnectivity to DOT Network 6.1.1 Provision of links to interconnect LICENSEE's network with DoT's network will be the responsibility of the LICENSEE as provided under Clause 2.1.2 and 2.1.3. 6.2 Detailed Billing 6.2.1 For every STD/ ISD call originating from the LICENSEE's network and accepted by DoT, a detailed billing and/ or bulk billing record will be generated in the LDCC TAX. For this purpose calling subscriber's identity shall be supplied by the LICENSEE for detailed billing purpose. 6.4 Access Charges 6.4.1 For purposes of calculating the access charge, the point at which the calls are delivered to DoT's network is treated as originating point. The calls will be measured from the point of entry to the destination at the applicable rate of DoT. 6.4.3 The traffic delivered on any DOT LDCC TAX from LICENSEE's LDCC TAX/ SDCC tandem/ local exchange will be measured on the incoming junctions of the DOT's LDCC TAX at the destination wise pulse rates applicable to the c .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... , will become effective from 14th November 2003 except the applicable Interconnection Usage Charges (IUC) including ADC, Interconnection arrangements and associated bill arrangements as prescribed by BSNL Corporate Office, during this intervening period till date of signing of this Addenda. 2. Each party, i.e., BSNL as well as the UASL, does hereby agree to: a) Interconnect its Network to the Network facilities of the other party; and b) Make available to the other party the services, facilities and information as specified in this Interconnect Agreement. c) Provide the other interconnected party with interconnection traffic carriage and fault detection of a technical and operational quality that is equivalent to that which each party provides to itself. 2(2) The UASL shall ensure that its interconnect facilities delivered at each point of interconnection (POI) conform to the applicable quality of service (QOS) standards and technical specifications for interconnection by the relevant delivery date determined pursuant to the provisions of this Agreement. 2(3) UASL shall be responsible to provide, install, test, make operational and maintain all interconnection fac .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Switched Telephone Network. SHORT DISTANCE CHARGING CENTRE (SDCC) : It means a particular Exchange in a Short Distance Charging Area declared as such for the purpose of charging of long distance trunk calls as defined in the National Fundamental Plan. UNIFIED ACCESS SERVICES : means telecommunication service provided by means of a telecommunication system for the conveyance of messages through the agency of wired or wireless telegraphy. The Unified Access Services refer to transmission of voice or non-voice messages over LICENSEE's Network in real time only. SERVICE does not cover broadcasting of any messages voice or non-voice, however, Cell Broadcast is permitted only to the subscribers of the service. The subscriber (all types, pre-paid as well as post-paid) has to be registered and authenticated at the network point of registration and approved numbering plan shall be applicable. The following abbreviations shall bear the full expression as mentioned below: UASP: UNIFIED ACCESS SERVICE PROVIDER Chapter - 2 Technical Issues pertaining to Interconnection 2.1 Interconnectivity to BSNL Network 2.1.1 As per clause 2.6 of License agreemen .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... STD/ISD calls shall be between BSNL's LDCC TAX and UASL's LDCC TAX. In case UASL does not have his own TAX in the LDCC, STD/ISD calls from UASL's SDCC Tandem/local exchange in an SDCA in the LDCA shall be handed over to BSNL's LDCC TAX by the UASL. 2.1.15.3.3 For the purpose of Inter circle and International call, the UASL shall handover the call to BSNL at the originating LDCC TAX. 2.1.16 For the purpose of transit calls originated by UASL's subscriber and meant for termination in network of any other service provider, the UASL may transmit such traffic as per rates given in Schedule I, on separate trunk groups at SDCC Tandem for local calls and originating LDCC TAX for intra and inter circle STD calls. However, BSNL reserves the right to amend the rates from time to time and also to selectively withdraw transit facility to other networks. BSNL will also be at liberty to transit and offer calls originated from other networks to UASL network. Either party shall not suppress the CLI for transit traffic also. If rates for any transit service are not available in the Schedule, the same shall be mutually agreed separately. Detailed technical arrangements will .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... erwise feasible to do so. It is further agreed that in case of any regulatory/ judicial intervention on the above matters, the UASL shall be entitled to and be extended the same relief/ benefit given to any other operator to the extent it is applicable to the UASL under this agreement. 2.9 NETWORK INTEGRITY AND SCREENING 2.9.1 It is the responsibility of the UASL to prevent the transmission of any signaling message across the connecting network, which does not comply with, inter working specification of TEC No.G/PNI-03/01 Sept. 95 or as modified from time to time. Similarly BSNL shall also ensure the same in its network. 2.9.2 Efficient arrangement for screening function shall be established by the UASL at his Gateway exchange or elsewhere in his network to detect signals outside the inter- working specification of TEC No. G/PNI-03/01 Sept. 95 referred above. Similarly BSNL shall also ensure the same in its network. 2.9.3 Screening arrangement shall include rejection of communications or discarding information fields, which do not comply with the specification. It will be the responsibility of the UASL/BSNL that network integrity is protected and mainta .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... so, in case unauthorised or Incoming International Call, without CLI call, call with tampered CLI is handed over to BSNL at the merged trunk group, then BSNL shall charge the UASL the highest applicable IUC, as prescribed in clauses 6.4.6(a) above for unauthorised calls 6.4.6(b) above for incoming International call, without CLI call, call with tampered CLI, for all calls recorded on this merged trunk group from the date of provisioning of that POI or for the preceding two months whichever is less. (d) In addition, BSNL shall also have the right for taking other legal actions including disconnection of POIs or temporary suspension of the interconnection arrangements under misuse. 