Karnataka High Court
M/S Micronova Network Solutions ... vs Union Of India on 18 July, 2024
Author: Hemant Chandangoudar
Bench: Hemant Chandangoudar
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NC: 2024:KHC:27926
WP No. 32595 of 2015
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 18TH DAY OF JULY, 2024
BEFORE
THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
WRIT PETITION NO. 32595 OF 2015 (GM-RES)
BETWEEN:
M/S MICRONOVA NETWORK SOLUTIONS PRIVATE
LIMITED, NO.17, BULL TEMPLE ROAD
BASAVANAGUDI, BANGALORE 560 004
REPRESENTED BY ITS DIRECTOR
AND AUTHORISED SIGNATORY
SRI. RAGHANNA GURUPRASAD
AGED ABOUT 64 YEARS
S/O LATE GUBBI RAGHANNA GURUPRASAD
RESIDING AT NO.1, FIRST CROSS
KEMPE GOWDA NAGAR, BANGALORE 560 019.
...PETITIONER
(BY SMT. B RAJASHREE, ADVOCATE)
AND:
1. UNION OF INDIA
REPRESENTED BY ITS SECRETARY
Digitally signed by B
MINISTRY OF COMMUNICATIONS &
K
MAHENDRAKUMAR
IT DEPARTMENT OF TELECOMMUNICATIONS
Location: HIGH SANCHAR BHAVAN,NO.20, ASHOKA ROAD,
COURT OF
KARNATAKA NEW DELHI 110 001.
2. THE DEPARTMENT OF TELE COMMUNICATIONS
REPRESENTED BY
THE ASSISTANT DIRECTOR GENERAL (LR-1)
ROOM NO.1021, SANCHAR BHAVAN
20,ASHOKA ROAD, NEW DELHI 110 001.
3. THE CONTROLLER OF COMMUNICATION
ACCOUNTS DEPARTMENT OF TELECOMMUNICATIONS
OFFICE OF THE CONTROLLER OF COMMUNICATION
ACCOUNTS, III FLOOR, AMENITY BLOCK PALACE ROAD,
BANGALORE 560 001.
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WP No. 32595 of 2015
4. THE DEPUTY CONTROLLER OF COMMUNICATION
ACCOUNTS, DEPARTMENT OF TELECOMMUNICATIONS
OFFICE OF THE CONTROLLER OF COMMUNICATION
ACCOUNTS, III FLOOR, AMENITY BLOCK PALACE ROAD,
BANGALORE 560 001.
...RESPONDENTS
(BY SRI. MADANAN PILLAI R, ADVOCATE FOR R1 TO R4)
THIS WP IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO QUASH ANNEX-B5
DTD. 29.8.2015 CORRIGENDUM TO THE LICENSE DTD.27.2.2014
ISSUED BY THE DEPARTMENT OF TELECOMMUNICATIONS,
MINISTRY OF COMMUNICATIONS & IT, GOVERNMENT OF INDIA,
NEW DELHI, AS ILLEGAL AND CONSTITUTIONALLY INVALID AND
ETC.
THIS PETITION, COMING ON FOR FURTHER DICTATION,
THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
The petitioner has challenged the corrigendum to the license dated 27.02.2014, issued by Respondent No. 2, which amended the unified license agreement for the provision of internet services by deleting the clause 'revenue from pure internet service.' The petitioner has also challenged the notice dated 23.02.2015, attached as Annexure-A1, which called upon the petitioner to pay the license fees for the financial years 2013-14 and 2014-15.
2. The petitioner, a private limited company incorporated under the Companies Act, 1956, is an Internet Service Provider (ISP). The Union of India is arrayed as Respondent No. 1; the Department of Telecommunications as Respondent No. 2; the Controller of Communication Accounts as Respondent No. 3; and -3- NC: 2024:KHC:27926 WP No. 32595 of 2015 the Deputy Controller of Communication Accounts as Respondent No. 4.
3. The petitioner entered into a Unified License Agreement on 27.02.2014 to provide internet services. Under the agreement, the license fee payable is contractually determined as a percentage of the licensee ISP's Adjusted Gross Revenue (AGR), in accordance with the provisions outlined in Chapter III - Financial Conditions of the Unified License Agreement, as notified by Respondent No. 2 on 02.08.2013.
Submissions
4. The learned counsel for the Petitioner argues that the new licensing scheme unfairly increases fees compared to the previous ISP licenses, where a flat rate of INR 10,000 per annum applied. The Petitioner paid the first quarter's fees under protest after being threatened with the invocation of a bank guarantee and now seeks to quash the corrigendum and related demand notices for the financial years 2013-14 and 2014-15. The Petitioner contends that these demands are arbitrary, ignore TRAI recommendations, and create an uneven playing field between ISP and Unified License holders, violating Articles 14 and 19(1)(g) of the Constitution.
5. On the contrary, the Counsel for the Respondents argues that the writ petition is not maintainable due to the availability of an alternative remedy before the Telecom Disputes Settlement Appellate Tribunal (TDSAT) under the TRAI Act, 1997. The Counsel contends that Articles 14 and 19(1)(g) of the Constitution do not grant a fundamental right to trade in areas involving the exclusive privilege of the government.
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6. Furthermore, the issue of Gross Revenue/Adjusted Gross Revenue (AGR) is already pending before the Supreme Court in multiple civil appeals, and thus, this High Court should not entertain the matter under Article 226. The Petitioner had applied for the ISP license under the Unified License Agreement (ULA) after the notification of the corrigendum on 29.08.2013 and is therefore contractually bound by its terms, including the jurisdiction of TDSAT and the licensor's right to modify the agreement and encash bank guarantees. The Counsel asserts that the petitioner's claim for further deductions is baseless, as the ULA and its corrigendum clearly define the deductibles, and the petitioner's reliance on 'pure internet services' as a deductible is unjustified.
7. The learned Counsel for the Respondents places reliance on the following:
1. Union of India v. Association of Unified Telecom Service Providers of India and Ors. (2011) 10 SCC 543.
[[[[
2. M/s. Infinium (India) Ltd. v. Department of Telecommunication, Government of India (Special Civil Application No. 9835 of 2016) - High Court of Gujarat.
8. The submissions of the learned counsels are duly considered.
Issues
9. The issues that arise for consideration are as follows:
1. Whether the instant writ petition is maintainable?
2. Whether the impugned Corrigendum dated 29.08.2013 varyingly computing the Adjusted Gross Revenue of the Petitioner licensee under the Unified License Agreement for Provision for Internet Services or the ULA Scheme, resulting in a levy of a higher license fee, as opposed to the levy on the subsisting licensees under the earlier ISP Scheme, is violative of Article 14?-5-
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3. Whether the imposition of higher license fee vide the impugned Corrigendum impedes in the right to trade and business under Article 19(1)(g) of the Constitution of India?
Discussion
10. All issues are covered in the following single discussion for want of convenience.
11. The petitioner, a company based in Bangalore, is an Internet Service Provider (ISP) licensed under the Unified License Agreement (ULA) dated 27.02.2014, to provide Category-B Internet Services in Tamil Nadu, including Chennai. The license, valid for 20 years, is governed by several Indian laws including the Indian Telegraph Act, 1885, and the Telecom Regulatory Authority of India Act, 1997.
12. Historically, the Indian government moved from charging steep upfront fees for telecommunication licenses to a revenue-sharing model in 1998. Under the older ISP licensing scheme, revenues from pure internet services were excluded from the calculation of Adjusted Gross Revenue (AGR). However, under the ULA, which came into effect on 02.08.2013, this exclusion was removed by a corrigendum dated 29.08.2013.
13. The petitioner claims a deduction for revenue from pure internet services in its AGR calculation, arguing that it is being unfairly treated compared to licensees under the older scheme who continue to enjoy the deduction. The Respondents, however, maintain that the Petitioner is bound by the terms of the ULA and the corrigendum, which do not allow such deductions.
14. This issue of differential treatment between ISPs under the old and new licensing regimes has been previously addressed by -6- NC: 2024:KHC:27926 WP No. 32595 of 2015 the Telecom Disputes Settlement Appellate Tribunal (TDSAT) in the case of Internet Service Providers Association of India & Ors v. Union of India (TP. No. 169/2014 and connected matters : D.D. 18.10.2019). The TDSAT had held that the differential treatment violates Article 14 of the Constitution, as there was no rational basis for exempting one class of ISPs from license fees while imposing it on another. The Tribunal found the classification arbitrary and unreasonable, concluding that even the government had inconsistently applied its own policies, as evidenced by the continued issuance of licenses under the old scheme until June 2013.
15. The TDSAT also rejected the argument that the government's exclusive privilege under the Telegraph Act justified such classification, emphasizing that there must be a rational relation to the object of any classification. The Tribunal ultimately ruled that the creation of two classes of ISPs without intelligible differentia was arbitrary and unreasonable.
16. The TDSAT observed that under Section 11 of the TRAI Act, 1997, the Government is mandated to seek TRAI's recommendations when granting new licenses, ensuring expert consultation. In this case, the Government issued Unified License Agreement (ULA) guidelines on 19.08.2013 before receiving TRAI's recommendations on 01.05.2014, violating this obligation. The TDSAT, relying on Supreme Court rulings, held that the Government must act with fairness and transparency under TRAI Act and Articles 14, 19(1)(g), and 21 of the Constitution. It also noted that ISPs, regardless of migrating to the ULA Scheme, retain rights under Articles 14 and 19(1)(g), and any contract violating equality principles is void under Section 23 of the Indian Contract Act.
