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PETITIONER: DELHI SCIENCE FORTUM & ORS.

       Vs.

RESPONDENT: UNION OF INDIA & ANR.

DATE OF JUDGMENT:       19/02/1996

BENCH: SINGH N.P. (J) BENCH: SINGH N.P. (J) AHMADI A.M. (CJ) VENKATASWAMI K. (J)

CITATION:  1996 AIR 1356            1996 SCC  (2) 405  JT 1996 (2)   295        1996 SCALE  (2)218

ACT:

HEADNOTE:

JUDGMENT:    (With W.P.(C) Nos. 716/95, 801/95, 818/95, 2/96, 3/96)                             WITH               TRANSFER CASE NOS. 4 - 6 OF 1996               --------------------------------   (Arising out of Transfer Petition Nos. 304-307 of 1995) National Telecom Federation of Telecom Emnloyees & Ors. V. Union of India & Ors. J U D G M E N T N.P. SINGH, J      The  petitioners   in  different  writ  petitions  have questioned the  power of  the Central  Government  to  grant licences to  different non-Government Companies to establish and maintain  Telecommunications System  in the  country and the  validity  of  the  procedure  adopted  by  the  Central Government for the said grant.      In February  1993, the  Finance Minister  in his Budget speech  announced   Government’s  intention   to   encourage private-sector involvement  and  participation in Telecom to supplement  efforts   of  Department  of  Telecommunications especially  in   creation  of   internationally  competitive industry. May 13, 1994 National Telecom policy was announced which was  placed in  the Parliament  saying that the aim of the policy was to supplement the effort of the Department of Telecommunications in providing telecommunications services. Later, guidelines for induction of private-sector into basic telephone services were announced and a Committee was set up to draft  the tender  documents for basic telephone services under  the   Chairmanship  of  G.S.S.  Murthy.  Ministry  of Communications published the ’Tender Documents for Provision of Telephone Service’. It specified and prescribed the terms and conditions  for the basic services and it also conceived foreign participation  but as  a joint venture prescribing a

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ceiling on  total foreign  equity so  far the Indian Company was concerned  was not  to exceed  49% of  the total  equity apart from other conditions.      Pursuant to  the notice  inviting tenders, tenders were submitted for  different circles,  but before licences could be granted  by the  Central Government,  writ petitions were filed in different High Courts as well as before this Court. All writ  petitions filed  before different High Courts were transferred to this Court to be heard together.      Telecommunications has  been internationally recognized as a  public utility of strategic importance. The variety of Telecommunications  services   that  has   become  available globally in  the last  decade is  remarkable.  It  is  being realized that  economy is  increasingly related  to the  way this  Telecom   infrastructure  functions   for  purpose  of processing  and   transmission  of  information,  which  has acquired central  stage in  the economic  world  today.  The special   aspect    about   Telecommunications   is   inter- connectivity which  is known  as ’any  to any  requirement’. Because of  the economic  growth and  commercial changes  in different Parts  of the  world, need  for inter-connectivity means that  communication systems have to be compatible with each other  and have to be actually inter-connected. Because of this,  there is  a demand even in developing countries to have communication  system on  international standards. Even after several  decades of  the invention  of  the  telephone system, in  almost all  countries Telecommunications was the subject  of   monopoly  supplied  with  the  public  network operator normally  being  the  State  owned  Corporation  or Government Department.  Then  it  was  not  thought  due  to different considerations that such right could be granted to private sectors  denuding the  right of  the monopoly of the Government   to    maintain   and    run   the   system   of Telecommunications.  The   developed  countries  first  took decision  in  respect  of  privatization  of  Telecom  which amounted to  giving up the claim of exclusive privilege over such system  and this led to the transition from monopoly to a duopoly  policy  in  many  countries.  India,  although  a developing country also faced a challenge in this sector. By and  large   it  was   realized  that   this  sector  needed acceleration because of the adoption of liberalized economic policy for  the economic  growth of  the country. It appears that the  policy makers were faced with the implications for public welfare vis-a-vis the sector being capital intensive. How the  network is  well maintained  so as  it reaches  the largest number of people at a price to be paid by such users which can  be held as reasonable? This issue was also inter- related with  the  defence  and  national  security  of  the nation. Different  committees and  bodies  constituted  from time to  time examined  the Telecom  policy which  could  be adopted by the nation from different aspects and angles.      The counsel  appearing in  some of  the writ  petitions questioned the validity and propriety of the new Telecom Policy  itself on  the ground that it shall endanger The national  security of  the country,  and shall not serve the economic  interest of  the nation.  According  to  them, telecommunication being a sensitive service should always be within the exclusive domain and control of the Central Government and  under no  situation it should be parted with by way  of grant of licences to non-Government Companies and private bodies. The national policies in respect of economy, finance,  communications,   trade,  telecommunications   and others  have  to  be  decided  by  the  Parliament  and  the representatives of the people on the floor of the Parliament can challenge  and question  any such  policy adopted by the

