REPORTABLE

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6706 OF 2010

B.S.N.L. … Appellant (s)

Versus

Reliance Communication Ltd. … Respondent(s)

J U D G M E N T

S.H. KAPADIA, CJI  

1. Whether  clause  6.4.6  of  the  Interconnect  Agreement  

between  Bharat  Sanchar  Nigam  Limited  (BSNL)  and  M/s.  

Reliance  Infocomm  Limited  is  penal  or  a  pre-estimate  of  

damages is the question which arises for determination in this  

civil appeal?

Facts

2. On 18th March, 1997, Reliance had entered into BSO  

Interconnect  Agreement  with  Department  of  

Telecommunications  (DoT)  for  interconnection  of  their  

networks  within  their  respective  circles.   In  October,  2000,

with  its  establishment,  the  BSNL  took  over  from  DoT  the  

aforementioned BSO Agreement.  In November, 2003, the BSO  

regime was replaced by Unified Access Services regime which  

granted  the  licence  to  service  providers  for  both  basic  and  

mobile telephony services as part of a single unified licence.  

Reliance was allowed to operate as a Unified Access Service  

provider  from  November  14,  2003  though  it  was  formally  

granted the Unified Access Service Licence on 21st September,  

2004 with effect from 14th November, 2003.  By an addenda  

dated  28th February,  2006,  the  agreement  was  formally  

amended with retrospective effect from 14th November, 2003.  

The Agreement deals with local calls,  national long distance  

calls (NLDC) and international long distance calls (ILD).  Calls  

of  each trunk group are connected through dedicated ports  

and are chargeable at rates different from other trunk groups.  

Hence,  depending  on  the  number  of  calls  handled  by  a  

particular port, charges are levied by BSNL on Reliance, at the  

rate  of  the  existing  call  charges  payable  for  that  particular  

trunk group.

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3. On  24th June,  2003,  the  DoT  issued  a  circular  

specifying  that  Calling  Line  Identification  (CLI)  cannot  be  

tampered  with  under  any  circumstances  and  also  gave  

directions  to  service  providers  on  how  to  prevent  such  

tampering.   By  its  circular  dated  28th January,  2004,  the  

above circular of DoT coupled with IUC Regulations dated 29th  

October, 2003 issued by Telecom Regulatory Authority of India  

(TRAI) was made effective.

4. In September, 2004, BSNL received several complaints  

from its subscribers in Gujarat that they were receiving ILD  

calls with local CLI Numbers.  On the basis of these reports,  

BSNL made its own enquiries by calling the local CLI number,  

i.e.,  0281-3041000.   This  was  on  5th October,  2004,  6th  

October, 2004 and 7th October, 2004.  Each time the number  

was  called  the  response  from  the  other  end  was  that  the  

number did not exist.  Therefore, on 8th October, 2004, BSNL  

reported the matter to Reliance at which time Reliance had  

sent its report to DoT regarding the same.  In the said report  

to DoT, Reliance stated that the wrong routing of ILD calls was  

being done by one of its subscribers, viz., M/s. Raj Enterprises  

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(who  was  given  60  calls  circuits).   The  series  of  numbers  

allotted  to  Raj  Enterprises  was  from  2813041000  –  

2813041199, i.e., 200 numbers.   

5. On 13th October,  2004, BSNL gave notice to Reliance  

saying that Reliance is having POIs at various Exchanges in  

Vadodra;  that  on  monitoring  incoming  traffic  to  BSNL  as  

indicated in CDRs at the above POIs, it was found that there  

were  numerous  calls  with  CLI  as  281 3041000;  that,  such  

calls  have  been  received  from  4th September,  2004  and,  

therefore,  BSNL  will  charge  at  Rs.  5.65  per  minute  for  all  

incoming calls at POI of Reliance from July, 2004.  It may be  

noted that Rs. 5.65 per minute is the rate of incoming ISD  

calls at TAX POI of Reliance (the word ‘TAX’ stands for Trunk  

Automatic Exchange).

6. On 25th October, 2004, BSNL issues its circular to all its  

officers  by  which  continuation  of  unauthorized  diversion  in  

routing  of  ILD calls  is  brought  to  their  notice  with  specific  

reference  to  the  case  of  Reliance.   In  the  circular,  it  is  

highlighted that although Reliance claims that tampering of  

CLI has been stopped w.e.f. 16th September, 2004, it is found  

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that international calls have been delivered on the local POI of  

Reliance,  at  trunk group  meant  for  intra  circle  terminating  

traffic,  at  various  SDCC  tandem  exchanges,  with  CLI  of  

Reliance network of other SDCAs which is different from STD  

Code and 3039xxxx.

7. On 21st March, 2005, BSNL raised its bill on Reliance  

(RIL) levying “penalty”  of Rs.  9,17,27,746 with interest from  

15th October, 2004 to 15th April, 2005 at 21% p.a. for months  

of  July,  2004  to  October,  2004  in  all  amounting  to  Rs.  

9,89,68,892/- for illegal routing of calls.  This bill dated 21st  

March,  2005  superseded  the  provisional  bill  dated  15th  

October, 2004 raised by the Vadodra Unit of BSNL for Rs. 6.89  

cr. for the said period July, 2004 to September, 2004.  In the  

said  bill,  the  rate  applied  was  Rs.  5.65  per  minute.   This  

demand was made on the basis that numerous calls have been  

detected in the POI with CLI as 281 3041000 which pertained  

to  ISDNB  PRI  connection  given  to  M/s.  Raj  Enterprises  of  

Rajkot.  According to Reliance, the calls received in its POIs  

were  “grey  market”  calls.   That,  they  were  neither  wrongly  

routed  nor  their  CLIs  were  tampered.   Ultimately,  after  

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detailed correspondence between BSNL and Reliance, petition  

No.  275  of  2009  was  filed  by  Reliance  against  the  above  

impugned demand.   

8. By the impugned judgment, TDSAT has held that the  

impugned  demand  of  BSNL  under  clause  6.4.6  of  the  

Interconnect Agreement is penal in nature; that under the said  

clause  unauthorized calls  had to  be detected  by  BSNL and  

that in case of such detection charges were to be levied on  

such calls at the highest applicable IUC; that BSNL was under  

an obligation to draw distinction between unauthorized calls  

and  calls  without/  modified  CLI  in  the  impugned  demand  

which  in  the  present  case  has  not  been  done;  that  no  

opportunity of hearing was given to Reliance and, lastly, the  

amount of penalty was not commensurate with actual damage  

suffered by BSNL.  Accordingly, the impugned demand was set  

aside.  Aggrieved by the impugned judgment of TDSAT dated  

24th May,  2010,  BSNL has come to  this  Court  by this  civil  

appeal.

Submissions

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9. On  interpretation  of  clause  6.4.6,  Shri  Gopal  

Subramanium,  learned  senior  counsel  appearing  for  BSNL  

submitted that the said clause merely prescribes the payment  

of a sum by Reliance on the happening of an event other than  

breach and,  consequently,  the  distinction between penalties  

and  liquidated  damages  would  not  apply  because  such  

distinction  applies  only  to  sums  payable  on  breach  of  the  

contract and not when a clause prescribes payment of a sum  

on  the  happening  of  an  event  other  than  breach.   In  this  

regard, learned senior counsel submitted that the Agreement  

pertains  to  telecommunication  services  which  is  capital  

intensive  venture  and  which  requires  seamless  and  

uninterrupted service.   A disruption in such services would  

result not only in financial loss to BSNL and Reliance but also  

to  a  large  number  of  subscribers  of  both  the  companies.  

Moreover,  learned  senior  counsel  submitted  that  it  is  

technically impossible for BSNL to trace or block a call with a  

tampered  (masked)  CLI.  That,  on  a  given  day  a  single  POI  

handles millions of minutes of calls which are handed over to  

BSNL and in such a situation it is not commercially feasible to  

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decipher  which  call  is  genuine  and  which  call  is  without  

CLI/tampered CLI.  Thus, clause 6.4.6 should be interpreted  

against the background knowledge referred to above and, if so  

read, it becomes clear that the said clause is inserted in the  

Agreement  for  commercial  prudence  as  a  thumb  rule  and  

should as such be interpreted in that manner.  According to  

the learned counsel, the onus of proving the nature of a clause  

as penal is on the party who has sued upon it.  According to  

the  learned  counsel,  clause  6.4.6  gives  BSNL  an  option  of  

terminating  the  contract  or  to  prolong  the  contract  on  the  

payment of an additional sum and thus the same cannot be  

characterized  as  penalty  but  must  be  classified  as  

representing  the  price  for  the  option  of  continuing  the  

contract.   Thus, according to the learned counsel clause 6.4.6  

represents  a  condonable  default  under  the  contract  as  

payment under the said clause results in continuance of the  

contract.   Consequently,  the  amount  paid  under  the  said  

clause cannot be brought under Section 74 of the Contract  

Act.  According to the learned counsel the situation in clause  

6.4.6 amounts to an alternative mode of performance of the  

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contract.   Lastly,  according to  the  learned counsel  where  a  

contract prescribes payment of a sum on default, even if the  

sum payable  may be larger than the actual  loss,  when the  

contract is between parties with equal bargaining power, and  

as long as the sum payable is not extravagant, it should not be  

characterized as penalty.  Similarly, where an agreed sum is  

payable  upon a default  if  the loss accruing to the claimant  

from  the  default  in  question  cannot  be  accurately  or  even  

reasonably be ascertained, then such sum cannot be classified  

as penalty and once a stipulation is held not to be a penalty,  

there is no need for actual proof of loss.   

10. On  interpretation  of  clause  6.4.6  of  the  Interconnect  

Agreement, Shri C.S. Vaidyanathan, learned senior counsel for  

Reliance and Shri Ramji Srinivasan, learned senior counsel for  

Tata Teleservices Limited, submitted that there is no dispute  

between the parties regarding the existence of the grey market  

and its operations by miscreants who use the telecom facilities  

provided  by  various  telecom  service  providers,  including  

government  operators,  like  BSNL  and  MTNL.   In  this  

connection learned counsel placed reliance on the compilation  

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submitted by BSNL.  Learned counsel also placed reliance on  

the statistical data in support of his above contention.  The  

learned  counsel  has  also  relied  upon  directions  dated  

25.10.2004 issued in the form of a circular by BSNL to its field  

offices suggesting steps to be taken by them to detect what is  

called  as  “gateway  bypass  scam”.   On the  interpretation  of  

clause 6.4.6, learned counsel submitted that the said clause  

carries a heavy penalty; that the said clause is attracted in  

cases of tampering/wrong routing of calls attributable to some  

fault on the part of the operator and not otherwise, and since  

in the present case the actions complained are attributable to  

an unscrupulous subscriber and not to Reliance, clause 6.4.6  

cannot be invoked.  In other words, according to the learned  

counsel,  grey  market  operations  of  telecom  are  a  reality  

affecting all  telecom service operators and cannot become a  

ground for invoking clause 6.4.6 which is a unilateral clause  

regardless of the fault of the private operator.  Learned senior  

counsel  further  submitted  that  the  contention  of  BSNL  

regarding “strict civil  liability” is entirely misplaced as BSNL  

does not possess any statutory power to impose such liability.  

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On applicability  of  Section  74  of  the  Contract  Act,  learned  

counsel  submitted  that  interconnection  between  different  

telecom service providers is essentially in the interest of the  

subscribers.  That, such interconnection is mandated by the  

license; that the interconnection charges are regulated by TRAI  

under Section 11 of the 1997 Act; that no service provider can  

charge interconnection charges more than what is specified by  

the  regulator;  and  that  clause  6.4.6  of  the  Interconnection  

Agreement between BSNL and Reliance is a one sided penal  

provision  insisted  upon  by  BSNL.   That,  what  BSNL  can  

recover is either consideration for services rendered by their  

interconnection or compensatory damages in case of breach of  

any of the clauses of the said Agreement.  This is because the  

Contract  Act does not contemplate  any other amount being  

received  by  one  contracting  party  (BSNL)  from  the  other  

contracting  party  (Reliance).   That,  the  consideration  for  

services rendered by interconnection is regulated by TRAI it is  

not open to BSNL to charge what they like.    On the other  

hand,  the  TRAI  regulations  do  not  provide  for  quantum of  

damages or a penalty in case of breach of the interconnection  

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agreement.    Therefore,  if  clause  6.4.6  is  attracted  before  

breach,  as  submitted  by  learned  counsel  for  BSNL,  and  if  

clause 6.4.6 is not compensatory, then the amount demanded  

is  without  consideration  and  would  be  unconscionable.  

According  to  the  learned  counsel  clause  6.4.6  in  the  

Interconnect  Agreement  confers  only  a  contractual  right.  

BSNL,  according  to  the  learned  counsel,  is  neither  the  

sovereign exercising legislative or executive or police powers  

nor is BSNL a regulator.  It is not vested with any powers to  

impose any penalty for breach of contractual terms nor can  

BSNL  be  vested  with  such  powers  as  BSNL  is  one  of  the  

several operators in the National Telecom Policy of 1994 and  

1999.  That, DoT or the TRAI may exercise regulatory or police  

powers imposing a penalty or strict civil liability for violation of  

any of the terms and conditions of  the license when public  

interest  so  requires.   However,  BSNL  does  not  have  any  

statutory,  regulatory  or  police  powers  to  impose  strict  civil  

liability.   That,  strict  civil  liability  has been recognized and  

upheld where it is imposed by the State exercising legislative  

power in respect of violation of tax liabilities.  It has also been  

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recognized and enforced by courts in tortuous action in regard  

to ultra hazardous activity or product liability but even in such  

cases the liability is strict in the sense that no negligence need  

be proved but quantum of damages will have to be proved and  

it  will  be  only  compensatory  and  not  penal  because  penal  

liability can be imposed only by legislation.  According to the  

learned counsel the concept of strict civil liability or absolute  

liability is alien to the scheme, purport and intent of the law of  

contracts.  On clause 6.4.6 learned counsel submitted that the  

said  clause  occurs  in  Chapter  8  relating  to  interconnection  

charges  and  it  is  in  respect  of  “wrongly  routed  calls”.  

According  to  the  learned  counsel  the  said  clause  6.4.6  is  

premised entirely on the breach of contractual term requiring  

calls  being handed over  in the specific  trunk route or  calls  

being handed over with an appropriate CLI.  That, clause 6.4.6  

(d) is a pointer to sub-clause (a) and sub-clause (b) being the  

remedy for breach, in addition to the rights that BSNL has for  

disconnection of POI or temporary suspension of Interconnect  

Agreement for misuse.  Thus, sub-clauses (a) and (b) and (d)  

can be invoked only in case of a breach of the term requiring  

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handing over of calls in the specified trunk route or handing  

over of calls with appropriate CLI and, therefore, it is incorrect  

to  say  that  clause  6.4.6  is  attracted  before  the  breach  of  

contract and that the provision for remedy of breach is only in  

clause 8.2 or 8.3.  That, it is equally incorrect to contend that  

the provision for breach or damages is only what is contained  

in clause 11 of the general terms.  According to the learned  

counsel  clause  6.4.6  can  be  in  the  nature  of  reasonable  

compensation or compensatory damage only if the charges are  

recovered in respect of the offending calls and not in respect of  

the  legitimate  calls.   Any  other  interpretation  will  militate  

against the compensatory nature of damages and will amount  

to imposition of a penalty without legislative sanction and by  

one  party  to  the  contract  usurping  sovereign,  police  and  

regulatory powers.  Learned counsel submitted that the two  

months  time  limit  cannot  make  clause  6.4.6  reasonable  or  

compensatory,  if  all  calls,  irrespective  of  whether  they  are  

rightly  or  wrongly  routed,  or  with  CLI  or  without  CLI  or  

disguised CLI are charged at the highest IUC rates.  Such a  

provision,  according to the learned counsel,  will  be ex facie  

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penal in nature.  Learned counsel submitted that there is no  

merit  in  the  contention  of  BSNL  that  technology  does  not  

enable  tracing  of  every  disguised  call.   According  to  the  

learned counsel this argument of lack of technology would be  

available  to  BSNL  only  to  the  extent  that  all  calls  of  the  

offending subscriber, such as Raj Enterprises, may be treated  

as unauthorized calls.   However, beyond that, calls of other  

subscribers, in respect of whom there is not even a whisper of  

illegality, cannot be clubbed with the offending calls because  

that would amount to imposition of penalty.  Learned counsel  

submitted that under the Contract Act no party is entitled to  

recover punitive damages for any breach of contract.  That, in  

terms of Section 73 of the Act, the party which suffers by any  

breach of contract is entitled to receive, from the party who  

has broken the contract, compensation for any loss or damage  

caused  to  him thereby,  which naturally  arose  in  the  usual  

course of things from such breach.  Such compensation is not  

to  be  given  for  any  remote  or  indirect  loss  or  damage.  

According to the learned counsel in terms of section 73 of the  

Contract  Act  in  order  to  receive  compensation  for  loss  or  

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damage,  the  party  claiming  such compensation  must  prove  

the alleged loss or damage.  However, section 74 carves out an  

exception to the ordinary legal requirement of proving loss or  

damage.  In terms of section 74 when a contract is breached, if  

a sum is named in the contract as the amount to be paid in  

case  of  such  breach  or  if  the  contract  contains  no  other  

stipulation by  way of  penalty,  the  party  complaining  of  the  

breach is  entitled,  whether  or  not actual  loss or  damage is  

proved to have been caused thereby, to receive from the party  

who has broken the contract,  reasonable  compensation  not  

exceeding the amount so named or, as the case may be, the  

penalty stipulated for.  It thus follows, according to the learned  

counsel, from section 74 of the Contract Act that regardless of  

whether the contract specifies a sum to be paid in the event of  

breach or whether it contains any other penal provision, the  

party  complaining  of  the  breach  is  only  entitled  to  receive  

reasonable compensation.  In the alternative, learned counsel  

submitted that inasmuch as clause 6.4.6 provides for payment  

of  an  amount  beyond  reasonable  compensation  for  loss  or  

damage,  it  is  to  that  extent  unenforceable  in  law.   In  this  

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connection learned senior counsel has placed reliance on the  

judgments,  Fateh Chand v.  Balkishan Das [(1964)  1 SCR  

515];  Bharat  Sanchar  Nigam  Limited  v.  Motorola  India  

Private Limited [(2009) 2 SCC 337]; Maula Bux v. Union of  

India [(1969) 2 SCC 554] and Union of India v. Raman Iron  

Foundry  [(1974)  2  SCC  231].   According  to  the  learned  

counsel  clause  6.4.6  is  wholly  one  sided  penal  provision  

inasmuch as it entitles the appellant to receive moneys from  

Reliance on account of breach and not vice-a-versa.  Learned  

counsel further submitted that in the instant case BSNL has  

alleged  that  international  calls  have  been  delivered  on  its  

network  as  local/national  calls  from  a  particular  number  

(02813041000),  belonging  to  a  particular  subscriber  (Raj  

Enterprises), of the network of Reliance and are consequently  

wrongly routed/tampered calls.  However, BSNL is unable to  

precisely identify such calls.  In other words, BSNL is not in a  

position to prove which precise calls delivered from the said  

number  were,  in  fact,  international  calls  delivered  as  

local/national  calls.   However,  applying  clause  6.4.6  BSNL  

seeks  to  charge  for  not  only  all  calls  delivered  from  said  

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number at  the  highest  possible  IUC rates,  but,  additionally  

seeks to charge at the highest rate for all calls delivered at the  

concerned POI for the relevant month as also all calls for the  

preceding  two  months  from  entirely  different  numbers  

belonging  to  other  subscribers  where  there  is  no  allegation  

whatsoever by BSNL of wrong routing or tampering.  In other  

words, even for numbers and calls with respect to which there  

is no allegation of breach, wrong routing or tampering, BSNL  

seeks to charge at the highest IUC rates which bears no nexus  

whatsoever with the loss or damage suffered by BSNL.  It is  

submitted that to this extent clause 6.4.6 falls foul of section  

74 and is therefore unenforceable.  Charging for numbers and  

calls  which  have  no  nexus  whatsoever  with  the  number  

identified by BSNL as having been misused is  to impose in  

terrorem penalty  upon Reliance  bearing  no connection with  

the loss suffered by BSNL on account of alleged wrong routing  

or tampering and therefore the amount claimed by BSNL does  

not  fall  within  the  ambit  of  “compensation”  and  is  legally  

unrecoverable.   At  the  highest  reasonable  compensation  in  

terms of section 74 might cover charging at the rate prescribed  

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by clause 6.4.6 for all calls received from the number of Raj  

Enterprises, without having to prove that all such calls were,  

in fact, international calls delivered as local/national calls, but  

no more.  In this connection, learned counsel pointed out that  

in the instant case the calls from Raj Enterprises are about  

one  lakh  for  the  month  of  September  and  October  2004.  

However, the total number of calls on the POI for September  

and October are about 34 lakhs and if  one adds the entire  

calls for July and August 2004 also there are about 35 lakh  

calls in addition and, therefore, the charges in terms of clause  

6.4.6  at  the  highest  rate  can  be  only  for  69  lakh  calls  in  

addition  to  one  lakh calls  from the  subscribe  in  respect  of  

whose number the allegation of  wrong routing/tampering is  

leveled by BSNL.  Lastly, learned counsel submitted that there  

is no merit in the contention of the BSNL that clause 6.4.6  

prescribes the payment of a sum on the happening of an event  

other than breach and consequently section 74 would have no  

application.   According  to  the  learned  counsel  if  such  

contention is accepted it  would lead to absurd consequence  

because  it  would  mean  that  wrong  routing  of  calls  and  

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tampering of CLI would amount to performance of the contract  

rather than its breach.  Moreover, according to BSNL the bills  

raised by them are by way of penalty.  It is clear from the bill  

dated 21.03.2005.  For the aforestated reason it is submitted  

that there is no merit in any of the above contentions.  Coming  

to the validity of the demand notice and disconnection notice  

issued by BSNL, learned counsel submitted that the demand  

notices issued by BSNL are invalid since the same have been  

raised  in  2004  without  any  provision  in  the  Interconnect  

Agreement.  That, the bills  raised by BSNL were admittedly  

issued  not  in  terms  of  any  provision  in  the  Interconnect  

Agreement but in terms of  the letter of  BSNL(Headquarters)  

dated 28.1.2004 which was issued only for implementation of  

IUC  regulations  of  TRAI  dated  October,  2003.   Therefore,  

according  to  the  learned  counsel  bills  dated  13.10.2004,  

15.10.2004  and  21.3.2005  are  invalid.   Learned  counsel  

submitted that clause 6.4.6 was inserted through an Addenda  

signed on 28.2.2006.  The said Addenda was made applicable  

retrospectively with effect from 14.11.2003 with the exception  

of applicable IUC charges including ADC and interconnection  

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arrangements  made  between  the  parties  during  the  

intervening period which included ICU charges.  That, the said  

clause 6.4.6 is covered in the IUC charges which was carved  

as an exception.  Admittedly, at the relevant time, TRAI had  

prescribed applicable IUC charges whereby depending on the  

nature  of  the  call  (local,  national,  international)  certain  

identified charges were applicable.  The applicable IUC charges  

did not however contemplate charges for local/national call at  

the highest available international rate, which the BSNL now  

seeks  to  do  purportedly  by  invoking  clause  6.4.6.   Thus,  

according to the learned counsel from the express terms of the  

Addenda  itself  it  is  clear  that  clause  6.4.6  falls  within  the  

chapter entitled Interconnection Charges “which is expressly  

excluded  from  retrospective  operation”.   Learned  counsel  

submitted  that  in  any  event  such  purported  retrospective  

application of a penal provision such as clause 6.4.6 violates  

Article 20(1) of the Constitution.  It is submitted that BSNL  

could not have validated the bills issued illegally in 2004 on  

the  basis  of  the  provisions  introduced  in  the  Interconnect  

Agreement subsequently in 2006 when clause 6.4.6 was not  

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given retrospective effect and in the absence of any express  

provision  in  the  subsequent  Addenda  the  bills  cannot  be  

validated.  In any case, according to the learned counsel the  

disconnection  notice  dated  2.2.2009  was  for  alleged  illegal  

routing under NLD interconnect agreement; that the said NLD  

interconnect  agreement was signed on 1.11.2002 which did  

not  have  clause  6.4.6  as  it  exists  in  the  Addenda  dated  

28.2.2006; that clause 6.4.6 in the interconnect agreement for  

NLD was  different  from clause  6.4.6  in  the  Addenda  dated  

28.2.2006 of the Interconnect Agreement and that clause 6.4.6  

of  the  NLD  interconnect  agreement  did  not  provide  for  

charging at the highest rate and that too for the previous two  

months.  Learned counsel submitted that the Addenda to the  

NLD  agreement  was  signed  on  17.11.2005  incorporating  

therein clause 6.4.6 (a), (b), (c) and (d) but the said agreement  

was  not  retrospective  and  was  effective  from  the  date  of  

signing  of  the  Addenda  dated  17.11.2005.   Consequently,  

according to the learned counsel the impugned bills raised by  

BSNL  were  illegal  and  invalid  inasmuch  as  they  were  not  

raised in accordance with the provisions of the Interconnect  

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Agreement between the parties.  For the afore-stated reasons,  

learned counsel submitted that there was no merit in the civil  

appeal filed by BSNL and the same needs to be dismissed.   

Relevant provisions of:

11.(i) Interconnect Agreement dated 18th March, 1997

2.4 Numbering Plan

2.4.1 The same area codes for SDCAs will  be used for both DoT and LICENSEE network.  However,  distinguishing  exchange  codes  will  be  used  for  the  DoT  and  the  LICENSEE’s  exchanges  i.e.  linked numbering scheme will  be followed within the SDCA as per the latest  National Fundamental Plan.

2.4.5 Separate exchange codes or number  ranges shall be allocated to the DoT and the  LICENSEE’s  exchanges  by  the  TELECOM  AUTHORITY.  Utilisation of unused exchange  codes or number ranges out of those allocated  to  the  DoT  and  the  LICENSEE’s  exchanges  shall  be  reviewed  by  TELECOM  AUTHORITY  from time to time for optimum utilisation.

2.5 Calling Line Presentation

2.5.1 LICENSEE’s network shall be capable  of  transmitting  and  receiving  calling  line  identification which shall include Access code,  Area code and Subscriber number.

Chapter 6 Interconnection Charges

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6.1 Interconnectivity to DOT Network

6.1.1 Provision  of  links  to  interconnect  LICENSEE’s network with DoT’s network will  be  the  responsibility  of  the  LICENSEE  as  provided under Clause 2.1.2 and 2.1.3.

6.2 Detailed Billing

6.2.1 For  every STD/ ISD call  originating  from the LICENSEE’s network and accepted by  DoT,  a  detailed  billing  and/  or  bulk  billing  record will be generated in the LDCC TAX.  For  this purpose calling subscriber’s identity shall  be  supplied  by  the  LICENSEE  for  detailed  billing purpose.

6.4 Access Charges

6.4.1 For  purposes  of  calculating  the  access charge, the point at which the calls are  delivered  to  DoT’s  network  is  treated  as  originating point.  The calls will be measured  from the point of entry to the destination at the  applicable rate of DoT.

6.4.3 The  traffic  delivered  on  any  DOT  LDCC  TAX  from  LICENSEE’s  LDCC  TAX/  SDCC  tandem/  local  exchange  will  be  measured  on  the  incoming  junctions  of  the  DOT’s LDCC TAX at the destination wise pulse  rates applicable to the calls generated locally  at  the  same  station  where  the  DOT’s  LDCC  TAX is located.

6.4.5 For international calls originating in  the LICENSEE’s network and accepted by DoT  (ref. para 6.2.1), DoT will bill the LICENSEE on  monthly basis as ISD Access charge at a rate  

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of Rs. 0.70 per unit measured call at the point  of  interconnection.   The  responsibility  of  paying  to  the  international  carrier  (presently  Videsh  Sanchar  Nigam Limited)  will  lie  with  the DoT.

(ii) Addenda to interconnect agreement after migration  dated 28th February, 2006

Whereas  M/s  Reliance  Infocomm  Limited  (previously  known as  M/s.  Reliance  Telecom  Private  Limited)  has  signed  an  Interconnect  Agreement  on 18.3.1997 with  Department  of  Telecommunications  {now  Bharat  Sanchar  Nigam  Limited  [hereinafter  called  the  BSNL  (previously called as DOT]} for interconnection  of  their  Basic  Service  network  with  the  network  of  BSNL  in  Gujarat  Circle  Service  Area.

Whereas the President of India granted to M/s.  Reliance Infocomm Limited [hereinafter called  the UASL (previously called as LICENSEE)]  a  License  No.  17-6/95-BS-II/GUJARAT on  18th  March 1997 under Section 4(1) of the Indian  Telegraph  Act,  1885  to  provide  Basic  Telephone  Service  in  the  Service  Area  of  Gujarat  Circle  on  the  terms  and  conditions  specified in such License.

AND whereas the UASL has, upon permission  of Licensor, migrated to Unified Access Service  License  regime  on  14th November  2003  for  above stated Service Area, whereupon the said  license  agreement  was  amended  and  revised  on 21st  September 2004 with effect from 14th  November 2003 on the terms and conditions  specified  in  such  amended  License  No.10- 05/2004-BS-II/RIL/GUJARAT  and  therefore  

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the said Interconnect agreement is required to  be  amended  and  revised  as  described  in  Chapters, Annexures and Schedules appended  hereto with effect from 14th November 2003.  

AND  whereas  Interconnect  Usage  Charges  (IUC) Regulation become effective from 1st May  2003  which  was  amended  on  29th October  2003  to  become  effective  from  1st February  2004  and  further  amended  on  6th January  2005  to  become  effective  from  1st February  2005.  

IT IS NOW FURTHER AGREED AS FOLLOWS:

1. Each party, i.e. BSNL as well as the UASL,  does hereby agree to the terms & conditions as  described  herein  which  shall  append  as  Addenda  to  the  original  agreement  and  the  combined  agreement,  hereinafter  called  “AGREEMENT”,  will  become  effective  from  14th  November  2003  except  the  applicable  Interconnection Usage Charges (IUC) including  ADC,  Interconnection  arrangements  and  associated bill arrangements as prescribed by  BSNL Corporate Office, during this intervening  period till date of signing of this Addenda.

2. Each party, i.e., BSNL as well as the UASL,  does hereby agree to:

a) Interconnect  its  Network  to  the  Network facilities of the other party; and b) Make available to the other party the  services,  facilities  and  information  as  specified in this Interconnect Agreement. c) Provide  the  other  interconnected  party  with  interconnection  traffic  carriage  and  fault  detection  of  a  technical  and  

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operational quality that is equivalent to that  which each party provides to itself.

2(2) The  UASL  shall  ensure  that  its  interconnect facilities delivered at each point of  interconnection (POI) conform to the applicable  quality  of  service  (QOS)  standards  and  technical specifications for interconnection by  the relevant delivery date determined pursuant  to the provisions of this Agreement.

2(3) UASL shall be responsible to provide,  install, test, make operational and maintain all  interconnection facilities on its side of point of  interconnection  (POI)  unless  otherwise  mutually agreed.

2(11)  It  is  further  agreed  that  any  kind  of  breach of any of the terms of this agreement by  the UASL shall entitle BSNL to levy damages  on the UASL.  Quantum of damages assessed  and  levied  by  BSNL  shall  be  final  and  not  challengeable by the UASL.

Chapter – 1 Definitions  In  this  Agreement,  words and expressions  will  have  the  following  meanings  as  are  respectively  assigned  to  them  unless  repugnant to the subject or context:

“UASL” means  a  registered  Indian  Company, which has been awarded License for  providing the UNIFIED ACCESS SERVICE.

CLI or  “CALLING  LINE  IDENTIFICATION”:  means  the  information  generated  by  the  Network  capability  which  identifies  and  

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forwards  the  calling  number  through  the  interconnected BSNL’s / UASL’s Network.

“FUNDAMENTAL PLAN”: means  Numbering  Plan, Traffic Routing and Switching Plan and  transmission  Plan  issued  by  Department  of  Telecom as amended from time to time.

“GATEWAY SWITCH”: Gateway  switch  is  defined as a switch, which has the capability  to  perform  gateway  functions  like  functional  capability to send and receive signals based on  CCS7  signaling  system  of  ITU-T,  functional  capability to send and receive various types of  information  to  other  operators’  network  in  a  multi  operator environment such as operator  identity, charging area information etc. as well  as  transport  of  calling  line  identification,  generating  call  data  record  for  an  off  line  billing  system  giving  all  necessary  details  of  the call for proper settlement of accounts in a  multi  operator  environment  and  Security  monitoring functions.  

“NATIONAL  LONG  DISTANCE  SERVICE  OPERATOR (NLDO)”: means  the  telecom  operator providing the required digital capacity  to  carry  long  distance  telecommunication  service  within  the  scope  of  LICENSE  for  National  Long  Distance  Service,  which  may  include various types of  tele  services  defined  by ITU, such as voice,  data,  fax,  text,  video,  and multi media etc.

“POINT OF INTERCONECTION (POI)” is  a  point  at  which  the  GMSC  of  Fully  Mobile  network of UASL and Gateway Switch of BSNL  or local / tandem / TAX exchange of the basic  service network of UASL and local / Tandem /  

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TAX of BSNL are interconnected by the facility  of  interconnection  seeker  and  where  the  specified Network-Network Interface Standards  are applicable.

“PSTN” means  Public  Switched  Telephone  Network.

“SHORT  DISTANCE  CHARGING  CENTRE  (SDCC)”: It means a particular Exchange in a  Short  Distance  Charging  Area  declared  as  such  for  the  purpose  of  charging  of  long  distance trunk calls as defined in the National  Fundamental Plan.

“UNIFIED  ACCESS  SERVICES”:  means  telecommunication service provided by means  of  a  telecommunication  system  for  the  conveyance of messages through the agency of  wired  or  wireless  telegraphy.  The  Unified  Access Services refer to transmission of voice  or  non-voice  messages  over  LICENSEE’s  Network in real time only.   SERVICE does not  cover  broadcasting  of  any  messages  voice  or  non-voice,  however,  Cell  Broadcast  is  permitted  only  to  the  subscribers  of  the  service.  The subscriber (all types, pre-paid as  well  as  post-paid)  has  to  be  registered  and  authenticated  at  the  network  point  of  registration  and  approved  numbering  plan  shall be applicable.  

The  following  abbreviations  shall  bear  the  full  expression as mentioned below:

UASP:  UNIFIED  ACCESS  SERVICE  PROVIDER”

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Chapter – 2 Technical Issues pertaining to Interconnection

2.1 Interconnectivity to BSNL Network

2.1.1 As  per  clause  2.6  of  License  agreement The LICENSEE (UASL) will have to  make  his  own  arrangements  for  the  entire  infrastructure  required  for  providing  the  SERVICE. Therefore the UASL may develop its  own  independent  network  with  its  own  transmission  links  within  each of  its  service  area.

2.1.3 The  UASL  shall  not,  directly  or  otherwise, extend any type of service to BSNL  subscribers  through  the  access  provided  by  BSNL  except  for  those  services  which  are  permitted as per the license agreement and are  further  mutually  agreed  between  both  the  parties.

2.1.4 Interconnectivity  between  UASL’s  network  as  specified  in  the  license  and  the  overseas communication network operated by  licensed ILDOs shall  be through the TAXs of  BSNL or of any other operator duly licensed for  the purpose.

2.1.5.2 Calls  from fully  mobile  subscribers  of other telecom service providers of different  service  area  (National  Roaming)  or  other  country  (International  Roaming),  roaming  in  the  network  of  UASL  shall  be  treated  separately  for  the  purpose  of  charging  and  routing.  

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2.1.9.1 Any  facility  obtained  by  the  UASL  from BSNL shall not be resold or leased in any  manner to a third party.

2.1.9.2 No  by  pass  of  traffic  shall  be  resorted  to  by  any  party  by  delivering  the  traffic at any point other than as permitted or  agreed  to  under  this  agreement.   In  case  unauthorized  diversion  in  routing  comes  to  notice,  BSNL shall  be  free  to  disconnect  the  POI  in  that  area,  after  intimating  UASL  one  week in advance.  Moreover, the resources of  BSNL shall be used for the purpose for which  these  have  been  earmarked  and  no  other  service  shall  be  offered  by  utilizing  such  resources  without  agreement  or  the  explicit  written consent of BSNL.

2.1.12The  interconnection  arrangement  shall  be  in  accordance  with  the  National  Fundamental  Plan  related  to  Switching,  Routing, Charging and Numbering.  

2.1.13  The Fully  Mobile,  Limited  Mobile  and  Fixed services network of UASL shall be having  separate  POIs  with  BSNL,  which  shall  be,  treated  independently  for  all  purposes,  including  setup  costs,  port  charges  etc.  The  formation of separate POIs and various trunk  groups therein is to be done as prescribed in  relevant tables in Schedule I – Appendix A. The  tables for POIs and trunk groups as prescribed  for CMTS network shall be applicable for fully  Mobile network of UASL.   

2.1.15.3 INTERCONNECTIVITY  FOR  STD/  ISD CALLS

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2.1.15.3.1 Interconnectivity  for  STD/ISD  calls shall be between BSNL’s LDCC TAX and  UASL’s  LDCC  TAX. In  case  UASL  does  not  have his own TAX in the LDCC, STD/ISD calls  from UASL’s SDCC Tandem/local exchange in  an SDCA in the LDCA shall be handed over to  BSNL’s LDCC TAX by the UASL.

2.1.15.3.3 For the purpose of Inter circle  and  International  call,  the  UASL  shall  handover the call  to  BSNL at the originating  LDCC TAX.   2.1.16 For  the  purpose  of  transit  calls  originated by UASL's subscriber and meant for  termination  in  network  of  any  other  service  provider, the UASL may transmit such traffic  as per rates given in Schedule I, on separate  trunk groups at SDCC Tandem for local calls  and originating LDCC TAX for intra and inter  circle STD calls.  However, BSNL reserves the  right to amend the rates from time to time and  also to selectively  withdraw transit  facility  to  other networks. BSNL will also be at liberty to  transit  and  offer  calls  originated  from  other  networks to UASL network. Either party shall  not suppress the CLI for transit traffic also.  If  rates for any transit service are not available in  the  Schedule,  the  same  shall  be  mutually  agreed  separately.   Detailed  technical  arrangements will be agreed separately.

2.4 NUMBERING PLAN

2.4.1 For  Basic  Services  the  same  area codes for SDCAs / LDCAs will be used for  both  BSNL  and  UASL  network.  However,  

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distinguishing exchange codes will be used for  the BSNL and the UASL’s exchanges i.e. linked  numbering scheme will be followed as per the  latest National Fundamental Plan.  

2.4.3 All  the  digits  received  from  calling  party  including  ‘0’  shall  be  passed  across the interface (ROD=1).  In case of CCS7  signaling,  leading  ‘0’  will  be  appropriately  coded in Nature of Address Indicator (NAI).

2.4.5 For  Basic  services  separate  exchange  codes  or  number  ranges  shall  be  allocated  to  the  BSNL  and  the  UASL’s  exchanges  by  the  LICENSOR.  Utilization  of  unused exchange codes or number ranges out  of those allocated to the BSNL and the UASL’s  exchanges  shall  be  reviewed  by  LICENSOR  from time to time for optimum utilization.

2.5 CALLING LINE PRESENTATION

2.5.1 BSNL’s  and  UASL’s  network  shall  wherever  technically  possible,  transmit  and  receive  Calling  Line  Identification  (CLI).   The  Calling  Line  Identification  from  UASL’s  fully  mobile/  CMTS  network  shall  contain  mobile  subscriber number including 93 and from its  basic  services  network  the  CLI  shall  contain  Access  code,  Area  code  and  subscriber  number.  The  Calling  Line  Identification  from  BSNL shall contain area code and subscriber  number depending on the technical feasibility.

2.5.4 No tampering/  alteration  of  CLI  of  calls handed over at the POI with BSNL shall  be done by UASL.  Instructions of Licensor in  this regard shall  be followed by UASL failing  

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which  the  concerned  POI  of  UASL  shall  be  disconnected  under  misuse  after  giving  one  week  notice  in  addition  to  other  actions  prescribed in this agreement elsewhere.

2.5.5 The switches of BSNL, which do not  have CLI based call  barring capability or are  not having CDR based offline-billing capability,  shall be technically non feasible for provision  of  point  of  Interconnection.   However,  UASL  undertakes  that  in  the  absence  of  such  capabilities in BSNL’s switches, it shall abide  by  all  terms  and  conditions  including  MCU  based  arrangements  for  the  purpose  of  measurement and billing of interconnect traffic  as mutually agreed and thus mentioned in this  agreement and that this arrangement will not  be  a  matter  of  dispute,  then  BSNL  shall  provide  POIs  to  UASL  in  such  switches,  if  otherwise feasible to do so. It  is  further  agreed  that  in  case  of  any  regulatory/ judicial intervention on the above  matters, the UASL shall be entitled to and be  extended the same relief/ benefit given to any  other operator to the extent it is applicable to  the UASL under this agreement.

2.9 NETWORK  INTEGRITY  AND  SCREENING

2.9.1 It  is  the  responsibility  of  the  UASL  to  prevent  the  transmission  of  any  signaling  message  across  the  connecting  network,  which  does  not  comply  with,  inter  working specification of TEC No.G/PNI-03/01  Sept.  95  or  as  modified  from  time  to  time.  

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Similarly BSNL shall also ensure the same in  its network.

2.9.2 Efficient  arrangement  for  screening function shall be established by the  UASL at his Gateway exchange or elsewhere in  his network to detect signals outside the inter- working specification of TEC No. G/PNI-03/01  Sept. 95 referred above. Similarly BSNL shall  also ensure the same in its network.

2.9.3     Screening  arrangement  shall  include  rejection  of  communications  or  discarding  information  fields,  which  do  not  comply  with  the  specification.  It  will  be  the  responsibility of the UASL/BSNL that network  integrity is protected and maintained.

CHAPTER 6 INTERCONNECTION CHARGES

6.2 DETAILED BILLING

6.2.1 For  every  STD/ISD call  originating  from  the  UASL’s  network  and  accepted  by  BSNL,  a  detailed  billing  record  wherever  possible  and/or  bulk  billing  record  will  be  generated in the LDCC TAX. For this purpose  the  UASL  shall  supply  calling  subscriber’s  identity for detailed billing purpose.

6.4. Interconnect Usage Charges

6.4.1 Interconnect  Usage  Charges  (IUC) shall be payable by UASL to BSNL for the  calls originating in UASL network and handed  over  to BSNL network.  Likewise  Interconnect  

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Usage  Charges  shall  be  payable  by  BSNL to  UASL  for  the  calls  handed  over  by  BSNL  network  and  terminating  in  UASL  network.  Interconnect  Usage  charges  include  termination  charge,  carriage  charge,  transit  charge  and  access  deficit  charge  (ADC)  as  applicable.  

6.4.3 The  traffic  from  /  to  fully  mobile network delivered on any BSNL’s LDCC  TAX from UASL’s GMSC will be measured on  the  incoming  /  outgoing  junctions  of  the  BSNL’s LDCC TAX.

6.4.6 WRONGLY ROUTED CALLS (a)  Unauthorised  calls  i.e.  calls  other  than  specified for that trunk group if detected, for  which the  applicable  IUC is  higher  than the  IUC  applicable  for  calls  prescribed  in  that  trunk group, then BSNL shall charge the UASL  the  highest  applicable  IUC,  as  applicable  for  such  unauthorised  calls,  for  all  the  calls  recorded on this trunk group from the date of  provisioning of  that  POI  or  for  the preceding  two months whichever is less.

(b)  the  CLI  based  barring  facility  shall  be  activated  at  the  POIs  wherever  technically  feasible to ensure that the traffic handed over  by  BSNL is  in  the  appropriate  trunk groups  only. Wherever it is technically not feasible to  activate CLI based barring, periodic monitoring  of the incoming trunk group shall be done by  BSNL  to  ensure  this  objective.  The  calls  received  by  BSNL  without  CLI  or  modified/tampered  CLI  from  UASL  shall  be  charged  at  the  highest  slab  i.e.  as  for  ISD  Calls. In case such calls are received by BSNL  on any trunk group, then all the calls recorded  

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on this  trunk group shall  be  charged at  the  rates applicable for IUC of incoming ISD calls  from the date of provisioning of that POI or for  the preceding two months, whichever is less.

(c)  When CDR based billing  is  introduced in  BSNL’s  network  some  of  the  trunk  groups  shall  be merged. In such cases also, in case  unauthorised  or  Incoming  International  Call,  without  CLI  call,  call  with  tampered  CLI  is  handed  over  to  BSNL  at  the  merged  trunk  group, then BSNL shall charge the UASL the  highest  applicable  IUC,  as  prescribed  in  clauses 6.4.6(a) above for unauthorised calls &  6.4.6(b) above for incoming International call,  without CLI call, call with tampered CLI, for all  calls  recorded  on  this  merged  trunk  group  from the date of provisioning of that POI or for  the preceding two months whichever is less.

(d) In addition, BSNL shall also have the right  for  taking  other  legal  actions  including  disconnection of POIs or temporary suspension  of  the  interconnection  arrangements  under  misuse.

6.4.7 All the required information in  monthly  certificate  of  details  of  traffic  (in  minutes) as prescribed in Schedule I shall be  submitted  by  UASL  to  BSNL  in  a  timely  manner.   This  information  includes  outgoing  STD and ISD traffic  from its limited mobile/  fully mobile/ cellular access network handed  over  to  each  of  private  NLDOs/  ILDOs  separately and incoming STD and ISD traffic to  its  network  accepted  from  each  of  private  NLDOs/ ILDOs separately.

6.5 Billing  

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6.5.2 At  present  CDR  based  billing  system  for  POIs  is  not  available  in  BSNL’s  network  at  all  locations.  Wherever  BSNL  is  having  CDR  based  billing  system  for  POIs,  BSNL shall bill the IUC based on processing of  CDRs.  However,  wherever  CDR based  billing  system is not available in BSNL’s network, the  billing  of  IUC  shall  be  done  based  on  IUC  pulses  as  described  in  Schedule  I.  The  per  MCU  charge  for  these  IUC  pulses  being  Rs  0.10 for all types of calls except originating ISD  calls and any other call  specially specified in  which case per MCU charge shall be Rs 1.20.  BSNL  reserves  the  right  to  charge  Access  Deficit  Charge (ADC) based on distance from  originating SDCC to terminating SDCC as and  when  necessary  technical  arrangements  are  put in place by BSNL.

8.2 Termination

8.2.1 This Agreement shall continue  for  the  period indicated in  Clause  8.1  above  unless any of the following events occur: (a)Either Party ceases to hold a licence under  Section 4 of the Indian Telegraph Act. (b)An order is entered by a court of competent  jurisdiction  mandating  the  winding-up  or  dissolution of a Party, or appointing a receiver  or  liquidator  for  such  Party  or  having  a  comparable effect; (c)If  in  the  interest  of  national  security  or  otherwise,  it  is  ordered  by  a  Competent  Authority  such  as  Licensor/  TRAI,  that  the  agreement may be terminated. (d)If there is a breach of any of the technical  and financial obligations as covered in clauses  

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2.1.3, 2.1.5.1, 2.1.8, 2.1.9.1, 2.1.9.2, 2.5, 2.11  and 6.4.6. In  which  case  this  Agreement  shall  immediately  be  terminated,  without  any  further notice.

8.2.2 This  Agreement  also  may  be  terminated  by  either  Party  giving  30  days  notice  to  the  other  in  the  event  that  either  Party. (a) breaches  any provision of  this  Agreement;  provided,  however,  that  the  breaching  Party  has been notified in writing of its failure by the  non-breaching Party and the breaching Party  has not remedied its failure within twenty (20)  Working Days; and the approval of Licensor or  TRAI, as the case may be, has been obtained  for  such  termination.   In  the  event,  the  approval  is  accorded  with  conditions,  regard  being  had  to  the  general  interest  of  the  customers,  the  same  will  be  fully  complied  with  before  the  final  act  of  disconnection  of  interconnection  arrangements  becomes  effective.  Provided, however, in the event no  intervention  is  made  by  the  Regulator/  Licensor during the notice period, the approval  shall be deemed to have been accorded. (b) ceases to carry on business. (c) Either  Party  is  unable  to  discharge  its  obligation under this agreement.  However, in  case of Force Majeure procedure as indicated  below shall be followed: FORCE MAJEURE Neither party shall be liable for any breach of  this Agreement (other than a breach for non  payment)  caused  by  an  act  of  God,  insurrection or civil  disorder,  war or military  operations,  national  emergency,  fire,  flood,  lightning,  explosion,  subsidence,  industrial  

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dispute  of  any  kind.   The  Party  affected  by  such force majeure shall  promptly  notify the  other Party of  the conditions and the details  thereof.   If  as  a  result  of  force  majeure,  the  performance by affected Party of its obligation  under this agreement is only partially affected,  such Party shall nevertheless remain liable for  the  performance  of  those  obligations  not  affected  by  such force  majeure.   If  the  force  majeure  lasts  for  more  than  the  continuous  period of 90 calendar days from the date of the  notification,  and  continues  to  prevent  the  affected Party from performing its obligation in  a whole  or in material  part,  the either  party  shall be entitled to, terminate this agreement  by  giving  not  less  than  30  calendar  days  written notice to the other Party.

8.3 Withdrawal of Interconnection

(a) For Non-payment: In case of default  in  payment,  BSNL  reserve  the  right  for  withdrawal/ suspension of services at the POI.  This  will  be  in  addition  to  other  remedies  available under the agreement.

(b) Under misuse or instructions for the  Licensor.   Either  Party  may  suspend  or  withdraw  the  services  if  the  other  party  misuses  or  indulges  in  any  act  which  will  constitute  misuse  of  POI  or  will  result  in  violation  of  instructions  issued  by  Licensor/  Regulator. The notice period for (a) and (b) above, if any,  shall be as specified in the respective clause of  the agreement.  

SCHEDULE I

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Interconnection Usage Charge (IUC)

3. Due  to  non-availability  of  CDR  based  billing plateform, IUC applicable for the calls  handed-over  to  BSNL  at  the  PoI  (Point  of  Interconnect)  have  been  converted  into  different pulse rates as per Appendix B. The  pulse rates have been calculated at a per MCU  (Metered Call Unit) rate of Rs 0.10 for all calls  except  outgoing  ISD  calls  which  shall  be  measured at a rate of Rs 1.20 per MCU.  The  bills  for  IUC shall  be raised by BSNL to the  interconnecting  operator  based  on  the  bulk  billing of MCUs on the incoming trunk groups.  The  pulse  duration  with  an  accuracy  of  10  milli seconds shall be applied at the POIs of all  UASL with BSNL as prescribed in Appendix B  (in  brackets)  wherever  technically  feasible  in  BSNL switches. At present the implementation  of 10 milli seconds accuracy in pulse duration  is possible in new technology switches of BSNL  i.e. EWSD, AXE-10, OCB-283 and 5ESS.

5. The  bills  for  IUC  raised  by  access  providers  to  BSNL  shall  accompany  with  a  certificate that they have submitted a signed  certificate  to circle  office  BSNL regarding the  volume of intra circle, NLD and ILD traffic as  per  the  Appendix-C.   Further  processing  of  these bills, for payment to access providers for  the traffic terminated in their network, shall be  done  only  on  receipt  of  this  certificate  from  them.   In  case  called  upon,  the  complete  record  of  traffic  will  be  produced  by  access  providers for verification by the technical audit  team constituted by BSNL.  The procedure for  billing and recovery of ADC in respect of inter- circle STD calls from cellular / WLL (M) and  outgoing / incoming ISD calls routed through  

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a NLDO or ILDO other than BSNL and intra- circle  traffic  from  cellular/  WLL(M)  to  fixed  networks are enclosed in Appendix-D.