6.4.7 All the required information in monthly certificate of details of traffic (in minutes) as prescribed in Schedule I shall be submitted by UASL to BSNL in a timely manner. This information includes outgoing STD and ISD traffic from its limited mobile/ fully mobile/ cellular access network handed over to each of private NLDOs/ ILDOs separately and incoming STD and ISD traffic to its network accepted from each of private NLDOs/ ILDOs separately. 6.5 Billing 6.5.2 At present CDR based .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... icensor during the notice period, the approval shall be deemed to have been accorded. (b) ceases to carry on business. (c) Either Party is unable to discharge its obligation under this agreement. However, in case of Force Majeure procedure as indicated below shall be followed: FORCE MAJEURE Neither party shall be liable for any breach of this Agreement (other than a breach for non payment) caused by an act of God, insurrection or civil disorder, war or military operations, national emergency, fire, flood, lightning, explosion, subsidence, industrial dispute of any kind. The Party affected by such force majeure shall promptly notify the other Party of the conditions and the details thereof. If as a result of force majeure, the performance by affected Party of its obligation under this agreement is only partially affected, such Party shall nevertheless remain liable for the performance of those obligations not affected by such force majeure. If the force majeure lasts for more than the continuous period of 90 calendar days from the date of the notification, and continues to prevent the affected Party from performing its obligation in a whole or in material part, the eithe .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... / incoming ISD calls routed through a NLDO or ILDO other than BSNL and intra- circle traffic from cellular/ WLL(M) to fixed networks are enclosed in Appendix-D. 11. The CLI based barring facility has been activated by BSNL at the PoIs wherever technically feasible to ensure that the traffic handed over to BSNL is in the appropriate trunk groups only. Wherever it is technically not feasible to activate CLI based barring, periodic monitoring of the incoming trunk groups shall be done by BSNL to ensure this objective. In case of wrongly routed calls IUC shall be charged as below: (a) Unauthorised calls i.e. calls other than specified for that trunk group if detected, for which the applicable IUC (including ADC) is higher than the IUC (including ADC) applicable for calls prescribed in that trunk group, then BSNL shall charge the concerned private operator the highest applicable IUC (including ADC), as applicable for such unauthorized calls, for all the calls recorded on this trunk group from the date of provisioning of that POI or for the preceding two months whichever is less. (b) Wherever it is technically not feasible to activate CLI based barring, the calls received by BSN .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Circle Circle Circle Circle I Inter circle outgoing calls II Inter circle incoming calls III Outgoing ILD calls IV Incoming ILD calls *** *** *** Appendix - D Procedure for billing and recovery of ADC in respect of inter circle cellular / WLL (M) originated calls, ISD calls (incoming and outgoing both) and intra circle cellular (WLL(M) to fixed networks routed other than other than through BSNL as NLDO/ ILDO/ transit operator. 1. As per TRAI's IUC Regulation dated 6th January, 2005 for such inter and intra circle calls that are routed through the BSNL as either NLDO or transit operator, the ADC amount is received directly by BSNL from the call originati .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... harge RIL minimum access charge for Incoming International calls as at clause 6.4.2 above for all the calls recorded on these ports from the date of provisioning of that POI or for the preceding two months whichever is less apart from taking other legal actions including disconnection of POIs or temporary suspension of the Interconnection Agreements. No terminating calls other than International calls shall be accepted from RIL without CLI. In case of calls without CLI, termination charge as per clause 6.4.2 above shall be charged from RIL. 6.6.1 Access charges shall be billed by BSNL based on bulk billing of traffic recorded by BSNL at the point of interconnection. For every STD/ ISD call carried by RIL and accepted by BSNL at POI, a detailed billing record wherever possible or bulk billing record will be generated in the SDCC Tandem. The RIL shall supply calling subscriber's identity for detailed billing purpose. Findings (i) Introduction 12. Telecommunication is all about transferring information from one location to another. This includes telephone conversations, television signals, computer files and other types of data. To transfer the information, you need a .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e of international calls traffic, i.e., inter-country telecommunications, the POI is the International Gateway. In this case, we are concerned with the international gateway of BSNL. However, for intra- country calls traffic, every local telecom network provider (Reliance in this case) is supposed to set up a local POI which acts as the entry point for all incoming telecom traffic. The local POI has got to be under the care and control of the local telecom provider for whose network the local POI acts as an entry point. This local POI is the location where details of all incoming landing telecom traffic, namely, the CLI number, their destination number, their time-stamp details, their duration, etc. have to be logged for future accounting and tracing requirements. Thus, we have two kinds of POIs, namely, international POIs and local POIs. Similarly, we also have two kinds of CLIs, namely, local and international CLIs. (g) Calling Line Identification (CLI): CLI means information generated by the Network capability which identifies and forwards the calling number through the interconnected BSNL's/ UASL's network. (h) Gateway Switch : It is a switch which has the capa .