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ruling Government.  In the  case of  R.K. Garg  etc. etc. v. Union of  India &  Ors., (1982)  S.C.R. 347  a  Constitution Bench of this Court said:           "Another   rule    of    equal      importance is that laws relating to      economic   activities   should   be      viewed with  greater latitude  than      laws touching  civil rights such as      freedom of speech, religion etc. It      has been  said by  no less a person      than   Holmes,    J.    that    the      legislature should  be allowed some      play in  the joints, because it has      to deal with complex problems which      do not  admit of  solution  through      any doctrinaire  or straight jacket      formula and  this  is  particularly      true in case of legislation dealing      with   economic   matters,   where,      having regard  to the nature of the      problems required to be dealt with,      greater play  in the  joints has to      be allowed  to the legislature. The      court should  feel more inclined to      give    judicial    deference    to      legislature judgment  in the  field      of  economic   regulation  than  in      other areas where fundamental human      rights are involved." In Morey v. Dond, 354 US 457 Frankfurter, J said:           "In  the  utilities,  tax  and      economic  regulation  cases,  there      are good reasons for judicial self-      restraint    if     not    judicial      difference to legislative judgment.      The legislature  after all  has the      affirmative   responsibility.   The      courts  have   only  the  power  to      destroy, not  to reconstruct.  When      these are  added to  the complexity      of   economic    regulation,    the      uncertainty,   the   liability   to      error, the  bewildering conflict of      the  experts,  and  the  number  of      times   the    judges   have   been      overruled by events-self limitation      can be  seen  to  be  the  path  to      judicial wisdom  and  institutional      prestige and stability." What has  been said in respect of legislations is applicable even in  respect of  policies which have been adopted by the Parliament. They  cannot be  tested in  Court  of  Law.  The courts cannot  express their  opinion as  to  whether  at  a particular  juncture   or  under   a  particular   situation prevailing in  the country  any such  national policy should have been  adopted or  not. There  may be  views and  views, opinions and  opinions which  may be  shared and believed by citizens of the country including the representatives of the people in  the Parliament.  But that has to be sorted out in the  Parliament     which  has  to  approve  such  policies. Privatization  is   a  fundamental  concept  underlying  the questions   about the power to make economic decisions. What should be the role of the State in the  economic development of the  nation? How  the resources  of the  country shall be used? How  the goals fixed shall be attained? What are to be

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the safeguards  to prevent the abuse of the economic  power? What is  the mechanism  of accountability to ensure that the decision regarding  Privatization is in public interest? All these  questions   have  to   be  answered   by  a  vigilant Parliament. Courts  have  their  limitations  because  these issues rest  with the  policy  makers  for  the  nation.  No direction can be given or is expected from the courts unless while implementing  such policies,  there  is  violation  or infringement of  any  of  the  Constitutional  or  statutory provision. The  new Telecom  Policy was  placed  before  the Parliament and  it  shall  be  deemed  that  Parliament  has approved the same. This Court cannot review and examine as to  whether said  policy should  have  been  adopted.  Of course, whether  there is any legal or Constitutional bar in adopting such policy can certainly be examined by the court.      The primary  ground of  the challenge in respect of the legality of the implementation of the policy is that Central Government which has the exclusive privilege under Section 4 of the  Indian Telegraph  Act, 1885 (hereinafter referred to as the  ’Act’)  of  establishing,  maintaining  and  working telegraphs which  shall include telephones, has no authority to part  with the said privilege to non-Government Companies for the  consideration to be paid by such companies on basis of tenders submitted by them; this amounts to an out and out sale of the said privilege.      The expression  ’telegraph’ has been defined in Section 3(1):      "3(1)   "telegraph"    means    any      appliance, instrument,  material or      apparatus used or capable of use of      transmission or reception of signs,      signals, writing, images and sounds      or intelligence  of any  nature  by      wire,     visual      or      other      electromagnetic  emissions,   Radio      waves or  Hertzian waves, galvanic,      electric or magnetic means.      Explanation  -   "Radio  waves"  or      "Hertzian       waves"        means      electromagnetic      waves       of      frequencies lower  than 3,000 giga-      cycles  per  second  propagated  in      Space without artificial guide."      Section 4 of the Act is as follows:      "4. (1)  Within India  the  Central      Government shall have the exclusive      privilege     of      establishing,      maintaining and working telegraphs:      Provided    that     the    Central      Government may  grant a licence, on      such     conditions      and     in      consideration of  such payments  as      it thinks  fit, to  any  person  to      establish,  maintain   or  work   a      telegraph within any part of India:      Provided further  that the  Central      Government may, by rules made under      this  Act   and  published  in  the      Official Gazette,  permit,  subject      to such restrictions and conditions      as    it     thinks    fit,     the      establishment,   maintenance    and      working-      (a) of wireless telegraphs on ships      within  Indian  territorial  waters

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    and on  aircraft  within  or  above      India, or Indian territorial waters      and      (b)  of   telegraphs   other   than      wireless telegraphs within any part      of India.      (2) The  Central Government may, by      notification   in    the   Official      Gazette, delegate  to the telegraph      authority all  or any of its powers      under the  first  proviso  to  sub-      section (1).      The  exercise   by  the   telegraph      authority of any power so delegated      shall   be    subject    to    such      restrictions  and   conditions  the      Central  Government   may,  by  the      notification, think fit to impose."      There is  no dispute that the expression ’telegraph’ as defined  in   the   Act   shall   include   telephones   and telecommunications services. Sub-section (1) of Section 4 on plain reading  vests the  right of  exclusive  privilege  of establishing, maintaining  and  working  telegraphs  in  the Central Government,   but  the proviso  thereof enables  the Central Government  to grant licence, on such conditions and in consideration  of such  payments as it thinks fit, to any person to  establish, maintain and work telegraph within any part of India. It is true that the Act was enacted as early as in  the year  1885 and  central Government  exercised the exclusive privilege of establishing, maintaining and working telegraphs for  more than  a century. But the framers of the Act since the very beginning conceived and contemplated that a situation  may arise  when the Central Government may have to grant  a licence  to any Person to establish, maintain or work such  telegraph including  telephone within any part of India. With  that  object  in  view,  it  was  provided  and prescribed that licence may be granted to any person on such conditions and  in consideration  of such  payments  as  the Central Government  may think fit. If proviso to sub-section (1) of  Section 4  itself provides  for grant  of licence on condition to  be prescribed and considerations to be paid to any person,  then whenever  such licence  is  granted,  such grantee can establish, maintain or work the telephone system in that  part of India. In view of the clear and unambiguous proviso to  sub-section  (1)  of  Section  4,  enabling  the Central Government  to  grant  licences  for  establishment, maintenance   or    working    of    telegraphs    including telecommunications, how  can it  be held  that the privilege which has been vested by sub-section (1) of Section 4 of the Act in the Central Government cannot be granted to others on conditions  and   for  considerations   regarding  payments? According to  us the  power and  authority  of  the  Central Government to  grant licences  to private  bodies  including Companies  subject  to  conditions  and  considerations  for payments cannot  be questioned.  That right  flows from  the same sub-section (1) of Section 4 which vests that privilege and right  in the  Central Government.  Of course, there can be controversy  in respect of the manner in which such right and  privilege   which  has   been  vested  in  the  Central Government has been parted with in favour of private bodies. It cannot  be disputed that in respect of grant of any right or licence  by the  Central Government or an authority which can be  held to be State within the meaning of Article 12 of the Constitution  not only the source of the power has to be traced, but  it has  also to  be found  that  the  procedure

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adopted  for   such  grant   was  reasonable,  rational  and inconfirmity with  the conditions  which had been announced. Statutory   authorities   have   some   times   used   their discretionary power to confer social or economic benefits on a particular  section or group of community. The plea raised is that  the Act vests power in them to be exercised as they ’think fit’.  This is a misconception. Such provisions while vesting  powers   in  authorities   including  the   Central Government also  enjoin a  fiduciary duty  to act  with  due restrain, to  avoid ’misplaced  philanthropy  or  ideology’. Reference in  this connection  can be  made  to  the  cases: Roberts v.  Hopewood, (1925) A.C. 578; Prescott v.Birmingham Corporation, (1954)3  All E.R.698;  Taylor &  Ors. v. Munrow (1960) 1  All E.R.  455; Bromley  London Borough  Council v. Greater London Council and another, (1982) 1 All E.R. 129.      As  such   Central  Government   while  exercising  its statutory power  under first  proviso to Section 4(1) of the Act, of granting licences for establishment, maintenance and working of  Telecommunications has a fiduciary duty as well. The new  experiment has  to fulfill  the tests  laid down by courts for  exercise of a statutory discretion. It cannot be exercised in  a manner  which can be held to be unlawful and which is  now known  in  administrative  law  as  Wednesbury principle,   stated in  Associated Provincial Picture Houses Ltd.  v.  Wednesbury  Corp,  (1947)  2  All  E.R.  680.  The aforesaid principle  is attracted where it is shown, that an authority exercising  the discretion  has taken  a  decision which is  devoid of  any  plausible  justification  and  any authority having reasonable persons could not have taken the said decision.  In the  case of  Bromley LBC  (supra) it was said by Lord Diplock:-      "Powers to  direct or  approve  the      general  level   and  structure  of      fares to  be charged by the LTE for      the carriage  of passengers  on its      transport     system,      although      unqualified by any express words in      the  Act.  may  none  the  less  be      subject to implied limitations when      expressed to  be exercisable  by  a      local authority  such  as  the  GLC      ........ " As  such   Central  Government   is  expected  to  put  such conditions while  granting licences,  which shall  safeguard the public  interest and  the interest  of the  nation. Such conditions should  be commensurate with the obligations that flow  while  parting  with  the  privilege  which  has  been exclusively vested in the Central Government by the Act.      A stand  was taken  that even  if it  is  assumed  that because of  the proviso to sub-section (1) of Section 4, the Central  Government   can  grant   licences  in  respect  of establishing, maintaining  or working  of telecommunications to Indian  Companies registered  under the  Indian Companies Act, such  power  should  have  been  exercised  only  after framing of  rules under  Section 7 of the Act. In support of this stand,  attention was  drawn to  second proviso to sub- section (1)  of Section  4  which  says  that  ’the  Central Government may, by rules made under this Act’ permit subject to such  restrictions and  conditions as  it thinks fit, the establishment, maintenance and working - (a)  of   wireless  telegraphs   on  ships   within   Indian territorial waters and on aircraft within or above India, or Indian territorial waters and (b) of  telegraphs other than wireless telegraphs within any part of India.