11. The CLI  based barring facility  has been  activated  by  BSNL  at  the  PoIs  wherever  technically  feasible  to  ensure  that  the  traffic  handed  over  to  BSNL  is  in  the  appropriate  trunk groups only.  Wherever it is technically  not  feasible  to  activate  CLI  based  barring,  periodic  monitoring  of  the  incoming  trunk  groups shall be done by BSNL to ensure this  objective.  In case of wrongly routed calls IUC  shall be charged as below:

(a) Unauthorised  calls  i.e.  calls  other  than  specified for that trunk group if detected, for  which  the  applicable  IUC (including  ADC)  is  higher than the IUC (including ADC) applicable  for calls prescribed in that trunk group, then  BSNL  shall  charge  the  concerned  private  operator the highest applicable IUC (including  ADC),  as  applicable  for  such  unauthorized  calls,  for all  the calls recorded on this trunk  group from the date of provisioning of that POI  or for the preceding two months whichever is  less.

(b) Wherever it is technically not feasible to  activate CLI based barring,  the calls received  by BSNL without  CLI  or  modified/ tampered  CLI from concerned private operator, shall be  charged the IUC applicable for the highest slab  (i.e. as for ISD Calls including ADC applicable  for ISD calls) for all the calls recorded on this  trunk group from the date  of  provisioning of  that  POI  or  for  the  preceding  two  months,  whichever is less.

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(c) When CDR based billing is introduced in  BSNL’s  network  some  of  the  trunk  groups  shall be merged.  If unauthorized or Incoming  International  call  or  without  CLI  call  or  call  with tampered CLI is handed over to BSNL at  the  merged  trunk  group,  then  BSNL  shall  charge  the  concerned  private  operator  the  highest  applicable  IUC  (including  ADC),  as  prescribed  in  clauses  11(a)  above  for  unauthorized calls & 11(b) above for Incoming  International  call,  without  CLI  call,  call  with  tempered  CLI,  for  all  calls  recorded  on  this  merged  trunk  group  from  the  date  of  provisioning of  that  POI  or  for  the preceding  two months whichever is less.

(d) In  addition,  BSNL  shall  also  have  the  right  for  taking  other  legal  actions  including  disconnection of POIs or temporary suspension  of  the  Interconnection  arrangements  under  misuse.    

Appendix - C

CERTIFICATE OF TRAFFIC ROUTED VIA OTHER NLD / ILD  OEPRATORS AND INTRA CIRCLE TRAFFIC  

{to be given by cellular operators and basic operators}

For the Month of ....................., 200

Licensed Service Area ......................... Name of Operator................................. Type of Service (Cellular / WLL-M/Fixed).... Period: From .......................to .....................

Dated ................... at ...........................

This is to certify that the details of traffic routed other than  through BSNL as NLDO/ ILDO/ transit operator in respect of:

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(a) inter circle calls (both originating and terminating) except  those  originated  from  fixed  networks  but  including  calls  terminating in own network in other circles; (b) international  long  distance  calls  (both  incoming  and  outgoing) except those originated from fixed networks; and (c) intra circle calls (both originating and terminating) from  cellular/  WLL  (M)  to  fixed  networks  and  including  calls  terminating in own network

during the above period are as under:

*** *** ***

B. Details of Traffic (in Minutes) through M/s Reliance  Infocomm Ltd NLDO & ILDO)

Call Type ...........  Circle

...........  Circle

..........  Circle

............  Circle

I Inter  circle  outgoing  calls

II Inter  circle  incomin g calls

III Outgoing  ILD calls

IV Incoming  ILD calls

*** *** *** Appendix - D

Procedure for billing and recovery of ADC in respect of inter  circle cellular / WLL (M) originated calls, ISD calls (incoming  and outgoing both) and intra circle cellular (WLL(M) to fixed  networks  routed  other  than  other  than  through  BSNL  as  NLDO/ ILDO/ transit operator.

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1. As per TRAI's IUC Regulation dated 6th January, 2005 for  such inter and intra circle calls that are routed through  the BSNL as either NLDO or transit operator, the ADC  amount  is  received  directly  by  BSNL  from  the  call  originating operator. For ILD calls routed through BSNL  as NLDO, it receives ADC from call originating operator in  case  of  outgoing  calls  and  the  ILD  operator  for  the  incoming calls. However, BSNL has also to receive ADC  from cellular/ WLL(M) originating inter  circle  calls,  the  originating ILD calls in cellular/ WLL (M) networks and  terminating ILD calls carried by other NLDO/ ILDO, or a  combination  thereof  for  the  ILD  calls.   In  addition  to  above BSNL has also to receive ADC from cellular/ WLL  (M)  originating  intra  circle  calls  to  fixed  networks  not  routed through BSNL…

(iii) NLD  Interconnect  Agreement  between  BSNL  and  Reliance dated 1st November, 2002  

Chapter – 1 Definitions

In this Agreement, words and expressions  will  have  the  following  meanings  as  are  respectively  assigned  to  them  unless  the  contrary intention appears from the context:

“SHORT  DISTANCE  CHARGING  AREA  (SDCA)”: means one of the several areas into  which  a  Long  Distance  Charging  Area  is  divided and declared as such for the purpose  of charging for long distance calls and within  which  the  local  call  charges  and  local  numbering scheme is applicable. SDCAs, with  a few exceptions, coincide with revenue tehsil  / taluk.

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Chapter 2

Technical Issues Pertaining to  Interconnection

2.1 Interconnectivity to BSNL Network

2.1.5 RIL shall  terminate  its  traffic  on to  the  network  of  BSNL  as  mandated  by  TRAI  from time to time.  RIL and BSNL shall deliver  all  calls on each other’s  network with CLI in  the  terminating  SDCA.   Both  parties  reserve  the right to reject calls without CLI.

2.4 Numbering Plan

2.4.1 RIL  shall  be  allocated  carrier  selection code by the LICENSOR for dynamic  selection of carrier for long distance calls.  All  calls for which dynamic carrier selection code  has  been  dialed  shall  be  routed  accordingly  subject to technical feasibility.

Chapter 6 Interconnection Charges

6.1 Interconnectivity to BSNL Network

6.1.1 Provision  of  links  to  interconnect  RIL’s  network  with  BSNL’s  network  at  the  technically  feasible  SDCC  Tandem  exchange  will be the responsibility of the RIL as provided  under Clause 2.1.2 and 2.1.3.

6.4 Access Charges

6.4.6 If  BSNL  detects  that  Incoming  International  calls  are  being  handed  over  or  

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have  been  made  over  to  BSNL  at  any  other  port  which  is  not  meant  for  carrying  such  calls,  BSNL  shall  be  free  to  charge  RIL  minimum  access  charge  for  Incoming  International calls as at clause 6.4.2 above for  all the calls recorded on these ports from the  date  of  provisioning  of  that  POI  or  for  the  preceding two months whichever is less apart  from  taking  other  legal  actions  including  disconnection of POIs or temporary suspension  of  the  Interconnection  Agreements.   No  terminating calls other than International calls  shall  be  accepted  from RIL without  CLI.   In  case of calls without CLI, termination charge  as  per  clause  6.4.2  above  shall  be  charged  from RIL.

6.6.1 Access  charges  shall  be  billed  by  BSNL based on bulk billing of traffic recorded  by BSNL at the point of interconnection.  For  every  STD/  ISD  call  carried  by  RIL  and  accepted  by  BSNL  at  POI,  a  detailed  billing  record wherever possible or bulk billing record  will be generated in the SDCC Tandem.  The  RIL  shall  supply  calling  subscriber’s  identity  for detailed billing purpose.

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Findings

(i) Introduction

12. Telecommunication is all about transferring information  

from  one  location  to  another.   This  includes  telephone  

conversations,  television  signals,  computer  files  and  other  

types of data.  To transfer the information, you need a channel  

between the two locations.   This  may be a wire  pair,  radio  

signal,  optical  fiber,  etc.   Telecommunication  companies  

receive payment for transferring their customer’s information,  

while  they  themselves  pay to  establish  and  maintain  the  

channel.

(ii) Relevant technical terms used in the Interconnect  Agreement r/w the addenda

(a) Gateway  Mobile  Switching  Centre  (GMSC):  It  is  a  

special kind of MSC that is used to route calls outside  

the  mobile  network.   Whenever  a  call  for  a  mobile  

subscriber comes from outside the mobile  network or  

the  subscriber  wants  to  make  a  call  to  somebody  

outside the mobile network, the call is routed through  

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GMSC.   In  short,  it  serves  as  an  interconnection  

between MSC and PSTN (network).

(b) PSTN:  It  means  Public  Switched  Telephone  Network.  

The term ‘PSTN’ refers to inter-connection of switching  

systems in  the  PSTN (Exchange).   Switching  network  

refers to the component inside a switching system that  

switches one circuit to another circuit.

(c) Point Of Interconnection (POI): It is a point at which  

the  GMSC  of  a  mobile  network  of  UASL  and  the  

Gateway  Switch  of  BSNL  are  inter-connected  by  a  

facility of inter-connection seeker (Reliance in this case).

(d) Trunk  Group:  It  consists  of  several  trunks  (lines)  

provided as a group by the local telephone company or  

any other carrier.   Trunk group is a part of POI (see  

clause 2.1.13).

(e) Unified  Access  Services:  It  means  a  

telecommunication  service  provided  by  a  

telecommunication system for conveyance of messages  

through  wired  or  wireless  telegraphy.   The  Unified  

Access Services refer to transmission of voice or non-

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voice  messages  over  the  network  of  the  licensee  

(Reliance  in  this  case).   It,  however,  does  not  cover  

broadcasting of messages.  However, the subscriber has  

to be registered and authenticated at the network point  

of registration and approved numbering plan shall  be  

applicable.  Thus, UASP is the abbreviated term for the  

expression “Unified Access Service Provider”.

(f) International Gateway: A Gateway is a network point  

that  acts  as  an  entrance  to  another  network.  

