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Tata Teleservices (Maharashtra) Ltd Vs. Union of India - Court Judgment

LegalCrystal Citation
CourtTelecom Disputes Settlement and Appellate Tribunal TDSAT
Decided On
Case NumberPetition No.12 of 2002
Judge
AppellantTata Teleservices (Maharashtra) Ltd
RespondentUnion of India
Advocates:For the Petitioner: Mr. Harish N. Salve, Sr. Advocate, Mr. C.S. Vaidyanathan, Sr. Advocate Mr. Ramji Srinivasan, Sr. Advocate, Ms. Simran Brar, Mr. Manu Aggrawal, Mr. Sidharth Kochhar, Mr. Ashish Garg
Excerpt:
1. what would amount to a concluded contract in the facts and circumstances of the case is the principal question involved in this petition. background facts 2. the factual matrix involved herein although is not much in controversy, the issues involved herein give rise to some interesting questions of interpretation/application of various provisions of the indian contract act, 1872 (‘the act’), we may briefly notice the factual matrix involved in this matter. 3. the union of india in terms of the provisions of section 4 of the indian telegraph act, 1885 (the 1885 act) has the exclusive privilege for carrying on business in telecom. however, by reason of a telecom policy adopted in the year 1994, it was to issue licences to various private operators for such terms and on.....
Judgment:

1. What would amount to a concluded contract in the facts and circumstances of the case is the principal question involved in this petition.

BACKGROUND FACTS

2. The factual matrix involved herein although is not much in controversy, the issues involved herein give rise to some interesting questions of interpretation/application of various provisions of the Indian Contract Act, 1872 (‘The Act’), we may briefly notice the factual matrix involved in this matter.

3. The Union of India in terms of the provisions of Section 4 of the Indian Telegraph Act, 1885 (The 1885 Act) has the exclusive privilege for carrying on business in telecom. However, by reason of a telecom policy adopted in the year 1994, it was to issue licences to various private operators for such terms and on payment of such sum as it may deem fit and proper and as envisaged under the proviso to Section 4 of the Act.

4. Pursuant thereto and in furtherance thereof, tenders were invited on or about 16.01.1995 inter-alia in respect of basic telecom services in various telecom circles including Karnataka and Maharashtra.

5. By making such offers, the respondent adopted duopoly in stead and in place of monopoly, which it had been enjoying as a fixed service telecom service provider. By reason thereof, the operators were required to submit bids with maximum licence fees payable for a period of 15 years, wherefor a licence agreement was to be entered into. The petitioner’s predecessors in interest, Hughes Telecom (India) Ltd. (HIL) (formerly known as Hughes Ispat

Communication Ltd. - HICL) submitted its tender both in respect of Karnataka and Maharashtra circles.

6. The terms and conditions for the grant of licence are interalia contained in the tender documents. It provided for eligibility conditions, with which we are not concerned, as admittedly the said company fulfilled the eligibility criteria. It’s bid in respect of both the circles, being the highest, was accepted.

TENDER DOCUMENTS

7. We may notice some of the provisions of the tender documents. Clause 4 of the said documents, provided for qualification of tender in the following terms :-

“4. Prospective bidder, if so desires, may send any of their queries on the clauses of this tender in writing to Director (MMT), DoT, Sanchar Bhawan, 20, Ashoka Road, New Delhi -110001 so as

to reach latest by 13:00 hrs. of 15.02.1995. Consolidated replies to the relevant queries so received will be circulated to all the prospective bidders. These replies will form a part of the Tender Document.”

8. By reason of Clause 11, each bidder was to furnish bank guarantee valid for six months by way of ‘earnest money’ for each service year separately in a prescribed format. It provided that after issue of licence, the bank guarantee for the earnest money would be returned to the selected bidders.

9. There is no dispute that till 21.3.1999 the bank guarantees were kept alive. Clause 12 provides for the award of tender. We may notice the 2nd and 3rdparagraphs thereof:

“2. The maximum number of Service Areas, a successful bidder can be licensed for, is dependent upon the total networth of the bidder. A successful bidder can be awarded X, Y, Z numbers of category A, B and C areas respectively if the total networth calculated as per Clause 2.1 (iii) above equals or exceeds Rs.(300x+200y+50z) Crores.

3. After selection a Letter of Intent shall be released to the selected bidder and four weeks time shall be given for acceptance. Letter of Acceptance by the bidder must be submitted along with

performance bank guarantee as well as financial bank guarantee as specified in Clause 5.0 Section V and Clause 26, Section III of PART I respectively. No delay shall be permitted and in the event bidder’s acceptance along with bank guarantee is not received by stipulated date the next eligible bidder shall be considered.”

10. It is relevant to notice that under Clause 3.2 of the said tender documents, the licensees were required to pay the yearly licence fees in advance.

11. Section 3 of the said tender documents provided for the commercial conditions; Clauses 1.8 and 1.9, whereof read as under:-

“1.8 EFFECTIVE DATE: The date on which the licence agreement is signed.

1.9 VALDITY OF THE LICENCE: The period for which this licence is effective and operative.”

12. Clause 18 provided for the issue and extension of licence. Clause 18.2 reads as under:-

“18.2 For the first ten years after the grant of licence under this tender, there will be only one LICENSEE to provide the SERVICE in any Service area other than DoT/MTNL, provided that DoT is free to authorize any other designated Company or authority on its behalf in any Service Area on BOT, BLT or a similar arrangement, provided further that a Pilot project may be approved and licensed  for a limited period, by the TELECOM AUTHORITY for providing raw

technology or management techniques or both.”

13. By reason of Clause 26 of the said tender documents, performance bank guarantees were required to be furnished by the successful bidders during the period of licence by way of performance security.

14. Section 5 of the tender documents provided for the effective date as in Clause 1.8 of Section 3. Clause 3 provided for licence fees. We may notice Clause 3.2, which reads as under :-

“3.2 The LICENSEE shall pay the yearly licence fee in advance. To take into account the variable portion of the licence fee corresponding to component ‘A’ of Clause 3.1, the component ‘A’ of

licence fee payable in a year shall be 20% more than the amount due and paid in the previous year. For the first year the amount payable towards component ‘A’ of licence fee shall be Rs.2100. ‘D’ KD where ‘D’ is the committed number of DELs for the first year.”

15. The clarifications by way of replies to the queries received in terms of Clause 4 of Section 2(i) of the said tender documents were to form parts thereof.

16. We may notice Clause 12 of the said clarifications, which reads as under:-

“1. Will the selected bidders have the right to decline to accept the license under the terms specified by the Govt. if they have changed from the original tender without forfeiting the Earnest Money?

2. It would be appropriate if a draft licence copy with all terms and conditions are provided to the bidders at this stage or at least prior to the issue of LOI.

3. Offers for Pilot project are thrown open to third parties only on the refusal of the service provider of a given area.

4. What is the maximum limit of the number of Service Area for which any Company can be licenced?

5. How will the Service Area be determined in case the bidder company is eligible/successful in a number of Service Areas which is larger than the maximum limit that is fixed by the TELECOM

AUTHORITY?

6. If the networth requirement calculated by formula 300X+200Y+50Z is more than the total eligible networth of a successful bidder company, how will the Service areas be allotted?

7. BOT should not be allowed during the licence period as this tantamount to the introduction of new operators. Yes, if there is a substantial change.”

LETTER OF INTENT

17. A Letter of Intent was issued on or about 27.01.1997, the relevant portions whereof read as under :-

“The President of India is pleased to issue this Letter of Intent to you for award of Licence to provide telephone service on non-exclusive basis in the Karnataka Telecom Territorial Circle as mentioned in Annexure-1 on compliance, as per the details of Licence fee, payment schedules, Performance Bank Guarantee and Financial Bank Guarantee and other targeted schedules indicated in the said Annexure.

2. The award of licence shall be governed by the terms and conditions stipulated/contained in the tender documents read with clarifications and amendments/corrigenda issued for the above referred DOT tender enquiry. The detailed terms and conditions are as enumerated in the format of the Licence Agreement and the Interconnect Agreement to be signed and executed. Copy of each of the said agreements is enclosed herewith.”

18. Paragraph 4 of the said letter provided that if the letter of acceptance was not received by the stipulated date, the said LOI should be treated as withdrawn. Annexure 1 provided for the detailed service areas and the quantum of licence fees and admittedly the petitioner in the event of grant of

licence was to pay a sum of Rs.165.70 crores.

19. Special conditions for the said grant were also stated therein, some of which are as under:-

“E.2 Separate Licence Agreement and Interconnect Agreement shall be entered into for the said Service Area on a non-exclusive basis under the provisions of Section 4 of Indian Telegraph Act, 1885. E.6 This Licence shall be valid initially for a period of 15 years unless terminated as per the terms and conditions of Licence agreement and shall be extendable by another 10 years at one time. E.14 In case of over-due payments, interest shall be charged on the due amount at the prime lending rate specified by State Bank of India from time to time plus 5% per annum (compounded monthly) applicable with effect from the date on which the payment becomes due. E.16 The LICENSEE shall be required to keep the bid and Earnest Money Bid Guarantee valid till the submission of the said letter of acceptance along with other requisite documents as listed in para 3

of the main body of the Letter of Intent and acceptance of the same thereof by the LICENSOR.”

20. As noticed heretobefore, the bank guarantees; both Performance Guarantee as also the Financial Guarantee were to be furnished in the prescribed format.

CORRESPONDENCES

21. In relation to the said transaction, various correspondences passed between the parties hereto. HICL by letters dated 18.02.1997, 21.02.1997 and 24.02.1997 sought for certain clarifications but accepted the LOI inter-alia, stating :-

“In connection with the above referred LoI, we hereby reiterate our commitment to fulfill and implement without delay the terms of Tender, our bid and the LoI and execute the Licence Agreement and Interconnect Agreement. We, therefore, are pleased to hereby state that we accept the LoI. The conditions of the LoI, as stated therein, are satisfied as under:-

1. We have effectively demonstrated our willingness and ability to proceed with the implementation of the LoI and the project contemplated thereunder by establishing and extending from time to time the Bid Bond. We requested by letter dated February 18, 1997 and hereby reiterate such request for a reasonable extension of time for delivery of the performance and financial bank guarantee in accordance with the requirement of Section 3(i) and (ii) of the LoI.

2. In accordance with Section 3 (iii) and (iv) of the LoI, we hereby enclose the draft Business Plan and the draft Roll Out Plan, subject to further supplements and revisions as any further

details may require (e.g. details regarding village numbers that may need to be received from the Government of India).

3. The Industrial Policy, governing foreign investment requires prior approval of the Government of India in respect of the proposed participation in the Company. We have submitted the applications for foreign investment to the FIPB and are awaiting the final letters of approval in respect of the proposed foreign participation. Upon receipt each of the aforesaid approvals will be

promptly submitted as per Sections 3 (v) and (vi). Additionally, we are prepared to pay the License Fee and to execute the License and the Interconnect Agreement upon receipt of clarification of certain limited issues indicated to you previously in connection with the Maharashtra License in our letter of acceptance thereof dated October 18, 1996.”

22. Indisputably, a host of issues were raised by HICL by a letter dated 11.3.1997 in regard to the matters mentioned therein. By way of illustration, we may notice that one of the issues raised was grant of wireless frequency allocation and the structure issue stating:-

“In view of the foregoing, we require the approval and consent of DoT with respect to the formation of two majority-owned subsidiaries of HIL to hold the Maharashtra and Karnataka

Licenses, respectively.”

23. The respondent in terms of an internal correspondence i.e. Office Memorandum issued on or about 14.4.1997 alleged that the petitioner did not comply with the conditions laid down in the LoI in the following terms:-

 “As per the tender conditions the company was required to give acceptance of the said LoI within four weeks (i.e. by 24.2.97) alongwith the Performance Bank Guarantee of Rs.25 crores and

Financial Bank Guarantee of Rs.50 crores. The company has only given acceptance of the Letter of Intent vide their letter dated 24.2.97 but have not yet submitted vide their letter dated 24.2.97

the two Bank Guarantee and the Licence Fee for the first year and hence have not yet signed the Licence agreement.”