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17. The petitioner's grievance is that older ISP licensees can deduct pure internet service revenue from AGR, creating an unfair advantage, while the Petitioner cannot under the ULA Scheme. The Respondents' argument against the petition, citing pending Civil Appeals in the Supreme Court, lacks merit since the TDSAT order has not been stayed, and the Petitioner was not a party to those appeals.
18. The Supreme Court has clarified that writ petitions under Article 226 can be entertained despite alternative remedies, especially where there is a violation of natural justice or lack of jurisdiction. In this case, the Petitioner alleges a violation of natural justice and procedural impropriety, arguing that the Government failed to follow the proper process under the TRAI Act, rendering the impugned notices unlawful.
19. The TRAI forwarded its recommendations on ISP License Agreements under the ULA Scheme on 01.05.2014, advocating for the inclusion of internet service revenues in AGR and a uniform license fee of 8% for all ISPs, citing technological advancements that blur service distinctions. Despite past recommendations in 2007 to include internet revenues in AGR, the Government had consistently excluded them until the ULA Scheme's implementation. The delay in defining AGR hindered ISP migration to the ULA Scheme.
20. The petitioner argues that the lack of a level playing field between ULA licensees and earlier ISP licensees justifies court intervention under Article 226 to address this legal issue. The Supreme Court's principles on reasonable classification require a clear, rational distinction that aligns with the policy's objectives. The petitioner's case challenges the absence of such rationality, citing precedents where the Court has struck down discriminatory laws that lack a reasonable basis or result in arbitrary inequalities.
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21. In John Vallamatton v. Union of India (2003) 6 SCC 611, the Supreme Court held that Article 14 guarantees equality across all state actions, prohibiting arbitrary classification in legislation. It emphasized that similar individuals must be treated alike in privileges and liabilities, with classifications based on reasonable qualities relevant to the legislation's objectives.
22. In Leelabai Gajanan Pansare v. Oriental Insurance Co. Ltd (2008) 9 SCC 720 and Supriyo v. Union of India 2023 SCC OnLine SC 1348, the Court reiterated that classifications must have a rational nexus to the legislative purpose. If not, such classifications or executive actions are subject to judicial scrutiny and can be struck down.
23. In the present case, where the petitioner operates under Section 4 of the Telegraph Act, 1887, similar to competing ISPs under an older revenue-sharing scheme, the Petitioner argues for equal treatment under the same conditions as those ISPs. The Supreme Court in Union of India v. AUSPI (2011) 10 SCC 543 clarified that telecom licenses do not alter the government's exclusive privilege under the Telegraph Act and do not extend Article 19(1)(g) rights beyond the license agreement's terms.
24. In AUSPI (2011), the Supreme Court ruled that telecom licensees could not challenge the terms of their Adjusted Gross Revenue (AGR) calculations before the TDSAT if those terms were specified in their license agreements. However, this ruling does not apply to the current case, where the petitioner is challenging the fairness of the new ULA Scheme's license fee compared to earlier schemes.
25. The cumulative effect of the above judgments, therefore, is that it is incumbent upon the licensor government to treat the similarly situated contractual ISP licensees equally, and to not charge higher -9- NC: 2024:KHC:27926 WP No. 32595 of 2015 license fees arbitrarily. State action demands fairness and equality of treatment and the principle of reasonableness inheres in itself the principles of equality and non-arbitrariness.
26. The impugned Corrigendum and demands clearly violate the Constitutional guarantees provided under Articles 14 and 19(1)(g). These Articles ensure that all individuals and entities are treated equally and have the right to engage in trade or business without unjust discrimination. The law does not support granting unfair advantages to certain service providers in a market that should be governed by principles of equal opportunity and fair treatment. In a liberalized economy, it is crucial that all service providers are given equal access and protection under the law. Courts must be cautious and deliberate in their decisions, especially when addressing policies that might lead to unintended and detrimental effects. This is particularly important when such policies appear to contradict the legislative intent of promoting fairness and equality.
27. Accordingly, I order the following :
ORDER
i) The petition is allowed.
ii) The impugned corrigendum dated 29.8.2013 to license dated 27.2.2014 vide Annexure-B5, the notice dated 23.2.2015 vide Annexure-A1, and the notice dated 22.7.2015 vide Annexure-A all issued by the Department of Telecommunications, Ministry of Communications & IT, Government of India, New Delhi are hereby quashed.
Sd/-
JUDGE BKM