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It was  pointed out that clause (b) of the second proviso to sub-section (1)  of Section  4 shall govern the grant of the licence under the first provio to sub-section (1) of Section 4  as  well  because  both  provisos  contemplate  grant  of licence/permit for  telegraphs within  any part  of India to any person  by the  Central Gvoernment. At first blush tghis argument  appears   to  be   attarctive,   but   on   closer examination, it  appears that  whereas the  first proviso to sub-section (1)  of Section  4 contemplates  the grant  of a licence, second  proviso  to  be  same  sub-section  (1)  of Section 4 speaks about permitting establishment, maintenance and working  of telegraphs  other than  wireless  telegraphs within any  part of  India. It  need not be pointed out that the concept  of grant  of licence  to establish, maintain or work a telegraph shall be different from granting Permission under the second proviso to establish, maintain or to work a telegraph within any part of India. They do not conceive and contemplate the  same area  of operation. It may be relevant to point  out that  so far  clause (b)  of second proviso is concerned,   it    excludes   wireless   telegraphs,   which restriction has  not been  prescribed in  the first proviso. The second  proviso was  introduced by  Act No.VII  of 1914. From a  copy of the Bill which was introduced in the Council of the  Governor General  of India  in respect of adding one more proviso  to sub-section (1) of Section 4 of the Act, it appears there was no clause (b). In the Statement of Objects and Reasons  of the  said Amendment,  it was  said that  the second proviso  was  being  introduced,  for  establishment, maintenance and  working of the wireless telegraphs on ships within Indian  territorial waters.  However, in the Amending Act, clause  (b) aforesaid  was also introduced enabling the Central Government,  by rules  to permit,  subject  to  such restrictions and  conditions, the establishment, maintenance and working  of telegraphs  other than  wireless  telegraphs within any  part of  India. According  to us,  there  is  no question of  clause (b) of the second proviso controlling or over-riding in  any manner  the first proviso which does not speak of  the grant  of licence  by any rules made under the said Act.      Section 7  enables the Central Government to make rules consistent with the provisions of the Act for the conduct of all or  any telegraphs  established, maintained or worked by the Government  or by  persons licensed  under the said Act. Clause (e)  of sub-section  (2) of Section 7 prescribes that rules under  the said Section may provide for conditions and restrictions subject  to which any telegraph line, appliance or  apparatus   for  telegraphic   communication  shall   be established,  maintained,   worked,  repaired,  transferred, shifted, withdrawn or disconnected. there is no dispute that no such  rules have  been framed  as contemplated by Section 7(2)(e) of  the Act.  But in  that event,  it cannot be held that unless  such rules  are framed,  the Power  under  sub- section (1)  of Section 4 cannot be exercised by the Central Government. The  power  has  been  granted  to  the  Central Government by  the Act  itself, and  the  exercise  of  that right, by  the Central  Government, cannot be circumscribed, limited or  restricted on  any subordinate legislation to be framed under  Section  7  of  the  Act.  No  doubt,  it  was advisable on  the part  of the  Central Government  to frame such rules  when it was so desired by the Parliament. Clause (e) to  subsection  (2)  of  Section  7  was  introduced  by Amending Act  47 of 1957. If the conditions and restrictions subject to  which any  telegraph -  telephone line  is to be established, maintained or worked had been prescribed by the rules, there  would have  been  less  chances  of  abuse  or

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arbitrary exercise  of the  said power.  That is  why by the Amending Act 47 of 1957 the Parliament required the rules to be framed.  But the  question is  as to whether specifically vested in  it by  first proviso  to Section 4(1) of the Act? Even in  absence of rules the power to grant licence on such conditions and  for such  considerations can be exercised by the  Central  Government  but  then  such  power  should  be exercised on  well settled  principles and  norms which  can satisfy the  test of  Article 14  of  the  Constitution.  If necessary for  the purpose  of satisfying  as to whether,the grant of  the licence has been made strictly in terms of the proviso complying  and fulfilling the conditions prescribed, which can be held not only reasonable, rational, but also in the public  interest can  be examined by courts. It need not be impressed  that an  authority which has been empowered to attach such  conditions, as  it thinks fit, must have regard to the  relevant considerations  and has  to  disregard  the irrelevant ones.  The authority has to genuinely examine the applications on  its individual  merit and  not to promote a purpose alien  to the spirit of the Act. In this background, the courts  have applied  the test  of a reasonable man i.e. the decision should not be taken or discretion should not be exercised in  a manner, as no reasonable man could have ever exercised. Many administrative decisions including decisions relating to  awarding of contracts are vested in a statutory authority or  a body  constituted  under  an  administrative order. Any decision taken by such authority or a body can be questioned primarily  on the  grounds: (i) decision has been taken in  bad faith; (ii) decision is based on irrational or irrelevant considerations;  (iii) decision  has  been  taken without  following   the  prescribed   procedure  which   is imperative in nature. While exercising the power of judicial review even in respect of contracts entered on behalf of the Government or  authority, which  can be  held  to  be  State within meaning of Article 12 of the constitution courts have to address  while examining  the grievance of any petitioner as to  whether the  decision has been vitiated on one ground or  the   other.  It  is  well  settled  that  the  onus  to demonstrate that  such decision has been vitiated because of adopting a  procedure not  sanctioned by  law, or because of bad faith  or taking  into consideration  factors which  are irrelevant, is  on the  person who  questions  the  validity thereof. This onus is not discharged only by raising a doubt in the  mind of  the court, but by satisfying the court that the authority  or the  body which  had been  vested with the power to  take decision  has adopted  a procedure which does not satisfy  the test  of Article  14 of the Constitution or which is  against the  provisions of the statute in question or has  acted with  oblique motive  or  has  failed  in  its function to  examine each claim on its own merit on relevant considerations.   Under    the   changed    scenarios    and circumstances prevailing  in the  society,  courts  are  not following the  rule of  judicial self-restraint.  But at the same time  all  decisions  which  are  to  be  taken  by  an authority vested  with  such  power  cannot  be  tested  and examined by  the  court.  The  situation  is  all  the  more difficult so far the commercial contracts are concerned. The Parliament  has  adopted  and  resolved  a  national  policy towards liberalization and opening of the national gates for foreign investors.  The question  of awarding  licences  and contracts does  not depend  merely on  the competitive rates offered; several factors have to be taken into consideration by  an   expert  body   which  is  more  familiar  with  the intricacies  of   that  particular   trade.  While  granting licences a  statutory authority  or the body so constituted,

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should have  latitude to select the best offers on terms and conditions to be prescribed taking into account the economic and  social   interest  of  the  nation.  Unless  any  party aggrieved satisfies  the court that the ultimate decision in respect of  the selection has been vitiated, normally courts should be reluctant to interfere with the same.      Tender documents  for provision  of  telephone  service were issued  inviting tenders  in respect  following Telecom Territorial Circles: (1) Andhra  Pradesh, (2)  Andaman  &  Nicobar  Islands,  (3) Assam, (4)  Bihar, (5)  Gujarat, (6)  Haryana, (7)  Himachal Pradesh, (8)  Jammu &  Kashmir, (9)  Karnataka, (10) Kerala, (11)  Madhya   Pradesh,  (12)  Maharashtra  (including  MTNL Bombay), (13)  North East,  (14) Orissa,  (15) Punjab,  (16) Rajasthan, (17)  Tamilnadu (including  Madras Metro Distt.), (18) Uttar  Pradesh, (19)  West Bengal  (including  Calcutta Metro Distt.), (20) Delhi (MTNL Delhi).      In  the   Tender  Documents   the   aforesaid   Telecom Territorial Circles  were  put  under  three  categories  as Category A,  Category B  and Category  C service  areas.  In category A  - A.P.  Circle, Delhi  (MTNL),  Gujarat  Circle, Karnataka  Circle,   Maharashtra  Circle  (including  Bombay MTNL), T.N.  Circle (including  Madras Metro  District);  in Category B  - Haryana  Circle, Kerala  Circle, M.P.  Circle, Punjab Circle, Rajasthan Circle, U.P. West Circle, U.P. East Circle, W.B. Circle (Including Calcutta Metro District); and in Category  C -  Andaman &  Nicobar Islands  Circle,  Assam Circle, Bihar  Circle, H.P. Circle, J&K Circle, N.E. Circle, Orissa Circle were specified. It was said the DOT/MTNL shall continue to  operate telephone  service in the Service Areas mentioned aforesaid.  It was further said that in respect of International, National  and Inter-service  Areas, Telephone Traffic will  be routed through the Long Distance Network of DOT  (Department  of  Telecommunications).  The  eligibility conditions for  bidders which  were specified  in Clause 2.1 Part I Section II of the Tender Documents:      "2.1  ELIGIBILITY   CONDITIONS  FOR      BIDDERS:      i) Indian  Company: The bidder must      be an  Indian  Company  registered,      before the  date of  submission  of      bid,  under  the  Indian  Companies      Act, 1956. However, the bidder must      not  be  a  Government  Company  as      defined  in  the  Indian  Companies      Act, 1956.( 19 )      ii) Foreign  Equity : Total foreign      equity in  the bidding Company must      not exceed 49% of the total equity.      iii) Networth  :  Networth  of  the      bidder Company  and its  promoters,      both   Indian   and   Foreign,   as      reflected  in  the  latest  audited      balance sheet,  must  not  be  less      than the  amount mentioned in Table      I  for  each  category  of  Service      Areas provided that the networth of      a Foreign  promoter  shall  not  be      taken into account for this purpose      if its  share in the equity capital      of the  bidder Company is less than      10%. A  bidder Company  which meets      the minimum requirement of networth      for a  Service Area of one category      may bid  for any  number of Service

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    Areas of that or lower category.      ___________________________________      Total          Category of  Service      Networth of    Areas (one or more      the Bidder     Service Area)                     for which bid can                     be Company                     submitted.      ___________________________________       Rs. 50 Crores           C       Rs.200 Crores     B and C       Rs.300 Crores  A, B and C      -----------------------------------      Networth in  foreign currency shall      be converted  into Indian Rupees at      rates  valid   for  16.01.1995   as      declared by  the  Reserve  Bank  of      India.      Networth is defined as the total in      Rupees of  paid up  equity  capital      and free reserves.      iv) Experience  : The  bidder  must      have  experience   as   a   service      provider and  a network operator of      a public switched telephone network      with a  minimum subscriber  base in      terms  of  DELs  served  (excluding      ISDN  lines  and  mobile  telephone      lines) as on 01.01.1995 of not less      than 500,000 (5 Lakh) lines.      For the purpose of eligibility with      regard to  experience of a promoter      Company which  has an equity of 10%      or more  in the  bidder Company and      which is  a service  provider and a      network  operator   of   a   public      switched  telephone  network,  Will      also be  added to the experience of      the bidder Company.      NOTE:      1. Subscriber  base refers  to  the      Subscriber who  are being  provided      telephone service.      2. Telephone  service - see Section      IV.      V)   Any number of Indian Companies      as well  as foreign  Companies  can      combine  to   promote  the   bidder      Company,   However,    an   Indian,      Company cannot be part of more than      one such  joint venture.  The  same      restriction applies  to  a  foreign      Company.      Clause 2.2  required the bidder company to submit apart from other documents mentioned therein: (i)  Copy of Certificate of incorporation of the bidder company from the Registrar of Campanies. (ii) Memorandum and  Articles of  Association of  the bidder company. (iii)Networth  and   experience  calculation  sheet  as  per Annexure 1. (iv) Annual reports for the last five financial years of the bidder Company  as well  as all the promoter Companies which have to be taken into consideration for the purpose of evaluating networth and experience.