24. Another Office Memorandum was issued on 25.6.1997 stating that the bidder company had submitted the required Performance and Financial Bank Guarantees on 08.5.1997 but the licence fee for the first year had not been paid and that is the reason as to why the licence agreement had not been signed. On 29.8.1997, the respondent by a letter issued to HICL inter-alia intimated the concerns expressed by the LOI holding company including :-

“(vi) Fixation of Effective Date for licences of Basic Telephone Service.”

25. Such a decision was taken across the Board, stating:- “2.2 As regards the issue at (vi) above, the last date for signing of these agreements and for completing all associated formalities has

been fixed as 30th September, 1997. Accordingly, you may immediately intimate the date and time for signing of these agreement documents and complete the associated formalities including submission, if pending, of the following documents latest by 15.9.97:

a) Performance Bank Guarantee for requisite amount.

b) Financial Bank Guarantee for requisite amount.”

26. HICL, however, by its letter dated 24.9.1997 stated as under :-

“We are encouraged to note that the matter is being resolved and that in connection with the separation of the Karataka Circle into a separate entity, DOT has recommended that this be implemented by way of a Tripartite Agreement between the DOT, HIL and HICL. We

understand that the draft Tripartite Agreement to implement the issuance of the LOI/Licence for Karnataka to HICL, submitted by us is currently being reviewed by DOT. We await your comments to the draft Agreement and request resolution of this matter at the earliest.

We understand that the Government of India, Ministry of Communication, Department of Telecommunications is resolving the aforesaid and trust that the same will be resolved at the earliest.

However, as you are aware the bid bond for the Karnataka Circle expires on 30 September 1997 and in order that we may extend the bid bond by a further period we request that we be issued a letter for extension of the bid bond by a further 3 months.”

27. The petitioner/its predecessor inter-alia raised a contention that licences in respect of Maharashtra and Karnataka Circles be issued separately, and therefor two separate entities would be created. It is not in controversy that no formal permission in respect of creating a separate entity for Karnataka Circle came through. It is also not in dispute that whereas the petitioner signed an agreement in respect of Maharashtra circle, no such agreement was signed in respect of Karnataka circle. It is furthermore not in dispute that the petitioner sought for an extension of time, which was granted subject to payment of penal interest. The petitioner, in various letters, expressed its reservation with regard to levy of penal interest as also the effective date of licence being 30.9.2007 contending that in terms of tender documents, the obligations to pay licence

fee arose only upon execution of the licence and not prior thereto. By reason of a letter dated 31.10.1997, HICL inter-alia contended:-

“At the outset and based on reasons enumerated hereinbelow, we request you to (i) grant us an extension of 4 months from 30 November 1997 to 30 March 1998 to complete all formalities leading to signing of the Licence and Interconnect Agreements; (ii) establish the ‘Effective date’ to be the date of signing of the Licence agreement and not 30 September 1997; and (iii) not apply any interest charges on Licence fee payable”

“In the circumstances, we would request you to grant us the further extension of 4 months to complete all formalities leading to signing of the Licence and Interconnect Agreements. In addition we request you to not apply any interest charges on Licence fee payable since the effective date of the Licence will be upon signing and not 30 September 1997. We reiterate our commitment to implement this project and thank you for your kind consideration of our request.”

28. The respondent, however, by its letter dated 18.11.1997 reiterated that not only the effective date of licence i.e. 30.9.1997 shall remain unchanged, penal interest shall also be leviable. It was stated :-

“It may be noted that you are also required to extend the validity of the bid and the Earnest Money Bank Guarantees for the aforesaid Service area/Circle accordingly.”

29. Pursuant thereto, the bank guarantees were extended up to 21.3.1998 by the petitioner by its letter dated 30.11.1997. 30. The respondent by its letter dated 29.01.1998 reiterated its earlier stand stating :-

“In view of the above, the Effective Date of the said Licence shall remain unchanged i.e. 30th September, 1997. However, keeping in view your request, the last date for acceptance of first year’s Licence fee has been extended upto 31st January, 1998 i.e. for a further period of two months subject to payment of penal interest rate plus 5% per annum (compounded monthly) applicable with effect from the expiry of the stipulated Effective date i.e. 30.9.97 to the actual date

of payment i.e. on or before 31.1.98.”

31. Suffice it to say that on a large number of occasions, the parties hereto kept on repeating their own respective contentions.

 32. By reason of a letter dated 21.5.1991, the respondent inter-alia returned the bank guarantees furnished by the petitioner on the premise that the same were not in order. The petitioner extended the bank guarantees up to December, 1998 by a letter dated 05.10.1998. It, however, reiterated its stand and prayed for grant of further extension. Indisputably, the bank guarantee was further extended only up to 21.3.1999.

33. The respondent, in the meantime, adopted National Telecom Policy, 1999 some of the relevant provisions whereof are :-

“The FSP shall be granted separate licence, on a non-exclusive basis, for each service area of operation, Licences would be awarded for an initial period of twenty years which shall be

extended by additional periods of ten years thereafter. The FSPs shall be eligible to obtain licences for any number of service areas.

While market forces will ultimately determine the number of fixed service providers, during transition, number of entrants have to be carefully decided to eliminate non-serious players and allow new entrants to establish themselves. Therefore, the option of entry of multiple operators for a period of five years for the service areas where no licences have been issued is adopted. The number of players and their mode of selection will be recommended by TRAI in a time-bound manner.

The FSP licencees would be required to pay a onetime entry fee. All FSP licencees shall pay licence fee in the form of a revenue share. It is proposed that the appropriate level of entry fee and percentage of revenue share and basis for selection of new operators for different service areas of operation would be recommended by TRAI in a  bound manner, keeping in view the objectives of the New Telecom Policy.”

34. By a letter dated 10.8.1999, HCIL was asked to deposit a sum of Rs.50 crores as, in the meantime, (i) the Performance Bank Guarantees were returned; and (ii) Financial Bank Guarantees issued by IDBI Bank were not honored on the premise that no licence had been granted, stating :-

“5. You are also required to make payment of Rs.50 crores (Rs. Fifty Crores) in full on or before 16.08.99 being due from your company on account of your failure to sign Licence Agreement in

respect of Basic Service for Karnataka Circle, for which LOI dt. 27.1.97 was issued to you.”

35. The respondent invoked Clause 19 of the license agreement, in terms whereof it could claim set off for its claim for any amount payable by the company in respect of any other licence. It reads as under :-

CONDITION 19: SET OFF

“Any sum of money due and payable to the LICENSEE (including Earnest Money refunded to him) under this license may be appropriated by the Government or any other person or persons including contracting the Government of India and the same may be set off against any claim of the Government  or such other persons payment of a sum of money arising out of this license or under any other person or persons including TELECOM AUTHORITY contracting through Government of India.”

36. The petitioner deposited the said sum under protest and without prejudice to its rights and contentions. A demand letter was issued on 19.8.1999 wherein no reference was made to any dues in respect of Karnataka circle. By reason of a letter dated 08.11.1999, the petitioner disputed the

demand of Rs.50 crores raised by DOT in respect of Karnataka circle.

37. Some more letters were exchanged between the parties.

THE PROCEEDING

38. The petitioner filed the present petition on or about 26.4.2002 praying inter-alia for the following reliefs :-

“a) Declare that the action of the Respondent in raising any claim or recovering any amount in its Demand Letter dated 10.8.99 and subsequent Demands other than strictly in accordance with the Migration Package dated 22.7.99 relating to Maharashtra Service Area License is bad in law and deserves to be set aside;

c) Declare that the action of the Respondent in invoking the provisions of Set Off contained in Condition No.19, Schedule ‘B’, Part-II of License Agreement, vide their letter dated 3.11.1999 is impermissible and bad in law and deserves to be set aside;

c) Declare that pursuant to the Migration Package dated 22.7.1999, the claim, if any, of the Respondent of Rs.50 Crores for the Karnataka Circle stood withdrawn and the dispute in relation thereto stood fully and finally settled, upon the unconditional acceptance of the Migration Package by the Petitioner vide its letter dated 27.7.1999;

d) Declare that the Respondent was not entitled to recover any sum of Rs.50 Crores or any other sum for or in respect of the Karnataka Basic Circle from the Petitioner and any such demand or recovery of any such amount is bad in law and be set aside;

e) Direct the Respondent to refund an amount of Rs.50 Crores together with interest from the date of alleged set off/recovery till the date of refund of the same;

f) Award exemplary costs in favour of the Petitioner against the Respondents.”

39. The respondent only in its reply raised a contention that the petitioner was liable to pay licence fee for Karnataka Circle also together with interest from 30.9.1997.

40. By reason of a judgment and order dated 12.9.2003, this Tribunal while allowing the petition filed by the petitioner directed the respondent to refund the said amount of Rs.50 crores with interest at the rate of 17% per annum, opining inter alia that the counter claim of Union of India was not maintainable.

41. The respondent preferred an appeal thereagainst on or about 23.12.2003 before the Supreme Court of India and by a judgment and order dated 23.8.2007 (since reported in 2007 (7) SCC page 517, the same was allowed, opining :-

“26. In the light of our finding that the counterclaim was maintainable and it requires to be investigated, we think that the proper course is to set aside the finding rendered by TDSAT on the

plea of set-off raised by the appellant. This is in view of the fact that acceptance of the counterclaim or even a part thereof might throw open the question of legal or equitable set-off, to be considered in the light of the finding on the counterclaim. Therefore, we think this to be an appropriate case where we should reopen the whole matter without going into the merits of the contentions of parties on the plea of set-off raised by the appellant and leave the question to be

decided by TDSAT along with the counterclaim that has been made out specific and has not been put forward in a proper manner, we are satisfied that it would be appropriate to direct the appellant tomake a proper counterclaim before TDSAT within three months from

today. TDSAT thereafter will give the respondent an opportunity to

file its written statement to the counterclaim and then decide the

claim made by the respondent and the counterclaim afresh in

accordance with law.”

42. In view of the observations made by the Supreme Court of India, the

Union of India has filed its counter claim for a sum of Rs.2015 crores. A reply

thereto has been filed by the petitioner.

43. The Supreme Court furthermore condoned the delay in filing the counter

claim.

COUNTER-CLAIM (SET OFF)

44. The respondent in its counter claim inter alia contended that the petitioner having unconditionally accepted the terms and conditions of the migration package including Clause 2 of para 2 thereof, it must be held to have accepted its offer.

45. The said Clause 2 reads as under :-

“2. Migration to the NTP 99 on the conditions mentioned above will be permitted on the premise that the aforesaid conditions are accepted as a package in its entirety and simultaneously all legal proceedings in Courts, Tribunals, Authority or in Arbitration instituted by the licensee and Associations of Cellular and Basic Service Operators (COAI) and ABTO) against DoT or UOI shall be withdrawn. Further any dispute with regard to the license agreement for the period upto 31.7.1999 shall not be raised at any future date. The acceptance of this package will be deemed as a full and final settlement of all existing disputes whatsoever irrespective of whether they are

related with the present package or not.”

46. We have noticed heretobefore that the provision of ‘set off’ was invoked by the respondent on 10.8.1999. It, however, in its reply, inter-alia contended that the requisite debit has been made in January- February 1999. The petitioner, in its rejoinder, denied and disputed the same. Despite the same, neither any books of accounts have been produced nor any evidence has been adduced to establish the said fact.

47. The counter claim of the respondent is in two parts :-

(I) Non-payment of licence fees which by reason of National Telecom Policy, 1999 was payable as Entry Fees;

Licence Fee up to 31.3.08 and interest thereupon

(II) The respondent in its reply produced the following chart to show the basis of its counter claim :-

“Rs. in Crores

Licence Fee due From To Total Period Rate of Interest Months Days Interest Due

165.50 30.9.97 31.3.08 10 Yrs. 6 months and 2 days 18.50 126 2 972.83 165.60 30.9.98 31.3.08 9  rs. 6 months and 2 days 18.00 114 2 738.61 Total 1711.44 Thus the Licence fee dues upto  1.3.2008 are :- Committed licence fee for the period from 30.9.1997 to 29.9.98 (Ist year) Rs. 165.60 Crores Licence fee from 30.9.98 to 31.7.1999 Rs. 138.00 Crores Interest calculated upto 31.3.2008 Rs.1711.44 Crores Total licence fee due (including interest upto 31.3.2008) Rs.2015.04 Crores

48. So far as the quantum of damages claimed by the respondent is concerned, it stated :-

“10. These concessions were considered by the Government and certain changes/modifications were agreed to be made in the draft license agreement. It was also decided by the Government that 30.9.1997 would be fixed as the effective date for all the said licences. This fact was informed to the petitioner herein vide a letter dated 29.8.1997. A copy of this letter dated 29.8.1997 duly acknowledged by the petitioner is annexed herewith as Annexure R-3.

13. This request of the petitioner was considered by the Government. However, the petitioner continued to represent to the Government that it was interested in signing the license agreement for the State of Karnataka and in implementing the said project. It is respectfully submitted that the liability to pay the license fee for Karnataka by the petitioner, in any case, had admittedly commenced from 30.9.97. Towards acknowledgement of this admitted continuing liability of the petitioner for Karnataka, in its representations, the petitioner also requested for extension of time to pay its license fee which it was required to pay prior to the license agreement on the ground that it needed further time to arrange funds for the same.

14. During the time that the above said issue was pending consideration of the Government, the Government agreed to give extensions to the petitioner herein for payment of its license fee. However, it was made clear to the petitioner that irrespective of the actual date of signing of the license agreement by the petitioner, the effective date of licences would remain as 30.9.1997. All terms and conditions of the licence would apply from the said effective date. The petitioner was also clearly informed that its liabilities to pay license fee would also commence from 30.9.1997 and it would be required to pay penal interest for the period of delay in payment of license fee.”

49. The respondent, in its rejoinder, stated as under:-

“6. That the contents of para 5 are denied and reply to the same it is submitted that it is a ‘lisence agreement and not the license’ alone.

7. That the contents of para 6 are denied. It is license agreement and not the ‘license’. In the present case, “the condition” and “consideration of payment” were intimated through NIT and

the same were unconditionally accepted by the Bidders.”

ISSUES

50. This Tribunal framed a number of issues by an order dated 05.01.2011, namely :-

Re: The Petition

(i) Was the demand for Rs. 50 Crores justified?

(ii) If the answer to issue 1 is in affirmative, was the government entitled to adjust this demand against the payments made in respect of Maharashtra Circle?

(iii) Relief, if any?

Re: The Counter Claim

  1. Is the Counter Claim as made maintainable?
  2. If the answer to Issue No. 1 is in the affirmative, if the counter claim barred by limitation? (iii) Whether the respondent Union of India is entitled to claim
license fee from the petitioner for the period 30.09.1997 to 31.07.1999 and interest accruing thereon at the rate of prescribed in the LOI?

(iv) Whether the respondent has the independent right to forfeit the earnest money of Rs. 50 Crores?

(v) Whether the respondent is entitled to set off Rs. 50 Crores towards the said claim of license fee being the earnest money for submitting the bid for Karnataka Circle?

(vi) To what relief, if any, the petitioner is entitled to?

ADMISSION OR DENIAL OF DOCUMENTS

51. The parties hereto exchanged affidavits with regard to admission or denial of the documents.

52. The respondent denied receipt of certain documents inter-alia contending that the said documents are not available on its records or they contained some typographical errors.

53. A formal affidavit was filed tendering the said disputed documents. The witness was also tendered for cross examination but he was not cross examined by Mr. Vikas Singh stating that the cases of the parties being relatable to the documents and no oral evidence need be adduced.

SUBMISSIONS

54. With the aforementioned backdrop of events, we may notice the submissions made by the learned counsel for the parties.

55. Mr. Harish Salve, learned Senior Counsel appearing on behalf of the

petitioner, urged:-

(i) The admitted fact being that no licence was issued, which was a pre-condition for levy of the license fees, the respondent could not have maintained its counter claim;

 (ii) The petitioner having deposited a sum of Rs.50 crores, as was demanded by the respondent in terms of its letter dated 10.8.1999, is entitled to refund of the said amount;

(iii) The respondent could not have directed payment of the said amount of Rs.50 Crores to the licensee of one circle in respect of purported dues of another circle;

(iv) The petitioner having accepted the Letter of Intent on certain conditions which having not been agreed to by the respondent, no concluded contract between the parties came into being;

(v) Having regard to the admitted position that the bids were not alive on 13.4.1999 and it being not a case where the parties had acted on the notice inviting tender, the damages were not payable. The petitioner accepted the option for migration only in respect of Maharashtra and not in respect of Karnataka, inter-alia, in view of the fact that it was not allowed to constitute a separate entity for operating in the Karnataka Circle; no case for claiming damages against the petitioner has been made out.

(vi) The forfeiture of Earnest Money would mean that a concluded contract had come into being and thus, the demand of license fee and forfeiture of Earnest would not go together.

(vii) The respondent could not have invoked Clause 19 of the conditions of licence in respect of Mahrashtra circle having regard to the fact that no license was granted for Karnataka circle.

(viii) That the term of the LOI governing forfeiture of the bank guarantee relating to performance of contract could be invoked as prior to acceptance of the conditions made by the petitioner, the contract came to an end.

(ix) The contention of the respondent that it is entitled to damages on the premise that the people of Karnataka were deprived of the services, is wholly misconceived as no licence has been granted and thus the question of payment of license fees did not arise. (x) Assuming for the sake of argument that the petitioner had been asking for extension of bid, the consequences of non formation of a concluded contract must follow. The offer made by the petitioner by acceptance of the Letter of Intent being required to be accepted by the respondent in writing, the same at best constitute an agreement to agree, which is not enforceable even if there was a breach as there was no clause for payment of any amount of consideration.

(xi) The Union of India cannot ask for performance of an agreement which had not been entered into.

56. Mr. Vikas Singh, the learned Senior Counsel appearing on behalf of the respondent, on the other hand, urged :-

(i) The parties had entered into a concluded contract so far as payment of license fee is concerned;

(ii) The petitioner, having been asking for extension of period, cannot be permitted to take advantage of its own wrong;

  1. The petitioner having not expressly revoked the offer made by the respondent is bound to reimburse it to the extent it suffered damages. The documentary evidences brought on record by the parties would clearly go to show the mindset of the parties that a  concluded contract had come into being;
(iv) The petitioner expressly or by necessary implication must be held to have accepted the effective date of licence to be 30.9.1997 and, thus, it cannot be permitted to take any stand contra.

(v) Although by reason of the conduct of the petitioner, no license could be issued till 2001, the Union of India has raised a claim only upto the date coming into force of the National Telecom Policy 1999.

(vi) The respondent’s counter claim is principally based on payment of the dues towards the licence fee on the balance amount of license fees till National Telecom Policy 1999 came into force as also interest thereon and not on the basis of any damages suffered by it as envisaged under Section 73 of the Indian Contract Act. The Letter of Intent, which was issued in the name of

President of India must be held to be a substantial compliance of the provisions of Article 299 of the Constitution of India being an offer, and which having unconditionally been accepted by the

petitioner, no case has been made out for non-payment of license fee in terms thereof;

(vii) The petitioner having been seeking extensions after extensions and only raised a dispute relating to effective date and/or imposition of penal interest, and as there are a large number of documents to show that in fact no such case has been made out by the petitioner in various letters, the counter claim should be allowed.

(viii) In any event, it is neither necessary for the purpose of compliance of Article 299 of the Constitution of India as also Indian Contract Act that any contract in writing should be entered into.

(ix) The right of forfeiture of the Earnest Money deposit flows from the binding nature of the offer made by the petitioner and having regard to the fact that there was no express revocation of the respondent’s offer and, thus, the respondent must be held to have an unfiltered right to forfeit the amount in question.

(x) The petitioner having not withdrawn its offer at any stage, it cannot be heard to say that the Earnest Money should not have been forfeited.

(xi) The petitioner having accepted the terms of licence as envisaged under Clause 16 of Letter of Intent and having not revoked the same and, in fact, having kept the bid as also the bank guarantee

valid, the petitioner cannot be permitted to go back on its promise and take advantage of its own wrong.

(xii) The Letter of Intent for all practical purposes was a licence within the meaning of the proviso appended to Section 4 of the Indian Telegraph Act and in that view of the matter, the Letter of Intent should be considered to be the effective date for commencement of licence by necessary inference, but keeping in view the position of the parties, the respondent had given sufficient time i.e. about eight months for working out of the formalities.

Offer or Invitation to Treat Issue

57. Whether the parties have arrived at a concluded contract, so as to enable the respondent to claim the annual licence fee is the pivotal question.

58. We have noticed heretobefore the factual matrix involved in the matter. It is not denied or disputed that for one reason or the other no licence was granted in respect of the Karnataka Circle. The parties hereto also did not enter into a licence agreement.

In terms of the provisions of the 1885 Act, establishment, maintenance and operation of ‘telegraph’ is permissible only when a licenc is granted. The 1885 Act envisages parting of special privilege by the Union of India only by way of grant of licence on such conditions and on such consideration as it thinks fit.

Law governing ‘Offer’ and ‘Acceptance’ must be determined having regard to the factual matrix involved in each case.

Sometimes the issue between the parties becomes complicated as one of the parties may proceed and a concluded contract has been arrived at although the other party does not agree thereto.

58. The question as to what would be the legal effect of the notice inviting tender and offer of acceptance has been considered by the Supreme Court of India inter-alia in Bank of India and Ors. Vs. O.P. Swaranakar and Ors., reported in (2003) 2 SCC 721.

59. We may notice a few paragraphs of the said judgment.

“57. At page 346 of the said treatise, it is stated :-

"The rules of offer and acceptance are usually favourites of law students; they are easily stated and tend to be rather mechanical in their operation. They also involve situations that are relatively easy to grasp and in which various policy consideration are close to the surface. However, one should not assume that one has mastered the law of contracts simply because one (SIC) conversant with rules of offer and acceptance. Indeed the writings of modern contracts scholars tend to depreciate the importance of the rules of offer and acceptance. See Generally G Gilmore, the Death of Contract (1974): L. Freidman, Contract Law in America (1965)".

In Halsbury's Laws of England, 4th Edition, Volume-9, meaning of 'offer' has been stated in paragraph 227 at page -98 in the following terms:

"227: Meaning of offer. An offer is an expression by one person or group of persons or by agents on his behalf, made to another, of his willingness to be bound to a contract with that other on terms either certain or capable of being rendered contain. An offer may be made to an individual or to a group of persons or to the world at large. It may be made expressly by words, or it may be implied from the product of the offerer." It was observed in the context of the factual matrix obtaining therein.

“60. Acceptance or otherwise of the request of an employee seeking voluntary retirement is required to be communicated to him in writing. This clause is crucial in view of the fact that therein the acceptance or rejection of such request has been provided. The decision of the authority rejecting the request is applicable to the Appellate Authority. The application made by an employee as an offer as well as the decision of the bank thereupon would be communicated to the respective General Managers. The decisions making process shall take place at various levels of the banks.”

60. The Voluntary Retirement Scheme in question was held to be merely an invitation to treat and the applications filed by the employees pursuant thereto did not constitute an offer.

61. It was opined : -

“80. We may at once point out that the stands of the learned counsel appearing on behalf of banks in inconsistent and self-contradictory. Whereas once it was argued that the offer was made by the bank by floating the scheme and once an application is filed, the same would amount to acceptance of offer; on the same breath they took recourse to the 'doctrine of option' which is applicable only at the instance of the offeror, who is this case would be the employees.

81. The submission in our considered opinion proceedd on a total misconception. By reason of making such option or firm offer the offeror must get some benefit or the offeree must incur some

detriment.

87. In Anson's Law of Contracts it is stated at page 51:

"(a) Revocation of the Offer: The law relating to the revocation of an offer may be summed up in two rules; (1) an offer may be revoked at any time before acceptance, and (2) an offer is made irrevocable by acceptance.

(i) Revocable before acceptance: The first of these rules may be illustrated by the case of Offord v. Davies:  D made a written offer to O that, if he would discount bills for another firm, they (D) would guarantee the payment of such bills to the extent of Pound 600 during a period of twelve calendar months. Some bills were discounted by O, and duly paid, but before the twelve months had expired D, the guarantors, revoked their offer and notified O that they would guarantee no more bills, O continued to discount bills, some of which were not paid, and then sued D on the guarantee. It was held that the revocation was a good defence to the action. The alleged guarantee was an offer, for a period of 12 months, of promises for acts, of guarantees for discounts. Each

discount turned the offer into a promise, pro tanto, but the entire offer could at any time be revoked except as regards discounts made before notice of revocation."

88. The learned author, as noticed from the passage quoted herein before, clearly stated that an offer may be revoked even before it is accepted.”

62. On the premise that the employees had withdrawn the offer before it was accepted, it was held that no concluded contract has been entered into. (See Villayati Ram Mittal Pvt. Ltd. Vs. Union of India (2010) 10 SCC 532 and (2010) 5 SCC 335.)

63. We may also notice the relevant extract from Pollock and Mulla’s Indian Contract Act and Specific Relief Act, 12th Edn. at pages 174, 175 and 176.

“A proposal may be revoked at any time before acceptance, even though the proposer has promised to keep the offer open for specified time; and once accepted, the proposal becomes

irrevocable.”

“The Right of Revocation

The proposer has the right to revoke the offer at any time before acceptance, even if he has undertaken to keep the offer open for a certain time, unless such promise is supported with consideration. A condition that the bidder at an auction shall not be entitled to retract the bid is inoperative in law, and cannot alter the bidder’s rights under general law; nor is there any consideration for his assenting to it, even if he could be supposed to assent by attending the sale

with notice the condition. However, earnest money may be liable for forfeiture according to the conditions of the tender or bid if it is withdrawn.”

“Keeping Offer Open

It is implied in this section that the proposer of a contract cannot bind himself (unless by a distinct consideration) to keep his offer open for any definite time, and that any words of promise to that

effect can operate only for the benefit of the proposer and as a warning that an acceptance after a specified time will be too late. (s 6(2)). The offer says in effect, ‘You may accept within the time

specified, but the limitation is for my benefit. I make no binding promise not to revoke my offer in the meantime’. This follows the rule of common law, and is recognized in India.

This rule is peculiar to the legal systems following the English common law, and has been strongly criticized. It can cause hardship to an offeree who has not ‘purchased an option’. The offeree may have entered into engagements or incurred expenditure in reliance on the continuation of the offer. In the US, the Restatement (Second) of Contracts (1981) provides in s 87, para 2 that an offer is to be regarded as irrevocable if, as the offeror should reasonably have

expected, it induces action or forbearance of a substantial character on the part of the offeree. Such offer is considered binding only ‘to the extent necessary to avoid injustice”.

Reference may also be made to Contract Law and Theory, 4th Edition by Robert E. Scott and Jody S. Kraus discussion the decision in Bailay vs. West at page 8.

PRIVILEGE DOCTRINE

64. The Indian Telegraph Act was enacted as far back as in 1885. Section 4 of the said Act provides for exclusive privilege of the Central Government in respect of establishing, maintaining and working telegraphs. The proviso appended thereto, however, enables the Central Government to grant a licence on such conditions and payment of such fee as it deems fit to any person to establish, maintain or work a telegraph within any part of India.

65. Apart from the said provision, unlike statutes framed by various States dealing with excise, lottery and other prohibited category of business, there does not exist any provision for grant of licence. No statutory rule has also been framed empowering the respondent to forfeit the earnest amount on the failure of the bidder not to accept a licence at a later stage.

66. ‘Telegraph’ is in the Union List. It is not, thus, one of the subjects which is considered ‘Res extra Commercium’. The ‘State’ does not regulate the profit to be earned by itself by reason of grant of licence.

67. We may notice that doctrine of Res Extra Commercium, has been discussed in Action Committee for Private School and Others Vs. Director of Education, Delhi and Ors., reported in (2009) 10 SCC 1 in the following terms :-

“58. The doctrine of res extra commercium being not applicable in relation to imparting of education by private unaided institutions or even private aided institutions, it is difficult to conceive as to how restrictions relying on or on the basis of the doctrine which is wholly inapplicable could be extended thereto. I, therefore, am of the opinion that the principle laid down in Unni Krishnan (supra) which has been overruled in T.M.A. Pai Foundation (supra) cannot be made to apply directly or indirectly. It may be noticed that in Union of India and Ors. v. Martin Lottery Agencies Ltd. 2009 (7) SCALE 34, it is stated as under :-

The concept of res extra commercium may in future be required to be considered afresh having regard to its origin to Roman Law as also the concept thereof. Conceptually business may be carried out in respect of a property which is capable of being owned as contrasted to those which cannot be. Having regard to the changing concept of the right of property, which includes all types of properties capable of being owned including intellectual property, it is possible to hold that the restrictions which can be imposed in carrying on business in relation thereto must only be reasonable one within the meaning of Clause (6) of Article 19 of the Constitution of India.

59. It is also of some interest to note that opinions in the academic field are being expressed that res extra commercium is an expression wrongly used in the last sixty years by this Court and

other High Courts. No activity can be called "res extra commercium".

It is either permitted or not. Having regard to its conceptual roots to Roman law, it would mean only those things which are not incapable of being ownership and, thus, any matter which is res

extra commercium were things incapable of ownership be vests in res in commercio. [See Arvind Datar, "Privilege, Police Power and Res Extra Commercium - Glaring Conceptual Errors" 21(1) National Law School of India Review 133 (2009)] Subba Rao, J. moreover in Krishnan Narula v. Jammu and Kashmir MANU/SC/0034/1967 : AIR 1967 SC 1368 stated, "if the activity of a dealer in ghee is business then how does it cease to be business if it is in liquor?”

The special privilege doctrine in a case of this nature cannot be said to have conferred any right on the licensor to act arbitrarily. ‘Telegraph’ being covered by a ‘law’, the Union of India is to be governed thereby. It is also bound by the provisions of the Indian Contract Act.

It, thus, cannot claim payment of ‘licence fee’ although no concluded contract has been entered into by the parties relying on or on the basis of the doctrine of special privilege. It is bound by its own policy decision.

INDIAN CONTRACT ACT

68. The provisions of the Indian Contract Act, 1872 will, therefore, apply in the matter of formation of Contract. We may notice certain provisions thereof.

69. Section 2 provides for an interpretation clause.

70. We may notice Section 2(b), 2(c) and 2(h) thereof.

“2. Interpretation –clause In this Act the following words and expressions are used in the

following senses, unless contrary intention appears from the context:

(b) When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;

(c) The person making the proposal is called the "promisor", and the person accepting the proposal is called "promisee",

(h) An agreement enforceable by law is a contract;”

71. Section 3 provides for the communication, acceptance and revocation of a proposal. Section 4 provides as to when a communication becomes complete. Section 5 deals with revocation of proposal and acceptance thereof in the following terms :-

“5. Revocation of Proposals and acceptance A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but no afterwards.”

72. Sub-section 3 of Section 6 of Indian Contract Act provides that a proposal is revoked by the failure of the acceptor to fulfill a condition precedent for acceptance.

73. Section 7 mandates that the acceptance must be absolute. The 2nd para thereof reads as under :-

“7. Acceptance must be absolute In order to convert a proposal into a promise the acceptance must –

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted; and the acceptance is not made in such manner, the proposer may, within a reasonable time after the

acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but; if he fails to do so, he accepts the acceptance.”

ROLE OF THE CENTRAL GOVERNMENT

74. The Central Government in exercise of its purported powers of exclusive privilege has been operating and maintaining telegraph. At all material times it was and still is through a public sector undertaking, namely Bharat Sanchar Nigam Ltd., has been running the business of a basic service operator. It has not been denied or disputed that even after formulation of a National Telecom Policy, 1994 pursuant whereto and in furtherance thereof, the Union of India resorted to duopoly in stead and in place of monopoly continued to grant connections of telephone, whosoever applied therefor.

75. The Central Government, for the purpose of grant of licence, could resort to the process of auction or tender. It decided in favour of the former. The relevant terms and conditions of the tender documents have been noticed by us

heretobefore.

BIDS AND THE EVENTS THEREAFTER

76. The petitioner had offered its bid for two circles – Maharashtra and Karnataka. It for its own reason wanted two different legal entities to operate in two separate circles. The Telecom Commission agreed to the said proposal and the same was conveyed to the petitioner. From various documents, which have been brought on record and genuineness whereof is not in question, it can be inferred that the respondent agreed to grant licence in favour of a new entity, in

place of the original bidder i.e. HICL. It, however, did not intend to discharge HICL from its contractual obligations. HICL itself offered to be a guarantor. It is, however, not in dispute that till coming into force of the National Telecom Policy, 1999 formal permission in relation thereto, was not granted.

77. The proviso appended to Section 4 of the 1885 Act speaks of licence. Except by way of grant of licence, no other mode has been provided so as to enable the Central Government to part with its privilege. The term ‘licence’ has not been defined. It must, therefore, be given its ordinary meaning.

LETTER OF INTENT

78. Indisputably, a Letter of Intent was issued on or about 27.01.1997, the relevant paragraphs whereof read as under :-

“1. The President of India is pleased to issue this Letter of Intent to you for award of Licence to provide telephone service on nonexclusive basis in the Karnataka Telecom Territorial Circle as

mentioned in Annexure-1 on compliance, as per the details of Licence fee, payment schedules, Performance Bank Guarantee and Financial Bank Guarantee and other targeted schedules indicated in the said Annexure.

2. The award of licence shall be governed by the terms and conditions stipulated/contained in the tender documents read with clarifications and amendments/corrigenda issued for the above

referred DOT tender enquiry. The detailed terms and conditions are as enumerated in the format of the Licence Agreement and the Interconnect Agreement to be signed and executed. Copy of each of the said agreements is enclosed herewith.

3. You are, therefore, required to submit your unequivocal and unconditional acceptance of this Letter of Intent, duly signed by the authorized signatory so as to reach latest by 24.2.1997 in DOT

alongwith the following other documents to enable signing of the formal Licence Agreement and the Interconnect Agreement :-

i) Performance Bank Guarantee for requisite amount in the prescribed format as per Annexure-II.

ii) Financial Bank Guarantee for requisite amount in prescribed format as per Annexure-III.

iii) Broadly indicating detailed Business Plan including locations of exchanges, capacity, interconnecting transmission media, its type and capacity etc. for meeting the desired targets as per schedules detailed in Annexure-I and as committed by you in your old No.8051301 dated June, 1995 against the said DOT tender enquiry followed by your clarification letter dated

26.10.1995.

iv) Firmed up annual Roll out Plan giving details among others of new exchanges to be commissioned, exchanges to be expanded, new transmission routes to be opened, additions to capacity of existing transmission systems, planned additions to DELs, Village Public Telephones and PCOs, SDCA wise. This Roll out Plan has to be in conformity with the targets for the first 36 months period as detailed in Annexure-I and is committed by you in your bid referred to, as above

against the said DOT tender enquiry.

v) RBI Certificate to the effect that the total foreign equity in Licensee Company does not exceed 49% per cent.

vi) Approval of Government of India for the terms of foreign participation in accordance with the already submitted bid documents referred to above.

vii) The General Power of Attorney and Resolution passed by the Board of Directors in favour of signing authority for the Licence and Interconnect Agreements.

viii) The Certificate to the effect that the promoters and their equity stake as on date remains the same as was indicated in the above referred bid documents based on their continuously running operational validity till date covering aforesaid Service Area.

4. In case the Letter of Acceptance alongwith required documents as mentioned in para 3 above is not received by the stipulated date, this Letter of Intent shall be treated as withdrawn and suitable

necessary action shall be taken as per the terms and conditions of the Notice Inviting Tender.”

79. The Letter of Intent was issued on a non-exclusive basis. The respondent, therefore, did not completely part with its privilege. It was moreover not required to do so in law.

80. By reason of the said LOI, the petitioner could provide telephone service on compliance of the conditions mentioned therein, payment of licence fee specified in the payment schedule as also upon furnishing performance bank guarantee and financial bank guarantee and other targeted schedule as indicated in the annexures.

81. Annexure-1 provides for various conditions including the terms of the licence, total licence fee payable, the annual licence fee out of which the licence fee for the first year was to be paid in advance.

82. Paragraph (e) of the said Annexure provided for special conditions, Clause 1 thereof provided for payment of licence fees for the first year before the licence agreement for the service area is signed. Paragraph 2 provided that the licence agreement and interconnect agreement were to be entered into under the provisions of Section 4 of the 1885 Act.

83. Paragraph 3 provided for furnishing of the performance bank guarantee and the financial bank guarantee in the proformae prescribed therfor by way of pre-conditions of issuance of licence.

84. Paragraph 6 provided for the term of licence being initially for a period of 15 years extendable by another 10 years.

85. Paragraph 8 provided that the effective date of licence would be the date of signing of a licence agreement. Paragraph 14 provided for payment of interest at the rate specified therein in case of overdue payments.

86. We may notice Paragraphs 15 and 16.

“15. It shall be the essence of Licence Agreement to meet the targets specified in the annual firmed up roll out plan for the period of licence, 36 months after the EFFECTIVE DATE.

16. The LICENSEE shall be required to keep the bid and Earnest Money Bid Guarantee valid till the submission of the said letter of acceptance along with other requisite documents as listed in para 3 of the main body of the Letter of Intent and acceptance of the same thereof by the LICENSOR.”

PARTING OF AN EXCLUSIVE PRIVILEGE – EFFECT OF

87. An exclusive privilege granted to the ‘State’ by reason of a statutory provision creates a monopoly. Such a monopoly can be created by reason of legislation in favour of a State or a Public Sector Undertaking. Creation of such a monopoly would amount to a reasonable restriction within the meaning of the provisions of Article 19 (6) of Constitution of India.

88. Would that mean that the Government at its sweet will can impose wholly unreasonable terms and act in a manner which would not be in strict compliance of the other Parliamentary Acts?

Answer to the said question must be rendered in the negative.

89. Mr. Singh has placed strong reliance on a decision of the Supreme Court of India in DelhiScience Forum and Ors. Vs. Union of India and Another reported in (1996) 2 SCC 405, whereby offer was made to non-Government Companies including foreign collaborated companies for establishing, maintaining and working of telecommunication system of the country pursuant to the government policy for privatization of telecommunications.

90. It was held that the proviso appended to Section 4 could be resorted to for the said purpose, although telecommunication is recognized as a public utility for strategic importance.

91. It was, however, opined :-

“10. There is no dispute that the expression 'telegraph' as defined in the Act shall include telephones and telecommunications services. Sub-section (1) of Section 4 on plain reading vests the right of exclusive privilege of establishing, maintaining and working telegraphs in the Central Government, but the proviso thereof enables the Central Government to grant licence, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain and work telegraph within any part of India. It is true that the Act was enacted as early as in the year 1885 and Central Government exercised the exclusive privilege of establishing, maintaining and working telegraphs for more than a century. But the framers of the Act since the very beginning conceived and contemplated that a situation may arise when the Central Government may have to grant a licence to any person to establish, maintain or work such telegraph including telephone within any part of India.”

“It cannot be disputed that in respect of grant of any right or licence by the Central Government or an authority which can be held to be State within the meaning of Article 12 of the Constitution not only the source of the power has to be traced, but it has also to be found that the procedure adopted for such grant was reasonable, rational and in conformity with the conditions which had been announced. Statutory authorities have sometimes used their discretionary power to confer social or economic benefits on a particular section or group of community. The plea raised is that the Act vests power in them to be exercised as they 'think fit'. This is a misconception. Such provisions while vesting powers in authorities including the Central Government also enjoin a fiduciary duty to act with due restrain, to avoid 'misplaced philanthropy or ideology'. Reference in this connection can be made to the cases: Roberts v. Hopewood (1925) A.C. 578; Prescott v. Birmingham Corporation [1954] 3 All E.R. 698; Taylor and Ors. v. Munrow [1960] 1 All E.R. 455 and Bromley London Borough Council v. Greater London Council and Anr. [1982]

1 All E.R. 129.”

92. The said decision, therefore, itself is an authority for the proposition that no unreasonable term can be imposed for grant of a licence.

93. It is also well settled that only because a statute empowers a State to grant a licence or enter into a business with a third party, the same by itself would not render the contract a statutory one.

WAS THE LETTER OF INTENT – A LICENCE

94. A Letter of Intent issued and accepted save and except ‘just exceptions’ would not amount to grant of licence. It would not even otherwise be so, if it is a conditional one.

95. The Supreme Court of India in Dresser Rand S A Vs. BINDAL Agro Chem Ltd. and K.G. Khosla Compressors Ltd., (2006) 1 SCC 751 held:

“32. Parties agreeing upon the terms subject to which a contract will be governed, when made, is not the same as entering into the contract itself. Similarly, agreeing upon the terms which will govern a purchase when a purchase order is placed, is not the same as placing a purchase order. A prelude to a contract should not be confused with the contract itself.”

It was furthermore observed :-

“39. It is now well-settled that a Letter of Intent merely indicates a party's intention to enter into a contract with the other party in future. A Letter of Intent is not intended to bind either party ultimately to enter into any contract. This Court while considering the nature of a Letter of Intent, observed thus in Rajasthan Cooperative Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service Pvt. Ltd. AIR1997SC66 :

...The Letter of Intent merely expressed an intention to enter into a contract. There was no binding legal relationship between the appellant and Respondent 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with Respondent 1 or not.

40. It is no doubt true that a Letter of Intent may be construed as a letter of acceptance if such intention is evident from its terms. It is not uncommon in contracts involving detailed procedure, in order to save time, to issue a letter of intent communicating the acceptance of the offer and asking the contractor to start the work with a stipulation that the detailed contract would be drawn up later. If such a letter is issued to the contractor, though it may be termed as a Letter of Intent, it may amount to acceptance of the offer resulting in a concluded contract between the parties. But the question whether the letter of intent is merely an expression of an intention to place an order in future or whether is a final acceptance of the offer thereby leading to a contract, is a matter that has to be decided with reference to the terms of the letter. Chitty on Contracts (Para 2.115 in Volume 1- 28th Edition) observes that where parties to a transaction exchanged letters of intent, the terms of such letters may, of course, negative contractual intention; but, on the other hand, where the language does not negative contractual intention, it is open to the courts to hold the parties are bound by the document; and the courts will, in particular, be inclined to do so where the parties have acted on the document for a long period of time or have expended considerable sums of money in reliance on it. Be that as it may.”

96. The said principle has been reiterated by the Supreme Court of India in Bharat Sanchar Nigam Limited Vs. Telephone Cables Ltd., reported in (2010) 5 SSC 213, stating :-

“29. Therefore, only when a purchase order was placed, a “contract” would be entered; and only when a contract was entered into, the general conditions of the contract including the arbitration clauses would become a part of the contract. If the purchase order was not placed, and consequently the general conditions of the contact (Section III) did not became a part of contract, the conditions of contract in Section III which included the arbitration agreement, would not at all come into existence or operation. In other words, the arbitration clause in Section III was not an arbitration agreement in praesenti, during the bidding process, but a provision that was to come into existence in future, if a purchase order was placed. In this case, the dispute raised is in regard to a claim for Rs. 10,61,28,000/- as damages on account of BSNL not placing a purchase order, that is loss of profit @ Rs. 200/- per CKM for a quantity of 5.306 LCKM. Obviously the respondent cannot invoke the arbitration clause in regard to that dispute as the arbitration agreement was non-existent in the absence of a purchase order.”

97. We are not oblivious of the fact that Dresser Rand S A (Supra) has been distinguished on facts in various subsequent decisions, one of them being Trimax International FZE Ltd. Vs. Vedanta Aluminum Ltd., Noida, (2010) 3 SCC 1. Having regard to the factual matrix involved therein whereby the offer made by the respondent was unequivocally accepted in the following terms :-

50. The acceptance conveyed by the respondent, which has already been extracted ` supra, satisfies the requirements of Section 4 of the Indian Contract Act 1872. Section 4 reads as under:

 “4. Communication when complete- The communication of an acceptance is complete...as

against the acceptor, when it comes to the knowledge of the proposer.”

51. “We confirm the deal for five shipments”, which is unconditional and unqualified. As rightly pointed out by the learned senior counsel for the petitioner, the respondent was wholly aware of the fact that its agreement with the petitioner was interconnected with the ship owner.

98. Noticing a decision of Court of Appeal in Pangnan S.p.A. Vs. Feed Products Ltd. 1987 (2) WLR 601: (1987)2Lloyd’s Rep 76 (CA) as to what shall be the essential conditions for acceptance of an offer, it was noticed that Indian Courts have not taken a contrary position.

It was opined :-

“In addition, Indian law has not evolved a contrary position. The celebrated judgment of Lord Du Parcq in Shankarlal Narayandas Mundade v. New Mofussil Co. Ltd. makes it clear that unless an

inference can be drawn from the facts that the parties intended to be bound only when a formal agreement had been executed, the validity of the agreement would not be affected by its lack of

formality.”

99. Dresser Rand S A (supra) was distinguished on facts, stating :-

“55. This Court in Dresser Rand S.A. rejected the contention that the acceptance of a modification to the general conditions would not constitute the conclusion of the contract itself. On the other hand, in the present case, after the suggested modifications had crystalised over several e-mails. Further, in para 32 (at SCC p. 770) in Dresser Rand S.A. this Court held that parties agreeing upon the terms subject to which a contract will be governed, when made, is not the same as entering into the contract itself by the respondent, the contract came into existence. Though in para 44 of Dresser Rand S.A. it is recorded that neither the letter of intent nor the general conditions contained any arbitration agreement, in the case on hand, the arbitration agreement is found in Clause 6 of the commercial offer. In view of the same, reliance placed by the respondent on Dresser Rand S.A. is wholly misplaced and cannot be applied to the case on hand where the parties have arrived at a concluded contract.”

100. In that case, one of the questions which arose for consideration was as to whether an Arbitration Agreement had come into being so as to enable the Supreme Court of India to exercise its jurisdiction under Section 11 (6) of the Arbitration and Conciliation Act, 1996. The learned Judge noticed the earlier decision of Supreme Court of India in Shakti Bhog Foods Ltd. Vs. Kola Shipping Ltd. reported in (2009) 2 SCC 134, stating : -

“59. In Shakti Bhog Foods Ltd. v. Kola Shipping Ltd., this Court held that from the provisions made under Section 7 of the Arbitration and Conciliation Act, 1996 that

“the existence of an arbitration agreement can be inferred from a document signed by the parties, or an exchange of letters, telex, telegrams or other means of telecommunication, which provide a record of the agreement.”