Conceptually,  it  is the point of inter-connection (POI),  

i.e., the point of entry for the international calls to the  

telecom network of India.  A POI is a mutually agreed  

upon point of demarcation where the Exchange of traffic  

between the two telecom networks takes place.  In the  

case  of  international  calls  traffic,  i.e.,  inter-country  

telecommunications,  the  POI  is  the  International  

Gateway.   In  this  case,  we  are  concerned  with  the  

international  gateway  of  BSNL.   However,  for  intra-

country  calls  traffic,  every  local  telecom  network  

provider (Reliance in this case) is supposed to set up a  

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local POI which acts as the entry point for all incoming  

telecom traffic.  The local POI has got to be under the  

care and control of the local telecom provider for whose  

network the local POI acts as an entry point.  This local  

POI is the location where details of all incoming landing  

telecom  traffic,  namely,  the  CLI  number,  their  

destination  number,  their  time-stamp  details,  their  

duration, etc. have to be logged for future accounting  

and tracing requirements.  Thus, we have two kinds of  

POIs,  namely,  international  POIs  and  local  POIs.  

Similarly, we also have two kinds of CLIs, namely, local  

and international CLIs.

(g) Calling  Line  Identification  (CLI):   CLI  means  

information generated by the Network capability which  

identifies and forwards the calling number through the  

interconnected BSNL’s/ UASL’s network.

(h) Gateway Switch: It is a switch which has the capability  

to  perform  Gateway functions  like  sending  and  

receiving signals, sending and receiving various types of  

information to the other operators’ network in a multi-

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operator  environment  such  as  operators’  identity,  

charging area information, etc. as well as transportation  

of  CLI,  generating call  data records (CDRs)  for  an off  

line billing system giving all necessary details of the call  

for  proper  settlement  of  accounts  in  a  multi-operator  

environment and security monitoring functions.

(i) National  Long  Distance  Service  Operator  (NLDO):  

means the telecom operator who provides the required  

digital  capacity  to  carry  long  distance  

telecommunication service within the scope of  license  

which may include  various  types  of  services  such as  

voice, data, fax, text, video and multimedia, etc.

(j) Short  Distance  Charging  Centre  (SDCC):  It  is  an  

Exchange in a Short Distance Charging Area declared  

as such for the purpose of charging long distance trunk  

calls as defined in the National Fundamental Plan.

(k) Long Distance Charging Centre (LDCC):  It  means a  

Trunk Exchange in  the  Long Distance  Charging Area  

declared  as  such  for  the  purposes  of  charging  long  

distance calls.

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(l) TAX: It means Trunk Automatic Exchange.

(m) Billing: It  is  defined  in  Clause  6.2.1  of  the  

Interconnect  Agreement.   For  every  STD/ISD  calls  

originating from the network of the licensee (Reliance)  

and  accepted  by  BSNL,  a  detailed  billing  record  is  

generated in the LDCC Exchange.  For this purpose the  

subscriber’s identity shall  be supplied by the licensee  

(Reliance) for detailed billing purpose.

(n) Inter-connect Usage Charges (IUC): IUC is payable by  

UASL  (Reliance)  to  BSNL  under  the  Interconnect  

Agreement  for  the  calls  originating  in  the  network  of  

UASL and which calls are in turn handed over to the  

network  of  BSNL.   IUC  includes  termination  charge,  

carriage charge, transit charge and access deficit charge  

(ADC) as applicable.

(o) Access  Deficit  Charge  (ADC):   The  Access  Deficit  

Charge  is  an  amount  given  to  an  operator  to  

compensate for the difference between the actual cost of  

providing a particular service and the mandated lower  

tariff for providing the service to a class of subscribers,  

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usually rural.  ADC is compensatory in the sense that  

ADC  is  meant  to  subsidize  the  rural  infrastructural  

projects of BSNL by the private service providers who at  

the relevant time did not cater to the rural areas.  IUC  

consisted  of  carriage,  termination  and  access  deficit  

charges (see clause 6.4.1).

(iii) Obligations  of  the  UASL  Licensees  under  the  Agreement

13. For the sake of easy understanding, we need to discuss  

the above terms in the Agreement in the light of international  

call(s) coming to India and not vice-versa.

14. The basic underlying principle of clause 6.4.6 is that an  

international  call  shall  remain  international  right  from  the  

point of origination to the point of termination.

15. At  the  outset  one  needs  to  ascertain  the  contractual  

obligations  of  the  UASL  (Reliance  in  this  case)  under  the  

Agreement as modified by the addenda dated 28th February,  

2006.

16. Interconnection  agreement  prescribes  terms  and  

conditions  under  which  two  licensees  or  service  providers  

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interconnect  their  networks  to  allow  their  respective  

subscribers to have seamless access to each other’s networks.  

It is a binding contract that binds each contracting party with  

respect  to  interconnection  arrangements  including  

commercial,  technical  and operational.   However,  the  scope  

and content of each such contract may vary.  Under the said  

Agreement,  IUC  payments  are  divided  into  four  heads:  (i)  

originating  charges;  (ii)  carriage  charges;  (iii)  termination  

charges; and (iv) ADC payments.  ADC payment, as a concept,  

is  a  fee  paid  by  cellular,  UAS,  national  long  distance  and  

international  long distance subscribers.   This payment is in  

the nature of tax as no service is rendered in return.  ADC  

payments are to cross subsidize BSNL for developing its fixed  

network in non-lucrative areas.  The licensee(s)  makes ADC  

payments  based  on  their  adjusted  gross  revenues.   These  

payments are later on transferred to BSNL.  An IUC charge is,  

thus, a payment by one service provider to another for the use  

of  network  elements to  originate,  transit  or  terminate  calls.  

BSNL receives ADC payments for international calls made to  

fixed numbers.  These payments are made by either national  

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long  distance  licensee(s)  or  international  long  distance  

licensee(s) that collects them.  BSNL receives ADC payments  

for  all  international  calls  from cellular  and limited  mobility  

numbers.  These payments are collected by ILDOs and given to  

BSNL.  Similarly, ADC payments on calls from international  

roaming  subscribers  are  collected  by  host  service  providers  

and paid to BSNL.  ADC payments for international calls are  

higher  than  similar  payments  for  national  long  distance  or  

local  calls.   This  has  tempted  some  licensees  to  engage  in  

ingenious schemes to avoid making ADC payments.  One such  

scheme is masking.  Call masking takes place when a licensee  

deliberately alters the identity of an incoming international call  

before  handing  it  over  to  another  service  provider  at  an  

interconnection  point,  i.e.,  POI.   The  international  calling  

party’s  identity  is  obliterated (i.e.  international  CLI  is  wiped  

out)  and the said international  call  is made to appear as it  

were  from a  domestic/  national  number.   This  technique  

enables  evasion  of  ADC  payments  at  enhanced  rates  for  

international  calls.   Today,  all  private  automated  branch  

exchanges  (PBX)  are  computerized.   It  is  important  to  note  

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that a Caller ID (CID) is a signal.   Most subscribers have a  

caller ID display unit at their residence to receiver caller ID  

signals which also indicates the nature of the call – whether it  

is local/ national or international.  As stated, whenever a call  

for  a  mobile  subscriber  comes  from  outside  the  mobile  

network or vice-versa, the call is routed through a special kind  

of gateway switch which is called as GMSC.  It serves as an  

interconnection  between mobile  switching centre  and PSTN,  

which  is  a  network.   However,  it  is  at  the  POI  (point  of  

interconnection) that the GMSC of the mobile network of UASL  

gets interconnected to the GMSC of BSNL by a facility of the  

interconnection  seeker  (which  in  this  case  happens  to  be  

Reliance).   Broadly  speaking,  we  have  two  types  of  POI,  

namely,  international  and local  POI.   Under the Agreement,  

UASL agrees to ensure that its interconnect facilities delivered  

at  each  POI  conforms  to  the  specified  standards  for  

interconnection and that UASL shall be responsible to provide,  

install, test, etc. all such interconnection facilities on its side  

of POI.  Therefore, every POI has two sides.  Eg. in our case,  

one side of POI is that of BSNL and the other side is that of  

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Reliance.   The  Calling  Line  Identification  (CLI)  means  

information  generated  by  the  network  capability  which  

identifies  and  forwards  the  calling  number  through  the  

interconnected BSNL’s network.  Under clause 2.1.13, Trunk  

Group is a part of POI.  One must keep in mind that the above  

aspects  are  not  only  technological,  they  are  maintained  for  

billing and accounting purposes.  They generate data(s) in the  

form of CDRs and billing records in detail at the International  

Gateway Exchange of ILDO (International POI), at the NLDO  

Trunk Automatic Exchange of NLDO (National POI) and Local  

Telephone Exchange of BSO (Local POI for our understanding).  

At  each stage,  the  billing  record  is  generated  so  that  if  an  

UASL is riding on the network of BSNL, the former has to pay  

for the incoming international call in terms of duration, etc.  

and  even in  the  case  of  local  calls  or  national  calls  which  

includes  the  distance  parameter.   Under  clause  2.1.13,  the  

fully mobile, limited mobile and fixed services network of UASL  

shall  be  having  separate  POIs  with  BSNL,  which  shall  be  

treated separately for set up costs, port charges, etc.  Under  

clause  2.1.15.3.3,  for  the  purpose  of  international  call  the  

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UASL shall handover the call to BSNL at the originating Long  

Distance  Charging  Centre  (i.e.  LDCC  TAX).   Lastly,  under  

clause 6.4.7, all the required information shall be submitted in  

the  form of  monthly  certificate  as  prescribed  in  Schedule  I  

shall be submitted to BSNL by UASL.  It will indicate details of  

the traffic routed other than through BSNL as NLDO/ILDO in  

respect of international long distance calls (both incoming and  

outgoing).  It also indicates procedure for billing and recovery  

of ADC inter alia in respect of ISD calls (both incoming and  

outgoing).  This is relevant also because under clause 2.1.5.2  

calls  from fully  mobile  subscribers of  other Telecom Service  

Providers  of  the  different  service  area  (national  roaming)  or  

Other Country (international roaming) have got to be handed  

over  by  UASL  to  BSNL  on  separate  trunk  groups  at  the  

Gateway  TAX  of  BSNL  of  that  service  area.   Under  clause  

2.1.9.2, no by pass of traffic shall be resorted to by any party  

by delivering the traffic at any POI other than the specified POI  

and in case unauthorized diversion in routing comes to notice,  

BSNL shall be free to disconnect that POI in that area.  Thus,  

under  the  Agreement  if  UASL  like  Reliance  receives  an  

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international  call  at  its  exchange,  its  primary  duty  will  be  

under  the  contract  to  identify  it  and  to  forward  it  to  the  

appropriate  trunk  group  of  BSNL.   Now,  as  alleged  if  the  

international call(s) falls on the local POI of Reliance, the latter  

is obliged under the contract to identify the call, whether it is  

local or national or international, and accordingly forwards it  

to  the  appropriate  trunk  group  of  BSNL.   For  the  above  

reasons, it is also stipulated in clause 2.9.1 (which deals with  

network integrity and screening) that it shall be the duty of the  

UASL to prevent wrong transmission.  In fact, under clauses  

2.9.2 and 2.9.3 the establishment of proper screening function  

at its Gateway shall  be the obligation of the UASL so as to  

detect signals outside the inter-working specification of TEC.  