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(v)  A comprehensive detailed document containing Company profile, a five year perspective network plan, a five year  financial plan with funding mechanism. Details of management and technical expertise etc. (vi) Copy  of  the  agreement  between  Indian  and  foreign Company. (vii)Approval of  the Government  of India  for the terms of foreign participation,  if already  taken, otherwise copy of the application  submitted to  the  competent  authority  of Government of  India, in  this regard together with proof of submission. (viii)Certificate  from   the  competent  authority  in  the Government of  India to  the effect  that the  total foreign equity in the bidder company does not exceed 49%. (ix) Documentary  evidence  in  support  of  the  experience claimed and other items quoted in the bid.      Clause 12  provided  for  the  award  of  tenders.  The relevant part is as follows:      " The  maximum  number  of  Service      Areas, a  successful bidder  can be      licensed for, is dependent upon the      total networth  of  the  bidder.  A      successful bidder can be awarded X,      Y, Z  numbers of category A B and C      areas  respectively  if  the  total      networth calculated as ; per Clause      2.1 (iii)  above equals  or exceeds      Rs.(300X    +     200Y    +    50Z)      Crores.............................      ...................................      ..................................      TELECOM  AUTHORITY   is   free   to      restrict  the   number  of  service      areas for which any one Company can      be   licensed    to   provide   the      SERVICE."                      (emphasis supplied)      Section III contained different conditions including in respect of  Security in  Clause 16.  Section IV provided the condition relating  to technical service. In the same Tender Documents service tariff was also specified.      Pursuant  to   the  invitation   of  tenders  aforesaid different Indian  Companies including  Indian Companies with foreign equities submitted their tenders.      The  Tender   Evaluation  Committee  comprised  of  the following members  for evaluation  of  the  bids  for  basic telephone service: Shri B.S. Karandikar, Member (Production).. Chairman Shri S.D. Chaturvedi, Jt. Secretary (T)..   Member Smt. Runu Ghosh, DDG (LF)..                 Member Shri S.K. Jain, DDG (TX)..                  Member Shri M.K. Garg, DDG (VAS)..                 Member Shri O.P. Choudhary, DDG (BS)... Member & Convenor      All the  tenders were  placed before the said Committee which after  evaluating all  the bids received submitted its report. We  are not  concerned with  the details of the said report, but  it shall  be proper  to refer  to some  salient features which  have bearing on some of the issues raised in these writ  petitions. As  one of  the tenderers  M/s HFCL - Bezeq had emerged as the highest bidder in nine circles, the Committee reported.      "Multiple H1  Bids  from  a  Single      Bidder:      (1) The  Committee observed that in      nine Circles,  only one bidder viz.

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    M/s HFCL  Bezeq have emerged as the      highest bidder.  If  all  the  nine      Circles are awarded to this bidder,      it  would   result  in  a  kind  of      private  monopoly   with  M/s  HFCL      emerging  as   the  single  largest      dominant  Private   undertaking  in      this sector  with over 75% share of      additional DELs  over a  period  of      three years.      (2) The  main purpose  of  allowing      the private  sector to  enter  into      Basic Service was to complement the      efforts  of  DOT  in  reaching  the      target   of   ’telephone-on-demand’      situation  by  1997,  covering  all      villages as  early as  possible and      providing telecom services of world      standard.   If   we   entrust   the      development of  telecom in  so many      major Circles  to only  one  bidder      and that  bidder  is  not  able  to      deliver   the   number   of   lines      promised  due  to  inability  in  a      short time  to  mobilize  the  very      large   resources    required   for      providing  services   in  so   many      Circles,   then    development   of      Telecom  in  the  country  will  be      stunted.      (3) Further,  Telecom being  a very      sensitive sector  from the point of      view of  national security, private      foreign investment  should be  more      evenly    distributed    and    the      predominance  of  any  one  foreign      country (which  would  result  from      one bidder  with a specific foreign      partner  getting   a  majority   of      Circles) should be avoided.      (4) Taking  all these  factors into      consideration,  imposition   of   a      limit  on  the  maximum  number  of      Circles to be allotted in ’A’ & ’B’      category  circles,   seems  to   be      called for.  The restriction can be      as follows:      (i)  Out  of  category  ’A’  &  ‘B’      circles bid,  not more  than  three      circles should  be allotted  to any      single  bidder.   This  restriction      need  not  apply  to  category  ’C’      circles  which   have  evoked  poor      response from the bidders.      (ii) Subject  to this  restriction,      the H1  bidder should  be given  an      option to choose the Circles.      (iii) The Circles which are vacated      by H1  bidder after  exercising the      above  option   will  need   to  be      offered to  the rest of the bidders      in the  descending order  of  their      ranking for  matching  the  package      offered by the H1 bidder.      (5) The Committee felt that the gap