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... t time did not cater to the rural areas. IUC consisted of carriage, termination and access deficit charges (see clause 6.4.1). (iii) Obligations of the UASL Licensees under the Agreement 13. For the sake of easy understanding, we need to discuss the above terms in the Agreement in the light of international call(s) coming to India and not vice-versa. 14. The basic underlying principle of clause 6.4.6 is that an international call shall remain international right from the point of origination to the point of termination. 15. At the outset one needs to ascertain the contractual obligations of the UASL (Reliance in this case) under the Agreement as modified by the addenda dated 28th February, 2006. 16. Interconnection agreement prescribes terms and conditions under which two licensees or service providers interconnect their networks to allow their respective subscribers to have seamless access to each other's networks. It is a binding contract that binds each contracting party with respect to interconnection arrangements including commercial, technical and operational. However, the scope and content of each such contract may vary. Under the said Agreement, IUC pay .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... s called as GMSC. It serves as an interconnection between mobile switching centre and PSTN, which is a network. However, it is at the POI (point of interconnection) that the GMSC of the mobile network of UASL gets interconnected to the GMSC of BSNL by a facility of the interconnection seeker (which in this case happens to be Reliance). Broadly speaking, we have two types of POI, namely, international and local POI. Under the Agreement, UASL agrees to ensure that its interconnect facilities delivered at each POI conforms to the specified standards for interconnection and that UASL shall be responsible to provide, install, test, etc. all such interconnection facilities on its side of POI. Therefore, every POI has two sides. Eg. in our case, one side of POI is that of BSNL and the other side is that of Reliance. The Calling Line Identification (CLI) means information generated by the network capability which identifies and forwards the calling number through the interconnected BSNL's network. Under clause 2.1.13, Trunk Group is a part of POI. One must keep in mind that the above aspects are not only technological, they are maintained for billing and accounting purposes. They gener .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... the appropriate trunk group of BSNL. For the above reasons, it is also stipulated in clause 2.9.1 (which deals with network integrity and screening) that it shall be the duty of the UASL to prevent wrong transmission. In fact, under clauses 2.9.2 and 2.9.3 the establishment of proper screening function at its Gateway shall be the obligation of the UASL so as to detect signals outside the inter-working specification of TEC. As a corollary, clause 6.4.6(a) inter alia provides that calls on non-specified trunk groups (like international calls landing on the local POIs), if detected, for which the IUC rate applicable is higher (for example, for international calls the IUC rate is much higher than IUC rates for local/national calls), then the higher IUC rate would be applicable for such unauthorized calls. In such a case, BSNL would be free to charge the UASL the higher IUC for all calls recorded on these POIs from the date of provisioning of that POI [at Vadodara in this case] or for preceding two months, whichever is less. Similarly, under clause 6.4.6(b), if the UASL masks or disguises the international call as local call that UASL will have to pay the higher IUC rate meant for inte .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... tter knows from the display mechanism at his end (like the subscriber at his end) that call bears the international CLI and that is the reason for masking. Otherwise one needs no masking of the CLI. In both the cases i.e. under clauses 6.4.6(a) and 6.4.6(b) the same economic and financial consequences flows and that is the reason why clause 6.4.6 provides for reasonable pre- estimate of damage. There is one more reason. It is not possible to trace each such unauthorized call, particularly its nature, as to from which place it originated and if it was possible the cost of tracing such call(s) may be much more than actual damage, if ascertainable, and therefore, a rough and ready measure is provided in clause 6.4.6 which measure is a reasonable pre-estimate of damage. (iv) Whether clause 6.4.6 represents penalty or pre- estimate of reasonable compensation for the loss? 17. According to Chitty on Contracts whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate th .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... th the subscriber clearly indicates whether the call bears international or local/national CLI. Similarly, when the Gateway Bypass Scam takes place and the international call(s) lands on the local POI which is not forwarded to the specified trunk group/POI, there is not only bypassing of International Gateway/ POI and National POI but also evasion of duty to maintain billing records in detail at each POIs. 19. All this results in payment of IUC at a lower rate. All this leads to reduced cost for the defaulting UASL which provides not only increase in its profit but also gives it an advantage in international market vis-a-vis other competitors (including BSNL) because the defaulting UASL can easily price its product in the international market at a lower rate and in that sense loss is caused to BSNL. Similarly, as stated above, masking takes place as international CLI can easily be identified even when an international call lands on the local POI of the UASL, hence, the defaulting UASL resorts to masking. Hence, an international call coming from the masked number alone cannot be taken into account. Thus, in our view, clauses 6.4.6(a) and 6.4.6(b) provide for pre-estimate of damag .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates