NAME– vishwas sharma

ENROLLMENT ID- L23BALU0132

Loop Telecom and Trade Limited v. Union of India & Anr.,

Civil Appeal No. 1447 – 1467 of 2016

Introduction:
In this decision, the Hon’ble Supreme Court of India has held a telecom service
provider, whose telecommunication licenses had been quashed / cancelled by an
earlier decision, could not seek refund of the entry fee paid by it to the Department of
Telecommunications for acquisition of such licenses. The Hon’ble Supreme Court of
India invoked the principle of in pari delicto potio rest condition defendantis, to hold
that the acquisition of the license was pursuant to an illegal policy would result in the
party obtaining such licenses being prohibited from seeking the refund of the entry
fee paid by it for the same.

Question of law before Hon’ble Supreme Court of India:

Whether an erstwhile telecom service provider (TSP), is entitled to the refund of the
entry fee paid by it to the Department of Telecommunications (DoT), towards
obtaining 2G Unified Access Service Licenses in 21 license service areas (UAS
Licenses). These licenses were quashed pursuant to the decision of the Hon’ble
Supreme Court of India in Centre for Public Interest Litigation vs. Union of India(CPIL
Judgment).

Summary:
The Hon’ble Supreme Court of India has held that Loop Telecom and Trading Limited
(Appellant) was the beneficiary of the DoT’s “First Come First Serve” policy (FCFS
Policy). The CPIL Judgment had categorically found the FCFS Policy to be arbitrary,
illegal and which intended to unduly benefit a particular group of private bidding
entities (which included the Appellant), at the cost of the public exchequer. As such,
the Hon’ble Supreme Court of India held that the principle of in pari delicto potio rest
condition defendantis (in equal fault, better is the condition of the possessor)
[principle of in pari delicto], would be applicable and the Appellant could not claim a
refund of the entry fee paid by it to the DoT.

Background Facts:
a. In September 2007, the Appellant had applied to the DoT for grant of UAS Licenses
in 21 license service areas (LSA), received a letter of intent in respect thereof, and
proceeded to make payment of 1.1 crore per LSA towards entry fee (which was
subsequently revised upwards to 1454.95 crore for all 21 LSAs).

b. Thereafter, in March 2008, the Appellant entered into the UAS Licenses with the
DoT, which were valid for a period of 20 years.

c. In February 2012, vide the CPIL Judgment, the Hon’ble Supreme Court of India
declared that the FCFS Policy of the DoT for allocation of spectrum was illegal and
proceeded to quash the UAS Licenses granted by the DoT thereunder, including those
of the Appellant. On 01.06.2012, the Appellant ceased with the provision of
telecommunication services after porting out all of its subscribers.

d. The Appellant instituted a petition before the Hon’ble Telecom Disputes and
Settlement Appellant Tribunal (First Telecom Petition and Hon’ble TDSAT,
respectively), seeking refund of the entry fee of 1454.94 crore paid to the DoT prior to
the award of the UAS Licenses (Entry Fee). At this time, the Appellant was the subject
of a criminal trial pertaining to charges under Section 120 – B and 420 of the Indian
Penal Code, 1860 in a case relating to the grant of UAS Licenses.

e. The Hon’ble TDSAT, vide judgment dated 16.09.2015 (2015 Judgment), dismissed
the First Telecom Petition and held that the quashing of the Appellant’s UAS Licenses
by the Hon’ble Supreme Court of India by the CPIL Judgment could not be equated to
the same being void in terms of Sections 23 or 56 of the Indian Contract Act, 1872
(Contract Act). The Hon’ble TDSAT premised these findings on the fact that as the
UAS Licenses had been quashed on account of the FCFS Policy being found to be
arbitrary and illegal by the Hon’ble Supreme Court of India, there was no basis for the
Appellant to seek restitution of the Entry Fee under Section 65 of the Contract Act.
Further, the Hon’ble TDSAT held that even otherwise, assuming that the UAS Licenses
were void under the Contract Act, the Appellant’s claim for restitution would be
governed by the principle of in pari delicto, and considering the Appellant’s
culpability due to knowingly obtaining the UAS Licenses in terms of the FCFS Policy,
there was no basis for the refund of the Entry Fee.