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    between H1  and the H2 bids in such      Circles  referred   to  in  para  B      4(iii) above  is so wide that there      appears to be remote possibility of      any of  the bidders matching the H1      package. In  such a  situation, the      Department may  have to  go in  for      retendering  for   these   Circles.      However, the  Committee noted  that      if we  invite fresh bids through an      open      tender      for      both      technical/commercial  as   well  as      financial bids,  this process would      take a  very long time and the main      purpose  of  allowing  the  private      sector  to   participate   in   the      operation of  Basic Service,  which      was to  meet the  objectives of the      National Telecom  Policy  would  be      defeated. The Committee, therefore,      felt  that   the  purpose  will  be      served by  inviting fresh financial      bids only, from among those bidders      except   H1    who   have   already      participated in the original tender      and  whose  bids  have  been  found      technically    and     commercially      compliant. The  Committee  observed      that for this purpose, an important      issue will  be fixation  of Reserve      Price below which no offer would be      accepted.  The   normal   procedure      would have  been to  keep the  levy      quoted by the highest bidder as the      reserve price,  since  the  highest      bidder has  not withdrawn his offer      but   would   be   prevented   from      accepting these  Circles on account      of the  proposed restriction placed      on the  number  of  Circles  to  be      allotted to  any single bidder. But      since all  bidders for a particular      Circle would  have already  refused      to match  the highest  levy  before      calling for  fresh financial  bids,      no  purpose   would  be  served  by      keeping  that  levy  as  a  reserve      price." From the  aforesaid  recommendations  of  the  Committee  it appears that it recommended that out of category ’A’ and ’B’ service areas  not more than three service areas be allotted to any  bidder; no  such restriction  was to  be applied  to category ’b’  service areas  which had  evoked poor response from the  bidders. It  also recommended  that while applying the above  restrictions the H1 bidder may be given an option to choose  from the  service areas  where he had offered the package  with   highest  ranking.  It  is  no  doubt  little surprising as  to how  and why M/s HFCL - Bezeq offered such high bids  in nine  circles. But  it is an admitted position that in view of the recommendations of the Tender Evaluation Committee capping  system was  introduced and  aforesaid M/s HFCL -  Bezeq was  allotted only  three circles  i.e. Delhi, U.P. (West)  and Haryana  so  far  categories  ’A’  and  ’B’ circles are  concerned. In  respect of the other ’A’ and ’B’ circles although  the said M/s HFCL - Bezeq was the highest.

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bidder, the  offer was not accepted because in that event it would have  led to  a virtual  monopoly, the  said M/s  HFCL Bezeq having  emerged as  a single  largest dominant private undertaking.      The  learned   counsel  appearing   in  different  writ petitions have  attacked this policy of capping. However, in spite of  repeated queries, none of them could satisfy as to how in  this process  the said  M/s HFCL  - Bezeq had been a gainer or  the nation  has been  a loser. It was pointed out that if  this capping  system would  not have  been applied, then a  much higher  amount would have been received because of the  high tenders  submitted by said M/s HFCL - Bezeq for other circles  which on  principle of  capping was denied to the said  Company. It was also Submitted  that in any event, no choice  should have  been given  to the bidders to select the circles  and  in  respect  thereof  unilateral  decision should have been taken by the Central Government. As pointed out above,  the decision  regarding capping  and  putting  a limit in  respect of category ’A’ and ’B’ circles bid to not more than  three was  recommended by  the Tender  Evaluation Committee which appears to have been accepted by the Central Government. Unless  it is alleged and proved that the Tender Evaluation Committee’s  decision in  respect of  capping was because  of   any  bad  faith  or  due  to  some  irrational consideration, according to us the Central Government cannot be held  responsible for  that decision. It may be mentioned at the  outset that  in none  of the writ petitions there is any whisper much less any allegation of malafide against the members of  the Tender  Evaluation Committee stating any one of them  had a  bias in favour of one bidder or the other or that they  have acted  on dictate  of any  higher authority, abdicating their functions entrusted to them.      Some of  the petitioners  urged that  policy of capping was applied  after receipt  of  the  tenders.  This  is  not correct. In the Tender Documents as quoted above it had been clearly stated  that ’Telecom  Authority is free to restrict the number of the service areas for which one Company can be licensed to  provide the  service’. As  such, it  cannot  be urged that  the decision  regarding capping  restricting the award of  licence in  category ’A’  and ’B’  circles to  one biddar to  three was  taken with  some  ulterior  motive  or purpose,  not   being  one   of  the   terms  specified  and prescribed in the tender documents.      It was  also pointed  out in respect of M/s HFCL- Bezeq that its  networth was  shown at  Rs.4,622 crores,  but  the break up  of the  networth of  different Companies which are the partner  Companies thereof,  it shall  appear  that  one foreign Company  holding only  26% equity  share  has  shown networth of  Rs.4,1116 crores i.e. 89.05% whereas the Indian Company Consortium  Leader HFCL  having equity  share of 44% has shown  its networth  was Rs.62  crores  i.e.  1.34%.  As already pointed out above clause 2.2 of Section II of Part I of tender  documents required  the bidder Company to produce the copy  of the  agreement between  the Indian  and Foreign Company including  the approval  of the  Government of India for the  terms of foreign participation and certificate from the competent authority in Government of India to the effect that total  foreign equity  in the  bidder Company  does not exceed 49%.  It  was  stated  during  the  hearing  of  writ petitions on  behalf of  the aforesaid M/s HFCL - Bezeq that it had  produced the copy of certificate of incorporation of the said  Company from  the Registrar of Companies including Memorandum  and  Articles  of  Association.  The  terms  and conditions of tender documents restricted the bidder Company that it  shall not  have total  foreign equity  in excess of

