S Murlidharan

AGR dues: Supreme Court should have provided relief to telcos

S Murlidharan | Updated on February 26, 2020

The telcos have been ordered to pay up a staggering ₹1.47 lakh crore in dues   -  REUTERS

The DoT’s bid to collect their share of ‘gross’ revenues from telecom and other companies is absurd. The Supreme Court should have reined in the DoT’s amibitions sooner

The Supreme Court, in an order dated October 24, 2019, directed telecom companies — 15 entities, to be precise — to cough up staggering dues of ₹1.47 lakh crore to the government within three months. This included ₹92,642 crore of unpaid license fee and another ₹55,054 crore of outstanding spectrum usage charges, penalty and interest.

However, on January 23, the Department of Telecommunications (DoT) asked its officers not to take any coercive action against the defaulting telcos. This evoked the displeasure of the apex court, which came down on both the DoT and the telcos who failed to pay the dues by January 23 as per its order. . Chastened, the DoT asked the defaulting telcos to pay up by 11.59 pm on February 14.

Vodafone Idea, which by far owes the largest amount of ₹53,000 crore in dues, has stated that it cannot afford to pay up and would cease to be a going concern should it be asked to do so. Vodafone UK, which owns 45.39 per cent equity stake in its Indian arm, is in no mood to make fresh equity or other cash infusions. Airtel, flush with its first equity infusion, says it would remain a going concern despite the heavy payout to the government. However, it is imperative to go to the roots of this festering problem.

AGR definition

By asking the telcos to pay up because that is what they had committed themselves to in 1999, when they got telecom licenses under the New Telecom Policy, the Supreme Court has condemned them to stewing in their own juices.

Indeed, the word ‘gross’ in adjusted gross revenues (AGR) has been mischievous in hindsight and proved to be the undoing of the Telcos. Their contention is that AGR must be interpreted contextually to mean and target only the telecom revenues, especially given the fact that AGR formed the basis of revenue-share model.

But successive governments have violently demurred and asserted that ‘gross’ means all revenues, including other income like interest, dividend, capital gains and rent. This is absurd. An analogy is in order.

Let us say a royalty of 8 per cent is payable by an Indian drug manufacturer under license from its US patent-holder. The Indian drug manufacturer would pay only 8 per cent of the sales from this particular drug. It would be unreasonable and unsustainable if the US patent-holder were to ask it to pay 8 per cent of its total sales — including those not under this licensing agreement — as well as of its dividend, rent, etc.

Dangerous precedent

The Supreme Court ought to have stopped the DoT in its tracks and reined in its vaulting ambitions by invoking Article 142 of the Constitution to ensure complete justice based on the facts and circumstances of the matter. Insisting and swearing almost petulantly by the word ‘gross’ even while conveniently ignoring the word ‘adjusted’ is an act of greed displayed by the DoT. The term ‘adjusted’ indeed was meant to remove extraneous, ie non-telecom, revenue from the pie meant to be shared with the government.

If form is allowed to prevail over substance, companies like GAIL, PowerGrid, OIL etc which too hold telecom licenses without having rolled out any telecom operations, will suffer. It is reported that they have been asked to fork out a staggering ₹2,63,000 crore by way of revenue share . That the share of telecom revenue could degenerate into a freewheeling share of gas, power and oil revenue would be the height of absurdity and a source of great worry for these public sector giants.

It’s time the Supreme Court invokes Article 142 to rein in the DoT. Investments into the telecom sector, both Indian and FDI, would be hit if the DoT’s myopic approach is given a leg up.

The writer is a Chennai-based chartered accountant

Published on February 26, 2020

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