f. The Appellant challenged the 2015 Judgment before the Hon’ble Supreme Court of
India but withdrew its appeal with liberty to approach the Hon’ble Supreme Court of
India if the need so arose.

g. As aforesaid, the 2015 Judgment was rendered by the Hon’ble TDSAT when the
Appellant was the subject of criminal proceedings, but thereafter, was acquitted of
these criminal charges by the Special Judge, CBI (Special Judge) in 2017. As on date,
the appeal against such acquittal is pending before the Hon’ble High Court of Delhi.
h. After the Appellant’s acquittal by the Special Judge, it once again approached the
Hon’ble TDSAT seeking refund of the Entry Fee (Second Telecom Petition). The
Appellant premised its argument before the Hon’ble TDSAT on the fact that the
acquittal by the Special Judge had established that it had no role to play in the
allocation of UAS Licenses under the FCFS Policy, and ergo, there was no basis for
the in pari delicto principle to apply.

i. However, vide judgment dated 11.12.2018 (2018 Judgment), the Hon’ble TDSAT
dismissed the Second Telecom Petition on the ground that the issues determined vide
the 2015 Judgment were being sought to be reagitated by the Appellant, and that at
the time of withdrawing its appeal against the 2015 Judgment (Appellant’s Appeal),
the Appellant had been granted leave to approach the Hon’ble Supreme Court of India
and not the Hon’ble TDSAT.

j. The Appellant was permitted to revive its Appeal against the 2015 Judgment along
with challenging the 2018 Judgment.

Summary of Appellant’s Arguments:

a. As the UAS Licenses were quashed pursuant to the CPIL Judgment, the Entry Fee
ought to be refunded on civil, constitutional, and contractual principles.

b. The Appellant was prevented from providing telecommunication services on

account of the UAS Licenses being quashed.

c. Such quashing amounted to frustration of each License in terms of Section 56 of

the Contract Act, and ergo, the Appellant was entitled to a refund of the Entry Fee
under Section 65 of the Contract Act, as the CPIL Judgment was premised on the
illegalities committed by the DoT in propagating the FCFS Policy and not on account
of the actions / fault of the Appellant.

d. The Appellant’s acquittal by the Special Judge reaffirmed that it was not culpable
and as such, the rationale underpinning the 2015 Judgment had been vitiated.

e. The DoT had permitted TSPs whose licenses were cancelled pursuant to the CPIL
Judgment to participate in spectrum auctions held thereafter, wherein, the entry fee
payable by such TSPs was set off towards the fee payable for the allotment of such
auctioned spectrum.

Rationale employed by the Hon’ble Supreme Court of India:

a.The Hon’ble Supreme Court of India held that the CPIL Judgment clearly held that
the entire process of issuing UAS Licenses under the FCFS Policy was stage
managed in favour of certain entities such as the Appellant, and the Appellant was the
beneficiary of the patently unconstitutional mechanism deployed for the allocation of
spectrum thereunder. As such, the Hon’ble Supreme Court of India opined that
although the DoT was responsible for the FCFS Policy, TSPs such as the Appellant
that had benefitted thereunder could not be absolved of their responsibility in the
perpetuation of such illegalities.

b. Further, the Hon’ble Supreme Court of India observed that during the proceedings
that culminated in the CPIL Judgment, the Appellant had defended the FCFS Policy
and the UAS Licenses / spectrum granted pursuant thereto and was entirely aware
that the prayer in said proceedings was the setting aside of such UAS Licenses. The
Hon’ble Supreme Court of India held that the Appellant also did not reserve its rights
in this respect so as to allow it to agitate its claim for such refund in separate
proceedings. As the Appellant had not done so, it was precluded from attempting to
claim refund of the Entry Fee subsequently.

c.The Hon’ble Supreme Court of India also deprecated the approach of the Appellant
in withdrawing its Appeal against the 2015 Judgment and thereafter, reviving the
same along with the challenge to the 2018 Judgment, as constituting a grave abuse
since it exposes the Appellant’s intention to engage in forum – shopping and
selectively determining the forum before which it would seek its remedies.

d. It is pertinent to mention that the Hon’ble Supreme Court of India also conducted
an in – depth examination of whether the Appellant could claim refund of the Entry
Fee on the doctrine of frustration and principle of restitution. The Hon’ble Supreme
Court of India, after analysing the applicable case law, concluded that when
adjudicating a claim for restitution under Section 65 of the Contract Act, the court
must determine the illegality which caused the agreement to become void and the role
the party claiming restitution played in respect thereof. In the event that the court
determines that such party was equally or more responsible for the illegality, vis-à-vis
the party from whom such restitution is claimed, there shall be no cause for
restitution.

e. The Hon’ble Supreme Court of India categorically held that vide the CPIL Judgment,
the Appellant had been held to be in Pari delicto, as it was amongst the group of TSPs
that were found to be complicit in obtaining benefits under the FCFS Policy at the
cost of the public exchequer. As such, the Appellant was equally responsible for the
illegality perpetuated under the FCFS Policy and could not be entitled to seek a refund
of the Entry Fee.
f. The Appellant was held to have been patently wrong qua its contention that it had
been exculpated from any wrongdoing vide Special Judge’s acquittal as the same was
predicated on an entirely different premise that was unrelated to the validity of the
FCFS Policy and the Appellant’s role in propagating the illegality arising therefrom,
i.e., being a beneficiary and confederate of fraud.

ELP View:
The Hon’ble Supreme Court of India’s decision in Loop Telecom has provided an
interesting context and elaboration of the interplay between the doctrine of frustration
and principle of restitution, especially in cases involving the claiming party’s liability
in the commission of fault or an illegal action.

An examination of this decision makes it clear that the application of Section 65 of the
Contract Act has to be limited to those cases where the party claiming restitution was
not in violation of the principle of in Pari delicto.

Further, it appears that all claims for restitution are subject to the defence of illegality,
the genesis of which is in the maxim – ex turpi causa non oritur actio (no action can
arise from a bad cause). No court will assist those who aim to perpetuate illegality. In
determining a claim of restitution, the claiming party’s legal footing in relation to the
illegal act (and incomparison to the opposite party), must be understood. Unless the
party claiming restitution participated in the illegal act involuntarily or the rule of law
offers them protection against the opposing party, the claiming party would be held to
be in pari delicto and therefore, their claim for restitution will fail. Needless to say, the
determination of the claiming party’s culpability will have to be made on a case-by-
case basis.

Finally, although this issue does not form the edifice of Loop Telecom decision, the
judgment also examines the jurisdiction of the Hon’ble TDSAT to entertain the issue
of refund of the Entry Fee. This exercise was necessitated on account of the Hon’ble
TDSAT holding that since the Appellant’s challenge was focused on the arbitrary and
malafide actions embodied in the FCFS Policy, the quashing of the UAS Licenses was
a necessary consequence of the grant of such Licenses being vitiated. The Hon’ble
TDSAT found that the prayer seeking refund of the Entry Fee was outside the purview
of the Contract Act and was necessitated on account of the exercise of constitutional
powers by the Hon’ble Supreme Court of India, and ergo, it was outside the scope of
the Hon’ble TDSAT’s jurisdiction to direct such refund. The Appellant contended this
approach of the Hon’ble TDSAT impinges on the wide import of its jurisdiction and
exclude certain disputes falling within the ambit of public law. The Hon’ble Supreme
Court of India disagreed with this interpretation of the Hon’ble TDSAT’s findings and
held that since the policy on the allocation of spectrum and the UAS Licenses were
quashed on the ground of malafide and arbitrariness in respect of the FCFS Policy,
the subsequent inquiry into the viability of the refund of the Entry Fee, would have to
be agitated not before the Hon’ble TDSAT, but rather the Hon’ble Supreme Court of
India.