101. Yet recently, in State of U.P. Vs. M/s. Combined Chemicals Company Private Limited, (2011) 1 SCALE 85: 2011(2) SSC 151, Dresser Rand S A (Supra) was noticed, stating : -

“It is now well settled that a letter of intent merely indicates a party's intention to enter into a contract with the other party in future. A letter of intent is not intended to bind either party ultimately to enter into any contract. This Court while considering the nature of a letter of intent, observed thus in Rajasthan Corporation Dairy Federation Ltd. v. Maha Laxmi Mingrate

Marketing Service (P) Ltd.: (SCC p. 408, para 7) The letter of intent merely expressed an intention to enter into a contract. ... There was no binding legal relationship between the

appellant and Respondent 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with Respondent 1 or not."

It is no doubt true that a letter of intent may be construed as a letter of acceptance if such intention is evident from its terms. It is not uncommon in contracts involving detailed procedure, in order to save time, to issue a letter of intent communicating the acceptance of the offer and asking the contractor to start the work with a stipulation that the detailed contract would be drawn up later. If such a letter is issued to the contractor, though it may be termed as a letter of intent, it may amount to acceptance of the offer resulting in a concluded contract between the parties. But the question whether the letter of intent is merely an expression of an intention to place an order in future or whether it is a final acceptance of the offer thereby leading to a contract, is a matter that has to be decided with reference to the terms of the letter. Chitty on Contracts (para 2.115

in Vol. 1, 28th Edn.) observes that where parties to a transaction exchanged letters of intent, the terms of such letters may, of course, negative contractual intention; but, on the other hand, where the language does not negative contractual intention, it is open to the courts to hold that the parties are bound by the document; and the courts will, in particular, be inclined to do so where the parties have acted on the document for a long period of time or have expended considerable sums of money in reliance on it. Be that as it may.

102. It was opined :-

“17. A careful reading of the above noted judgment shows that the letters of intent issued on  ehalf of the respondent were never intended to be treated as a binding contract between the parties. There was no indication in the letters of intent about acceptance of the offer made by the appellant. Therefore, this Court held that no agreement was executed between the parties for purchase of the goods.”

103. On the facts of the case, it was held :-

18. Reverting to the present case, we find that the bid given by the respondent was unequivocally accepted by the competent authority and the letter of acceptance was issued for and on behalf of the Governor by treating it to be a contract. Thus, there was substantial compliance of Article 299 of the Constitution. The execution of formal agreement was optional and was not sine qua non for supply of the goods by the respondent. In our view, if the acceptance letter is read along with other documents in the light of the conduct of the parties, it becomes clear that an agreement was executed between the competent authority and the respondent.”

104. An arbitration agreement should ordinarily be held to be binding keeping in view the provisions of Section 7 of the Arbitration and Conciliation Act, as although an oral agreement is forbidden but the same does not provide the manner in which the offer has to be accepted.

ARTICLE 299 ISSUE

105. Before, however, we refer to the conduct of the parties, to which our attention has been drawn both by Mr. Salve and Mr. Vikas Singh, we may notice Article 299 of the Constitution. It reads as under :-

299. (1) All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor 3*** of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise.”

(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purposes of this Constitution, or for the purposes of any enactment relating to the Government of India heretofore in force, nor shall any person making or executing any such contract or assurance on behalf of any of them be personally liable in respect thereof.”

106. A contract entered into by the Union of India, therefore, must conform to the said provision.

107. In this case on its showing, the Union of India was to grant a licence in terms of a statutory provision. Contention of Mr. Vikas Singh is that LOI having been issued in the name of President of India, the same substantially complies with the requirements in law.

108. The importance of complying with the provisions of Article 299 of the Constitution of India came up for consideration before a Constitution Bench of the Supreme Court of India in K.P. Chowdhry Vs. State of M.P. and Ors, reported in (1966) 3 SCR 919: AIR 1967 SC 203. Referring to a large number of decisions rendered by the Supreme Court of India under Section 175 (3) of the Government of India Act 1935, it was clearly held :-

“10. What was said in these cases with respect to s. 175(3) of the Government of India Act, 1935, applies with equal force to Art. 299(1) of the Constitution. Two consequences follow from these

decisions. The first is that in view of Art. 299(1) there can be no implied contract between the Government and another person, the reason being that if such implied contracts between the Government and another person were allowed, they would in effect make Art. 299(1) useless, for then a person who had a contract with Government which was not executed at all in the manner provided in Art. 299(1) could get away by saying that an implied contract may be inferred on the facts and circumstances of a particular case. This is of course not to say that if there is a valid contract as envisaged by Art. 299(1), there may not be implications arising out of such a contract. The second consequence which follows from these decisions is that if the contract between Government and another person is not in full compliance with Art. 299(1) it would be no contract at all and could not be enforced either by the Government or by the other person as a contract. In the present case it is not in dispute that there never was a contract as required by Art. 299(1) of

the Constitution. Nor can the fact that the appellant bid at the auction and signed the bid-sheet at the close thereof or signed the declaration necessary before he could bid at the auction amount to a contract between him and the Government satisfying all the conditions of Art. 299(1). The position therefore is that there was no contract between the appellant and the Government before he bid at the auction, nor was there any contract between him and the Government after the auction was over as required by Art. 299(1) of the Constitution. Further, in view of the mandatory terms of Art. 299(1), no implied contract could be spelled out between the Government and the appellant at the stage of bidding for Art 299 in effect rules out all implied contracts between Government and another person.”

109. The same view has been taken by a Three Judge Bench of the Supreme Court in The Bihar Eastern Gangetic Fishermen Co-operative Society Ltd. Vs. Sipahi Singh and Ors., reported in (1977) 4 SCC 145. Justice Jaswant Singh speaking for the Bench opined :- “8. Re: Contention No. 1:It is now well settled that the provisions of Article 299 of the Constitution which are mandatory in character require that a contract made in the exercise of the executive power of the Union or of a State must satisfy three conditions viz. (i) it must be expressed to be made by the President or by the Governor of the State, as the case may be; (ii) it must be executed on behalf of the President or the Governor, as the case may be and (iii) its execution must be by such person and in such manner as the President or Governor may direct or authorise. Failure to comply with these conditions nullifies the contract and renders it void and unenforceable.”

110. Before, however, we advert to the questions as to whether even on facts the petitioner accepted the LOI in unconditional and unequivocal terms, we may notice a few decisions relied upon by Mr. Vikas Singh.

111. In Rickmers Verwaltung GMBH Vs. Indian Oil Corporation, (1999) 1 SCC 1, the question, which arose for consideration, was as to when an Arbitration clause in the agreement attains finality. While recording that an Arbitration agreement can be spelt out from the correspondence between the parties, it was observed :-

“In this connection the cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the Court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications of law to be drawn. Unless from the correspondence it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them

through correspondence. The Court is required what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement, upon all material terms, then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence.”

112. It was held therein that no concluded bargain has been reached between the parties.

113. Reliance has also been placed by Mr. Vikas Singh in a two Judge Bench decision of the Supreme Court in Security Printing and Minting Corporation of India Ltd. Vs. Gandhi Industrial Corporation, reported in (2007) 13 SCC 236.

114. Therein a concluded contract was inferred having regard to factual matrix involved therein that the respondent despite protesting addition of a clause relating to payment of MODVAT not only supplied goods on the basis of supply order, it continued with the contract; the Supreme Court of India held that as the appellant therein did not accede to the request of the respondent for deleting that clause and having regard to the conduct of the respondent therein, the contract was concluded. While considering the question as to whether the MODVAT credit was to be given or not, it was opined that “on the basis of the clear terms of the contract, the claimant is bound by it and it has to restore whatever credit received by it to the appellant’s Security Press. The award submitted by an Arbitrator was set aside on the ground that the same was perverse in nature. The said decision, therefore, is not applicable to the facts of the present case.

115. Mr. Vikas Singh has also relied upon a decision of the Appellate Tribunal for Electricity in Lanco Kondapalli Power Pvt. Ltd. Vs. Haryana Electricity Regulatory Commission, (2010) ELR (APTEL) 36 wherein it was held that the appellant had already accepted the tender documents unconditionally and LOI was issued on 17.7.2008 and the same was accepted by the appellants and, thus, a concluded contract came into existence from that date onwards. We, however, are of the opinion that the decisions of the Supreme Court of India being clear, it is not necessary to refer thereto.

116. Reliance has also been placed on a decision of this Tribunal in Archana Telecom Services Ltd. Vs. Union of India., 2010CompLR58: [2010]102SCL176 We, however, do not think it necessary to deal with that case, being not relevant.

PLEADINGS IN THE COUNTER CLAIM

117. The respondent by a letter dated 19.8.1999 raised a demand of 50 crores. The petitioner responded thereto by a letter dated 20.8.1999. By a letter dated 16.9.1999, the petitioner contended :-

 “a) In your letter dated 10th August, 99 relating to migration of the Maharashtra Circle you raised for the first time a demand for Rs.50 crores on HIL on account of failure to sign the Licence Agreement in respect of basic services for Karnataka Circle.

You also repeated this demand in your letters dated 19thAugust, 99 and your recent letter of September 1, 99 which requires HIL to make the payment within 7 days thereof and you have also stated that non-payment will be taken as a failure on the part of HIL to comply with the unconditional acceptance given by HIL for the Migration pertaining to basic service in Maharashtra Service Area and that further follow up action will be taken.

b) We would like to submit that –

i) NTP 99, the opinion dated 16th June, 99 of the Attorney General, Union Cabinet decision of 6th July, 99 and the Migration Package letter of 22nd July, 99 is for the Migration of the existing Licenses of basic and cellular licensees only. The migration offer dated 22nd July, 99 issued to HIL clearly mentions that it is for Maharashtra Circle.

ii) No Migration Package has been offered with respect to Karnataka Service Area.”

BANK GUARANTEE

118. The petitioner indisputably furnished two bank guarantees on receipt of the said LOI. It is, however, incorrect to say that the said LOI was subject to the acceptance by the petitioner. In fact, acceptance of LOI was itself subject to acceptance by the respondent. Acceptance of the LOI, therefore, on the part of the petitioner could not have resulted in a concluded contract. Both in respect of the performance bank guarantee as also the financial bank guarantee, the bankers clearly mentioned :-

“5. Not withstanding anything contained hereinabove, our liability under the Guarantee shall be limited to Rs.50 crore (Rupees fifty crore only) and this Guarantee shall expire on May 6, 1999. This Guarantee shall be operative from the date of the issuance of Licence.

6. We, the Bank, undertake not to revoke this Guarantee during its currency except with the previous consent of the Authority in writing.”

119. The effective date, thus, having been stated in the bank guarantees to be the date of execution of the licence, it cannot be said that it constituted unconditional acceptance.

120. For whatever reasons it may be, the respondent made substantial alterations in the bid conditions. It was for the HCIL to agree or not to agree thereto. It is furthermore not in dispute that the respondent itself by reason of the letter dated 21.5.1998 returned those guarantees, stating :-

 “ADG (LF-I) vide his U.O. No.9-11/97-LF/FBG dated 20.5.98 (copy enclosed) has pointed out some discrepancies in Financial Bank Guarantee as well as Performance Bank Guarantee. The Financial Bank Guarantee for Rs.50 crores and Performance Bank Guarantee for Rs.25 crores are returned herewith (in original) for doing the required amendments as directed by ADG (LF-I) immediately and return the same expeditiously for further action at this end.”

121. The reason for returning the said guarantees was that the same was not furnished in the prescribed format. Rightly or wrongly, the petitioner did not resubmit the same.

122. In fact, Mr. Singh has himself drawn our attention to the fact that when the said guarantees were invoked by the respondent by 6.4.1999, the request was not complied with by the bank on the ground that a licence was to be executed for which the bank guarantee had been furnished. It may be that the Banker’s did not say that the guarantees had wrongly been invoked as the same had expired. In our opinion, however, it had taken the path of least resistance. On the face of it, the performance guarantee being related to performance of obligations under a licence on the part of the petitioner, the question of honouring the guarantee would not arise without grant of a licence.

123. The Bank therefore having refused to honour its guarantee, could the respondent invoke the same?

124. The answer to the said question should be rendered against the respondent for the following reasons :-

(i) The guarantee had expired on 21.3.1998;

(ii) So far as non furnishing thereof in the prescribed proforma is concerned, the respondent itself did not accept the same;

(iii) No licence had been issued.

125. We have been taken through various correspondences by Mr. Vikas Singh to contend that a concluded contract had come into being. According to the learned counsel, the LOI being a concluded contract, the effective date being the date mentioned therein.

126. The contention cannot be accepted for more than one reason. The effective date of licence was fixed on a Pan India basis. It, being a policy decision, could not have varied from case to case, although LOIs might have been granted to different parties on different dates.

127. Secondly, not only the tender documents, but also the LOI itself specified that the effective date shall be the date of execution of the licence.

128. Last but not the least, the respondent did not, for whatever reason, allow a separate entity to be the licensee in respect of Karnataka circle.

129. HICL also did not also agree for the penal interest clause.

130. More significantly, only because the LOI provided for payment of licence fee for the first year in advance before the licence was issued, the same by itself, cannot be a ground to hold that no further action was required to be taken.

131. We have noticed heretobefore that the parties have exchanged several rounds of correspondences sticking to their own guns with regard to the effective date as also the penal interest clause.

132. We have also not been able to persuade ourselves with the submissions of Mr. Singh that as the petitioner agreed for effective date in respect of Maharashtra circle, the same must be held to have been accepted even in respect of Karnataka circle.

133. It could not have been, as the licence was to be granted in the name of a 3rd party in respect of the Karnataka Circle.

134. The petitioner might have offered itself to be a guarantor. It could have been a party to the agreement, but the licence was not to be granted in its name.

135. If a licence was not to be granted in its name, the respondent was not to part with its privilege in favour of the petitioner. A host of issues had remained pending between the parties; some of

them being very crucial.

136. The issue of the licence in the name of another company was one of them. It now stands almost admitted that whereas in respect of Maharashtra circle, the migration package offered to the petitioner was accepted, that stage had not come so far as Karnataka circle is concerned.

The petitioner by a letter dated 30.4.1999, categorically stated that despite the fact that Telecom Commission approved on principle the issuance of Karnataka licence to give to a separate entity, but the same had not been carried out.

137. According to it, the pending issues have not been resolved by DoT despite a lapse of over 18 months. Even before that date, the bank guarantees were returned in terms of the aforementioned letter dated 05.4.1999.

Grant of Licence - Issue

138. The core question, which arises for consideration herein, is as to whether the parties hereto had arrived at a concluded contract?

139. If there was no concluded contract, the question of payment of licence fee would not arise. Either a licence is granted or refused to be granted. If it is granted, it may be valid for 15 years by reason thereof the respondent became entitled to payment of 15 years’ licence fees. The licencee would have created mutual rights and obligations. In absence of any licence, the petitioner could

not have started its business. Had it started its business without a licence, it would have been prosecuted in terms of the provisions of Section 20 of the Indian Telegraph Act. It’s properties could have also been taken possession of as rendering of the telephone services to it subscribers would have become illegal being opposed to public policy.

140. It is, therefore, in our opinion, idle to contend that no other or further action was required to be taken by the respondent pursuant to or furtherance of the said Letter of Intent.

141. In fact, both on facts as well as in law, a large number of steps were required to be taken by the parties so as to make a contract the concluded one.

142. If the contract was yet to become a concluded one, no licence fee could have been demanded.

143. No case, in our opinion, has, thus, been made out by the respondent that in terms of proviso appended to Section 4 of the 1885 Act, as per the terms of the licence which was yet to come into being, apart from one year’s licence fee, the respondent was entitled to licence fee for the remainder of the term.

144. There is another aspect of the matter, which cannot also be lost sight of.

145. The parties hereto took a large number of steps not only for keeping the bid alive but also the financial guarantees and performance guarantees alive.

146. A bare perusal of the terms of the financial guarantee will clearly go to show that as the parties were still at the stage of finalization of bid, the question of forfeiture of the earnest money might have arisen but not for demanding licence fees.

147. Forfeiture of earnest money and demand of licence fees are contradictory to and inconsistent with each other. A licence fee would be payable provided a valid licence is granted. Unless a licence is granted, the licensee would not be able to carry out its operations. Unless a licence is granted, the obligations of the licensor to the licensee and vice-versa would not commence. Licence fee, in other words, would become payable only when the contract becomes a concluded one and not prior thereto.

148. There is another aspect of the matter, which cannot also be lost sight of.

149. If the decision of the Supreme Court of India in Dresser Rand S A (Supra) applies, it must be held that the grant of LOI and acceptance thereof by the grantee by itself was not sufficient to bring about a concluded contract. The conditions of the definition of “contract” as contained in Section 2 (c) of the Contract Act, 1872 was required to be fulfilled.

150. If the petitioner and/or its predecessor in interest, in law could not have started its business, as envisaged under the proviso to Section 4 of the 1885 Act, grant of LOI would have amounted only to agreement to agree. An agreement to agree in law, except in some exceptional cases, being without consideration would not be valid.

151. If that be so, the counter claim of the respondent must be held to be not maintainable.

In Balfour Vs. Balfour, (1919) 2 KB 571, the Court of Appeal observed:-

“Lord ATKIN explained the Principle thus:

“There are agreements between parties which do not result in contract within meaning of that term in our law. The ordinary is where the parties agree to take a walk together, or where there is an offer and acceptance of hospitality. Nobody would suggest in ordinary circumstances that these arrangements which does not result in contracts at all, even though there may be what would constitute consideration for the agreement. They are not contracts because parties did not intend that they shall be attended by legal consequences.”

152. In Badri Prasad vs. State of M. P. AIR (1970) SC 706: (1971)3 SCC 23, the following communication between the parties, construction of which fell for consideration of the Court may be noticed :-

“Subject :- Contract of big trees of Sunderpani village of Makrai State. Reference:- Memo No. 5424-4339-11, dated 21-10-54 of the Forest Department of Madhya Pradesh Government. Kindly inform whether you are ready to pay further Rs. 17,000 (seventeen thousand rupees), for the contract of big trees of Sunderpani village of Makrai Circle which (contract) is under dispute at present. This contract can be given to you on this compromise only. If you do not wish to pay this amount you may, in future, take any action you may deem fit.”

2. You may express your desire within seven days of the receipt of this letter. If you fail to do this it will be presumed that you are not inclined to make a mutual compromise.

3. On receipt of your reply the State Government will be informed.”

It was held to be not an offer but merely an invitation to an offer. It was further observed as under :-

“11. There is no force in the contention of the learned counsel that under the contract of the plaintiff had become the owner of the trees as goods. It is true that trees which are agreed to be severed before sale or under the contract of sale are “goods” for the purpose of Sale of Goods Act. But before they cease to be proprietary rights within the meaning of Sections 3 and 4 (a) of the Act they must be felled under the contract. It will be noticed that under Clause 1 of the contract the plaintiff was entitled to cut teak trees of more than 12 inches girth. It had to be ascertained which trees fell within that description. Till this was ascertained, they were not “ascertained goods” within Section 19 of the Sale of Goods Act. Clause 5 of the contract contemplated that stumps of trees, after cutting had to be 3 inches high. In other words, the contract was not to sell the whole of the trees. In these circumstances property in the cut timber would only pass to the plaintiff under the contract at the earliest when trees are felled. But before that happened the trees had vested in the State.

12. This brings us to the last point, namely, whether a new contract was concluded between the Government and the plaintiff. It is extremely doubtful whether the letter dated February 1, 1955, is an offer. It seems to be invitation to the plaintiff to make offer. Be that as it may, even if it is treated as an offer there was no unconditional acceptance by the letter dated February 5, 1955. The plaintiff expressly reserved his right to claim refund of Rs. 17,000. According to the letter of the Divisional Forest Officer, dated February 1, 1955, the plaintiff had to give up his claim to Rs. 17,000 which he had already paid and had to pay a further sum of Rupees. 17,000. The High Court in our opinion, rightly held that the alleged acceptance of the offer made on February 1, 1955, was conditional and qualified.”

153. Mr. Vikas Singh in no uncertain terms admitted that the petitioner did not expressly agree to the terms of the LOI. The question of revocation of the agreement by the petitioner would arise provided there was an offer. Having regard to the fact that the LOI itself was not an offer, but its acceptance by the petitioner would constitute an offer keeping in view the fact that the same was required to be accepted by the respondent itself, the question of revocation of an offer or agreement at the hands of the petitioner did not arise. Such a stage was yet to come.

154. The parties have been negotiating on the final terms of the agreement. We have noticed heretobefore that on several aspects, the parties were not ad idem.

155. Mr. Vikas Singh has contended that the petitioner by its conduct must be held to have accepted the contractual obligations.

156. We may, in this connection, notice that there are enough materials on record to show that the petitioner had submitted requisite documents to the DoT for its approval for grant of licence in respect of Karnataka Circle/in the name of a separate legal entity known as HIC as to enable it to carry out the licenced activities. From various letters issued by the petitioner, one of them being dated 21.9.1998, it appears that the discussions had taken place between the parties hereto in relation thereto, wherein a suggestion was made that HICL would guarantee the obligations of the licensee. In the said letter, the petitioner categorically stated that the primary reason for requesting the licence to be executed in favour of the separate entity was to enable it to have the operational flexibility in arranging large finance. It was in the aforementioned situation stated by the petitioner :-

“Thus, in order that these enunes retaio their primary objective of having operational flexibility in raising finances and at the same time also meet the suggestion made by the DOT, we hereby submit that the promoters of HIL, are agreeable to and do confirm their commitment to honour their obligations with respect to the Karnataka project as promoters of HICL.

We have demonstrated our ability and commitment to participate in the privatization of the telecom sector by making payments of the first year’s Licence fee amounting to Rs.397.50

crores and signing the Licence and Interconnect agreements for the Maharashtra Circle.

We trust that the outstanding matter will be favourably resolved and avail formal approvals from the DOT and other governmental authorities to enable signing of the Licence Agreement.”

157. The aforementioned letter, as also other letters, which are on the same line, have not been replied by the respondent. In fact the respondent by a letter dated 30.9.1998 categorically asked the petitioner to agree not only for the effective date of licence being 30.9.1997 but also payment of penal interest so as to enable it to consider it’s request for transferring the licence to a legal

entity based on the advice of TRAI. We do not know why TRAI was approached by the respondent. It appears that on 15.12.1998, the petitioner submitted a draft tripartite agreement amongst DoT, HICL and new entity. It had asked for (i) extension up to 30th June for issuance and finalization of interconnect agreement and the first year’s licence fees, (ii) the effective date to be the date of serving of the licence agreement; and (3) not to apply the penal interest charges.

The petitioner asked for extension upto 30.06.1999, but the same was granted upto 31.06.1998. However, the respondent struck to its views with regard the effective date of licence as well as penal interest.

158. Mr. Vikas Singh, however, has drawn our attention to a letter dated 25.4.1997 to contend that from a perusal thereof it would appear that the petitioner was categorically informed that about its liability and if it was not ready and willing to take the licence, it could have said so at that stage so as to limit the same to Rs.50 crores.

We may notice the said letter :-

“3. Considerable time has already elapsed since the Letter of Acceptance was to be submitted along with Performance Bank Guarantee as well as Financial Bank Guarantee and no delay is

permissible on this account. 4. In view of the above, you are hereby directed to immediately

submit the Performance and Financial Bank Guarantees but in any case not later that 8th May, 1997 positively, failing which the above said Letter of Intent would have to be cancelled and action would have to be taken for forfeiture of Earnest Money Bid Guarantee as per the provisions contained in the tender terms and conditions. Also please indicate the date by which the other requisite documents along with the Licence fee for the first year’s operation with penal interest (@ SBI prime lending rate plus 5% per annum compounded monthly) shall be submitted by you so that the necessary arrangement for signing of the Licence and Interconnect Agreements

are made accordingly.”

159. Evidently, the petitioner submitted the financial bank guarantee and performance bank guarantee wherein it was clearly stated that the guarantee would be effective from the date of issuance of the licence. In any view of the matter, by reason thereof only, the respondent did not

desire any legal right to levy licence fees.

It might have other remedies, but in absence of a concluded contract, it could not have made the impugned demand pertaining to licence fees and interest thereupon.

We, therefore, fail to appreciate as to how any mis-representation was made. The officers of the respondent were required to see those formats of guarantees. If that be so, it must be held that the petitioner had, even at that stage, contended that it was agreeable to accept the offer of the respondent only with certain conditions.

Our attention has also been drawn to a letter issued to all the successful bidders being dated 29.8.1997 whereby and whereunder the effective date was fixed.

160. Mr. Vikas Singh would submit that the effective date had to be fixed as time was running out. Our attention in this regard has been drawn to a letter dated 15.9.1997 which is in respect of Maharashtra service area wherein the effective date was accepted. However, according to Mr. Vikas Singh, as even the Karnataka issue having been dealt with therein, the petitioner must be held to have accepted the effective date even in respect of Karnataka circle.

We may notice the relevant para:-

“c. DOT Approval for Separate entity for Karnataka :- we have requested requisite approvals for issuance of the Karnataka LOI/Licence to a second and separate entity, known as Hughes Ispat Communication Limited (“HICL”). DOT recommended that this be implemented by way of a Tripartite Agreement to implement the issuance of the LOI/Licence for Karnataka to HICL is currently being drafted by DOT. We await a draft of this Agreement and request resolution of this matter prior to issuance of the Licence for Maharashtra to HIL.”

161. It cannot be said that by reason of the said letter alone, the petitioner accepted the effective date for licence specified by the Dot to be 30.9.1997. In fact, a bare perusal of the said letter would clearly go to show that the question in regard to the grant of licence in favour of a separate entity had not been resolved.

As the said issue itself was pending, by reason of such a conduct on the part of the petitioner alone, we are unable to hold, that it had accepted the said date to be the effective date of licence.

The petitioner, by its letter dated 24.9.1997, categorically stated that it should be permitted to develop Karnataka Circle through a separate entity. It was furthermore stated :-

“Additionally, due to the delay incurred in the issuance of the LOI for Karnataka and with passage of time there has been substantial change in the economic scenario affecting the business plans, the investment structure and availability of funds required for implementation. Further the manner regarding the separation of the Karnataka Circle into a separate entity which is crucial for funding

purposes has been considerably delayed. We are encouraged to note that the matter is being resolved and that in connection with the separation of the Karnataka Circle into a separate entity, DOT has recommended that this be implemented by way of a Tripartite Agreement between the DOT,

HIL and HICL. We understand that the draft Tripartite Agreement to implement the issuance of the LOI/Licence for Karnataka to HICL, submitted by us is currently being reviewed by DOT. We await your comments to the draft Agreement and request resolution of this matter at the earliest.

We understand that the Government of India, Ministry of Communication, Department of Telecommunications is resolving the aforesaid and trust that the same will be resolved at the earliest. However, as you are aware the bid bond for the Karnataka Circle expires on 30 September 1997 and in order that we may extend the bid bond by a further period we request that we be issued a letter for extension of the bid bond by a further 3 months.”

162. Indisputably, the licence agreement has been executed for Maharashtra Circle on 30.9.1997. The respondent could have insisted on the petitioner to execute the licence agreement in respect of Karnataka circle also. The parties were negotiating even at that stage as to in whose favour the licence would be granted and in that view of the matter, it is difficult to accept the submission of Mr. Vikas Singh that no further negotiation was required to be carried out. We have noticed heretobefore that by its letter dated 10.10.1997, the respondent insisted that the effective date shall remain unchanged and the licence fee will have to be paid with penal interest.

163. There is no doubt or dispute that the parties had been taking different stands in their respective letters. The petitioner by its letter dated 31.10.1997, while asking for extension, time and again raised its grievance as regards issuance of licence to a separate entity. It was furthermore stated that it was not agreeable to pay penal interest and the effective date of licence should be the date of signing of the agreement and not 30th September, 1992.

164. Even at that stage, the respondent could have rejected the petitioner’s request for extension. It did not do so. Yet again, extension was sought for on 23.01.1998.

We fail to understand as to on what basis it was urged that the question as to whether a new entity should be given the licence, was an internal problem of the petitioner. If for any reason, the licence was being sought for in the name of a new entity, a formal decision was required to be taken. The respondent could not have kept the matter pending for more than 18 months although on principle such approval had been granted. The petitioner, as noticed heretobefore, had referred to an understanding. The respondent could have refuted the said allegation. It did say that there was no understanding or the understanding between the parties, as referred to in various letters, was not correct. If the parties were not able to decide finally and conclusively as to in whose favour the licence was to be granted, the question of any concluded contract having come into being by reason of a LOI alone, in our opinion, is not correct.

165. We may notice that the petitioner in its letter dated 30.4.1999 categorically stated that the pending issues have not been resolved.

166. The petitioner had a business plan. It had made the same clear to the authorities of the DoT as to why it required the licence to be granted in the name of two different entities i.e. the requirement of foreign investment in the company. The respondent became a party to the issue. It may be true that the

respondent did not intend to leave the petitioner alone; but, it, as indicated

heretobefore, had submitted a draft tripartite agreement in which it was to be a

guarantor. It was, thus, to be a party thereto.

167. We, for the reasons stated hereinbefore, are of the opinion that no

concluded contract was arrived at between the parties hereto.

DAMAGES, IF ANY, SUFFERED BY THE RESPONDENT

168. The respondent has not adduced any evidence with regard to sufferance of damages, if any, by reason of the alleged breach of contract on the part of the petitioner. The entire claim for damage is based upon non-payment of licence fee and the interest accrued thereupon. Whether the said claim would be revised by way of damages? The respondent in advancing its claim for damages contended that people of the State of Karnataka have suffered damage.

169. Indisputably, the respondent had been carrying on its operations. No material has been placed on record as to how during the period when the issues were pending between the parties, the people of Karnataka suffered any loss one way or the other.

It has also not been stated that the petitioner in any way was responsible for grant of additional connection to the people of Karnataka. The respondent had a monopoly.

It by reason of a National Telecom Policy, 1994 shifted to duopoly. The petitioner was, therefore, to become an additional operator and not the sole operator, who was to have a share in the profit earned or loss incurred by the respondent. In that view of the matter, the respondent was required to prove that it has suffered damages. It by reason or any act on the part of the petitioner, the respondent did not lose any money, the question of sufferance of any damage by it did not arise.

The Demand By The Respondent-The Counter Claim

170. The respondent by a letter dated 19.8.1999 demanded a sum of Rs.50 crores. The petitioner responded thereto by a letter dated 20.8.1999 that a demand was made of the said sum on or about 01.9.1999.

We have noticed heretobefore the contents of the letter dated 16.9.1999.

171. One of the contentions raised by Mr. Salve was that prior to the date of filing of the reply and hearing of the matter by this Tribunal, the respondent did not raise any claim for damages by way of loss of the licence fees.  Mr. Vikas Singh has, however, drawn our attention to a letter of the petitioner dated 26.06.1999, which is to the following effect:- “With reference to your letter referred to above on the subject I am directed to intimate you the calculation of interest etc. The same is furnished below :-

1. L.F. dues as on 31.07.99 after set off of dues against Karnataka LOI (Rs.50.00 crores) Rs.105,54,38,904

2. Interest charged upto the actual date of payment on the amount above Rs.105,42,04,563

3. Penalty for shortfall of FBO in terms of Migration Package Rs. 2,20,17,385

4. Penalty for late payment after 31.01.2000 in terms of Migration Package”

Rs. 5,50,78,345

172. Learned counsel would submit that thus, licence fee as also interest was claimed although the figure may be wrong. We may notice that by reason of the said letter demand of interest was

made for basic service in Maharashtra circle and not in respect of Karnataka circle. The principal sum of Rs.105, 42, 04.563 crores was claimed after setting off dues against Karnataka circle for a sum of Rs.50 crores. It was therefore, not a demand for the circle of Karnataka. We, therefore, are of the opinion that Mr. Vikas Singh is not correct in contending that licence fee was demanded

even prior to the filing of the reply.

We, therefore, are of the opinion that the respondent has not established its counter-claim.

EARNEST MONEY

173. The word ‘Earnest Money’ in the context of a contract has a definite connotation. Forfeiture of earnest money is penal in nature. For the purpose of carrying out forfeiture of earnest money, the conditions precedent therefor have to be strictly complied with. If we are correct in our finding that the matter relating to grant of a licence by way of licence agreement is contractual in

nature, which will be governed by the provisions of Indian Contract Act and not the provision of a contract, forfeiture of the bank guarantee by way of earnest money cannot be permitted at the ipse dixit of any party thereto.

174. In BPL Mobile Cellular Ltd. and Anr. Vs. Department of Telecommunication (Petition No. 8 (c) of 2003) while considering an “In Terrorem” clause, it was held that in the event a huge sum becomes immediately payable in consequence of a smaller sum, the same would be construed to be an in terrorem clause.

175. It was held:-

“The said principle was reiterated by the House of Lords in Bridge v. Campbell Discount Co., Ltd., reported in [1962] 1 All E.R. Page 385 in the following terms :-

“My Lords, if I am right so far, the appellant has clearly committed a breach of the hire-purchase agreement by failing to pay the subsequent instalments, and it becomes necessary to consider whether the payment stipulated in cl. 9(b) of the agreement was a penalty or liquidated damages.

The essence of a penalty is a payment of money stipulated in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage. See per LORT DUNEDIN in Dunlop Pneumatic Tyre Co., Ltd. V. New Garage and Motor Co., Ltd. (4). I find it impossible to regard the sum stipulated in cl. 9 as a genuine pre-estimate of the loss which would

be suffered by the respondents in the events specified in the same clause. One reason will suffice, though others might be given. This was a second-hand car when the appellant took it over on hirepurchase. The depreciation in its value would naturally become greater the longer it remained in the appellant’s hands. Yet the sum to be paid under cl. 9 (b) is largest when, as in the present case, the car is returned after it has been in the hirer’s possession for a very short time, and gets progressively smaller as time goes on. This could not possibly be the result of a genuine pre-estimate of the loss. Further, in my view, the provisions of cl. 9 were “stipulated as in terrorem” of the appellant. As counsel for the appellant put it” “They are intended to secure that the hirer will not determine the agreement until at least two-thirds of the price has been paid.”

The result is that the appellant is entitled to relief in accordance with principles laid down by LORD THURLOW, L.C., in Sloman v. Walter(5).”

Bridge (supra), has been followed in a large number of cases. We may notice only a few.

 (1) Lambark Ltd v. Excel [1964]1 Queen’s Bench, 415. (2) United Dominions Trust (Commercial) V Ennis (1967) 2 All E.R.345

(3) Anglo Auto Finance Co V James (1963) 3 All E.R.566 Bridge (supra) has also been followed interalia by the Australian High Court in AMIV-UDC Finance Vs. Austin (1987) 68 ALR 185 and

IAC (Leasing) Vs. Hamphry (1971) 46 A.L.J.R. 106. It is of some significance to notice that in Stockloser v. Johnson [1954]1 Q.B., Page 476, a clause providing for special penalty over

interest came up for consideration before the Court of Appeal. It was stated that the conduct of the defendant will have bearing when the effect of a penal clause is in question.”

176. It was furthermore noticed :-

“It is of some interest to note that Soh Kee Bun in an Article titled ‘Deposits and Reasonable Penalties’ published in 1997 Singapore Journal of Legal Studies, page 50, made a critical analysis of cases of a large number of decisions involving forfeiture of a deposit which is analogous to an action for penalty and opined that the principles stated in Stockloser v. Johnson should be accepted not only on the basis of General Common Law Penalty Rule and General Equitable

Consideration but also on the basis of the principle of Restitution of Unjust Enrichment and Transaction a


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