As a corollary, clause 6.4.6(a) inter alia provides that calls on  

non-specified trunk groups (like international calls landing on  

the local POIs), if detected, for which the IUC rate applicable is  

higher  (for  example,  for  international  calls  the  IUC  rate  is  

much higher than IUC rates for local/national calls), then the  

higher  IUC rate  would  be  applicable  for  such unauthorized  

calls.  In such a case, BSNL would be free to charge the UASL  

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the higher IUC for all calls recorded on these POIs from the  

date of provisioning of that POI [at Vadodara in this case] or  

for preceding two months, whichever is less.  Similarly, under  

clause  6.4.6(b),  if  the  UASL  masks  or  disguises  the  

international call as local call that UASL will have to pay the  

higher IUC rate meant for international calls to BSNL from the  

date of provisioning of that POI or for preceding two months,  

whichever is less.  Thus, if there is masking of CLI for the calls  

generated and forwarded from the telephone of UASL, then it  

would  be  the  primary  duty  of  that  UASL  to  prevent  such  

misuse and failing which BSNL would be free to invoke clause  

6.4.6.  It is important to note that clause 6.4.6 restricts the  

charge to last two preceding months.  The charge under clause  

6.4.6  is  not  dependent  upon number  of  calls  and even the  

period of misuse of services is restricted to last two preceding  

months.  Thus,  when an international  call,  as in this case,  

lands on the local POI of the UASL it knows the nature of the  

call.  There is a difference between an international CLI and  

the local/national CLI.  The billing record of that POI indicates  

the nature of the call.  It is the contractual obligation of the  

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UASL to maintain the billing records in detail (including the  

CDR  and  the  monthly  certificate  in  the  prescribed  form).  

Further, when the international call(s) lands at the local POI of  

the UASL, the incoming traffic bypasses the authorized route –  

international  gateway  exchange  of  BSNL,  the  NLDO  trunk  

exchange of NLDO and the local telephone exchange of BSO.  

Thus, the defaulting UASL fails to maintain the billing records  

(including CDRs at each stage).  This results in concealment of  

details which results in reduced payment of IUC charges by  

the defaulting UASL, thus, giving him the unauthorized benefit  

of paying less ADC which was the major component of IUC at  

the  relevant  time  and  which  reduces  the  cost  of  providing  

services which in turn results in destroying the “principle of  

level playing” which is so important in the regulatory regime  

because  pricing  of  the  services  in  the  international  market  

plays an important role.  The above modus operandi enables  

the defaulting UASL to sell his product (services) abroad at a  

rate which may be less as compared to the rates charged by  

BSNL  (who  is  also  a  Competitor  Service  Provider).  The  

unauthorized call(s) gets for the defaulting UASL not only more  

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profits by cost reduction, he also gets more business at the  

rates below the competitive rates.  Same is the position in case  

of  masking  of  international  calls  as  local  calls.   In  this  

connection, it is important to note that when an international  

call(s)  lands on the local POI of the UASL, the latter knows  

from the display mechanism at his end (like the subscriber at  

his end) that call bears the international CLI and that is the  

reason for masking.  Otherwise one needs no masking of the  

CLI.  In both the cases i.e. under clauses 6.4.6(a) and 6.4.6(b)  

the same economic and financial consequences flows and that  

is  the reason why clause 6.4.6 provides for  reasonable pre-

estimate  of  damage.   There  is  one  more  reason.   It  is  not  

possible to trace each such unauthorized call, particularly its  

nature,  as  to  from  which  place  it  originated  and  if  it  was  

possible the cost of tracing such call(s)  may be much more  

than actual damage, if ascertainable, and therefore, a “rough  

and ready measure” is provided in clause 6.4.6 which measure  

is a reasonable pre-estimate of damage.

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(iv) Whether  clause  6.4.6  represents  penalty  or  pre- estimate of reasonable compensation for the loss?

17. According to Chitty on Contracts “whether a provision is  

to be treated as a penalty is a matter of construction to be  

resolved  by  asking  whether  at  the  time  the  contract  was  

entered  into  the  predominant  contractual  function  of  the  

provision was to deter a party from breaking the contract or to  

compensate the innocent party for breach.  The question to be  

always asked is whether the alleged penalty clause can pass  

muster as a genuine pre-estimate of loss”. (See para 26-126 of  

Chitty  on Contracts,  30th edition)   The  fact  that  damage  is  

difficult to assess with precision strengthens the presumption  

that a sum agreed between the parties represents a genuine  

attempt to estimate it and to overcome the difficulties of proof  

at the trial.  According to the Law of Contract by G.H. Treitel  

(10th edition), a clause is penal if it provides for “a payment  

stipulated as in terrorem of the offending party to force him to  

perform the contract.  If, on the other hand, the clause is an  

attempt to estimate in advance the loss which will result from  

the breach, it is a liquidated damages clause.  The question  

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whether a clause is penal or pre-estimate of damages depends  

on its construction and on the surrounding circumstances at  

the time of entering into the contract”.  Lastly, the fact that a  

sum of money is payable on breach of contract is described by  

the contract as “penalty” or “liquidated damages” is relevant  

but not decisive as to categorization.   

18. Applying the above tests to facts of this case, we find that  

the Interconnect Agreement in question should be viewed in  

the  context  of  the  regulatory  regime.   In  this  case,  we  are  

concerned  with  telecom  as  a  service.   This  is  the  most  

important circumstance to be considered as one of the main  

surrounding  circumstances  to  the  Interconnect  Agreement.  

Under  the  Interconnect  Agreement,  the  UASL  is  obliged  to  

maintain the integrity of its exchange/POI.  It is important to  

note that each service provider, including BSNL, is a market  

player/stakeholder.  Each UASL is entitled to a level playing  

field.   The  nature  of  the  call,  be  it  local  or  national  or  

international, as indicated by corresponding CLI, is the basis  

for the levy of IUC (including ADC).  If by wrong routing of calls  

or by masking the cost of providing services is reduced, the  

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concerned operator gets an undue advantage not only in the  

Indian market over other competing operators but also in the  

international market.  Billing is one of the most vital aspects of  

this case.  With technology, an international call could fall on  

the local POI but then the concerned operator is responsible  

for  the  identity  of  the  call.   In  the  case  of  calls  which are  

correctly routed, the display screen with the subscriber clearly  

indicates whether the call bears international or local/national  

CLI.  Similarly, when the Gateway Bypass Scam takes place  

and the international call(s) lands on the local POI which is  

not forwarded to the specified trunk group/POI, there is not  

only  bypassing  of  International  Gateway/  POI  and National  

POI  but  also  evasion of  duty  to  maintain  billing  records in  

detail at each POIs.

19. All this results in payment of IUC at a lower rate.  All this  

leads to reduced cost for the defaulting UASL which provides  

not only increase in its profit but also gives it an advantage in  

international  market  vis-a-vis  other  competitors  (including  

BSNL)  because  the  defaulting  UASL  can  easily  price  its  

product in the international market at a lower rate and in that  

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sense  loss  is  caused  to  BSNL.   Similarly,  as  stated  above,  

masking  takes  place  as  international  CLI  can  easily  be  

identified even when an international call lands on the local  

POI  of  the  UASL,  hence,  the  defaulting  UASL  resorts  to  

masking.   Hence,  an  international  call  coming  from  the  

masked number alone cannot be taken into account.  Thus, in  

our view, clauses 6.4.6(a) and 6.4.6(b) provide for pre-estimate  

of damages.  It is so also for one more reason.  The clause, as  

stated above, restricts the higher IUC rate made applicable for  

calls only for last two preceding months and not for last three  

years  or  the  longer  period.   These  time  lines  is  an  indicia  

showing that clause 6.4.6 is not penal but a pre-estimate of  

reasonable compensation for the loss foreseen at the time of  

entering  into  the  agreement.   Lastly,  it  may  be  noted  that  

liquidated  damages  serve  the  useful  purpose  of  avoiding  

litigation and promoting commercial certainty and, therefore,  

the court should not be astute to categorize as penalties the  

clauses  described  as  liquidated  damages.   This  principle  is  

relevant to regulatory regimes.  It is important to bear in mind  

that  while  categorizing  damages  as  “penal”  or  “liquidated  

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damages”,  one must keep in mind the concept of pricing of  

these  contracts  and  the  level  playing  field  provided  to  the  

operators because it is on costing and pricing that the loss to  

BSNL is measured and, therefore, all calls during the relevant  

period have to be seen.  [See Communications Law in India by  

Vikram Raghavan at page 639].  Since clause 6.4.6 represents  

pre-estimate  of  reasonable  compensation,  Section  74  of  the  

Contract  Act  is  not  violated.   Thus,  it  is  not  necessary  to  

discuss various judgments of this Court under Section 74 of  

the Contract Act.

Conclusion

20. We  need  to  clarify  that  in  this  case  our  judgment  is  

restricted  only  to  the  interpretation  of  clause  6.4.6  of  the  

Interconnect  Agreement  read  with  the  Addenda.   As  stated  

above, we have held that clause 6.4.6 represents pre-estimate  

of  reasonable  compensation  for  the  loss  suffered  by  BSNL.  

Thus,  we  set  aside  the  impugned  judgment  and  remit  the  

matter to TDSAT to decide the matter  de novo in accordance  

with  the  law laid  down hereinabove.   However,  we  need to  

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highlight one aspect.  In the letter dated 13th October, 2004  

addressed by BSNL to Reliance, it has been alleged that the  

calls have landed at the POIs of M/s. Reliance Infocomm. Ltd.  

at Karellbaug, Panigate, Alkapuri, Makarpura, Padra, Dabhoi  

and Miyagam exchanges  in  Vadodara SSA.   The said  letter  

highlights one more important aspect.  It is alleged that the  

number  2813041000  was  an  unallocated  number  with  

Reliance during the relevant period.  This aspect needs to be  

examined by TDSAT on facts.

21. Accordingly, the civil appeal is allowed with no order as  

to costs.  

…….…..……………………….CJI (S. H. Kapadia)

………………………..…………..J. (K.S. Panicker Radhakrishnan)

……..……………………………..J. (Swatanter Kumar)

New Delhi;  November 29, 2010

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