Here's Sibal's justification for over-ruling his babus

When the show cause notice issued to Reliance Communications by the Administrator of the Universal Service Obligation Fund (USOF) failed to elicit the required response from the company, USOF officials decided to move a note seeking action against Reliance for switching off several base stations in rural areas unilaterally ( Read full story published in Firstpost).

Telecom officials proposed a fine of Rs 50 crore, which could have gone upto Rs 650 crore if it was imposed in each of the 13 circles where Reliance Communications and Reliance Telecom were operating under USOF agreements. Five officials signed the note, including the Secretary in the Department of Communications, the highest bureaucrat in the ministry.

The only signature required was that of the minister, Kapil Sibal.

Sibal, after reading through all the files, prepared a pre-page note summarising the case as he saw it and giving a justification for reducing the fine from Rs 50 crore to something that was charged on the basis of Rs 500 a day for services disruption.

The key legal point is whether RCom’s decision to switch-off without permission was just a disruption or interruption, or a unilateral decision to terminate services completely. Sibal decided it was the former.

Given below is the note ( see PDF ) signed by five telecom officials for action, and Sibal’s pre-page notes on why they are wrong ( see PDF ).

NOTES PRE-PAGE

File has been submitted by Department for action against M/s Reliance Communications Limited (M/s RCL) for violation of terms and conditions of USOF Agreement and UASL Agreement by voluntary, unilateral and unauthorized switching off/closure of services to subscribers from USOF sites, without any notice.

Firstpost note: USOF is the Universal Service Obligation Fund used to subsidise rural telephony in remote and inaccessible areas. UASL is the primary Unified Access Service Licence, which allows telephone companies to offer either fixed-line, wireless or mobile telephony to users.

Department seems to have proposed imposition of financial penalty on M/s RCL invoking clause 10.2 (ii) of UASL Agreement originally made between licensor DoT and M/s RCL for purpose of grant of licence, by linking it through para 10.1, Section V, as well as para 1.1, Section VI of USOF Agreement dated May 16th 2007 between USOF to RCL which was contractual agreement for limited purpose of USOF mobile towers.

Firstpost note: Here Sibal is trying to lay the ground for differentiating between the contractual agreements signed by Reliance for its original telephony licence-where the penal clauses are stiffer-and the agreement signed for the limited purpose of launching services in remote areas identified by the USOF, where the penal clauses are easier.

So far as objectionable act of voluntary, unilateral and unauthorized switching off/closure of services to subscribers from USOF sites is concerned, legally speaking, invocation of Clause 10.2 (ii) of original UASL Agreement (for 20 years) actually made between licensor DoT and M/s RCL (is) for broader purpose of licensing; for present limited purpose of violation of certain USOF contract (for five years) (it) doesn’t seem to be commensurate with act of M/s RCL. This is important especially when clearly in-built penal provisions exist in RCL-USOF Agreement, as para 2.3/Para2.4 of Section VII, which provide for deduction in subsidy on pro rata basis as well as @500/day respectively in case of prolonged interruption.

Firstpost note: While the UASL clauses allow for penalties of upto Rs 50 crore, the USOF penal provisions allow lower fines of Rs 500 a day for temporary interruptions of service. The key question is: was Reliance’s unilateral decision to switch off its base tower stations merely a “prolonged interruption of services” or a deliberate decision to opt out without permission from unviable activities? Is an operator’s decision to terminate a service covered under USOF (which has no exit clause) or UASL?

It has now been submitted by RCL vide its letter dated Feb 16th 2011 that they have already switched on the sites in the earliest possible time frame after mobilising their resources. They have further submitted that even though there was substantial delay of upto 2 years in commissioning by IPs, they had installed the BTSs on the USOF sites in good faith and incurred heavy losses towards maintenance of unviable sites.

Firstpost note: IP is infrastructure provider, Bharat Sanchar Nigam Ltd. The delays of BSNL in providing infrastructure support are not really material to the argument, since Reliance did not have to start services where the infrastructure was not ready. When it claims it is losing money, these delays could only have helped it save money. These issues have already been addressed by the USOF’s show cause notice, so it is not clear why the IPs’ delays/failures should affect RCom’s decision to switch off the sites it is operating.

Thus, in case of existence of specific inbuilt penal clause in RCL-USOF Agreement, calculation of penalty as per para 2.3/para 2.4 of Section VII of RCL-USOF Agreement seems appropriate.

Kapil Sibal

MOC&IT

Feb 18th 2011

Firstpost note: Having differentiated between the UASL and USOF penalty clauses, and having decided that Reliance’s transgression was about “prolonged interruption” rather than a wilful decision to withdraw services, Sibal proceeds to lower the penalties.