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49%. In  the instant  case, the  foreign Company  admittedly does not  have foreign  equity in excess of 49%. It was also pointed out  on behalf  of the  respondents  that  when  the tender document  prescribed about the networth of the bidder Company, it  did not  mean the  actual  investment  of  that amount. If a foreign Company having equity less than 49% has networth to  fulfill the  requirement of the bidder Company, its  bid  had  to  be  examined  by  the  Tender  Evaluation Committee as  has been  done in  the present  case.  Counsel appearing for  writ petitioners  and M/s  HFCL -  Bezeq were heard on  the question  as to whether clauses 2.1 and 2.2 of Section II of the Tender Documents in respect of Eligibility Conditions had  been complied  with by  aforesaid  M/s  HFCL Bezeq. Mr.  Venugopal, the learned counsel appearing for the said respondent  pointed out  that 30.3.1995  was  the  date fixed for submission of the tenders which was later extended to 23.6.1995.  He further  stated that  the said  respondent submitted different  documents specified  in clause  2.2  of Section II of the Tender Documents along with the bid and as such there  has been full compliance of clauses 2.1 and 2.2. None of  the counsel  appearing in  different writ petitions challenged this  statement. The counsel for writ petitioners did not  allege  any  bias  against  the  Tender  Evaluation Committee suggesting  that it has favoured the said M/s HFCL - Bezeq  so far  the grant  of licence  in the three circles mentioned above  are concerned.  It can  be  said  that  the petitioners  in  different  writ  Petitions  have  primarily questioned the right and propriety of the Central Government to grant  licences to  non-Government Companies.  No  direct attack was  made  in  respect  of  procedure  for  selection adopted by the Tender Evaluation Committee.      On behalf of petitioners it was urged that Circle ’C’ and  North Easter  Regions  have  been  neglected  while implementing the  National Telecom  Policy. Objections  were also raised  in respect  of rates  of charges for I.S.D. and S.T.D. It  is not  possible for this Court to issue specific directions on  those questions.  It need  not be pointed out that whenever a new policy is implemented there are teething problems. But they have to be sorted out.      On behalf  of the  petitioners, it  was also  submitted that neither-there  was any  justification nor  any national basis for  debarring the  Government Company from submitting their bids.  Although it  is not necessary for this Court to express any opinion on that question because according to us that shall  amount to  a policy  matter, but  it can be said that the  new Telecom  Policy is based on privatization with foreign participation.  Government  undertakings  like  MTNL were already functioning in Delhi and Bombay and in spite of that it was felt that telecommunication should be handled by non-Government undertakings  with foreign  participation  to improve the quality of service and to cover larger areas. In this  background,   there  is   no  question  of  Government undertaking being  ignored or  discriminated while  awarding the licences in different service circles.      The counsel  appearing in  some of  the writ  petitions laid great  stress on  nor-creation of  a separate Telephone Regulatory  Authority   after  amending   the  Act  and  non delegation of  the power  by the  Central Government to such Authority to  supervise the  functioning of  the new Telecom Policy in the country.      It appears  that almost  all the countries of the world who have privatized the telecommunications, have constituted Regulatory Authorities  under she  different enactments.  In United Kingdom  under the  Telecommunications  Act,  1984  a Regulatory Authority has been constituted to secure that the

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telecommunications  services  are  provided  throughout  the United Kingdom  and to  supervise the connected issues. Such Authority has  to promote  the interests  of the  consumers, purchasers and  other users in the United Kingdom (including in particular  those who are disabled or of pensionable age) in respect of prices charged for and the quality and variety of, telecommunications  services provided. It also maintains and promotes  effective competition  between persons engaged in commercial  activities connected  with telecommunications in the  United Kingdom. The Authority is also responsible to encourage persons  providing telecommunication  services and telecommunication apparatus in the United Kingdom to compete effectively in  the provision of such services and supply of such apparatus  outside the United Kingdom. In United States the  Federal   Communication  Commission-   created  by  the Communication Act,  1934 is  a primary  federal regulator of the  communication   industry.  The   Federal  Communication Commission is  currently organized  into six  bureaus. As  a general rule the operating bureaus are authorized to enforce existing  Commission   decisions  and   policies.   Wireless Telecommunication Bureau has the responsibility to supervise all wireless  technologies including  Cellular services.  In Canada  the  Telecommunication  Act  which  is  the  primary statute relating  to telecommunication  came into  force  in 1993 replacing  variety of  statutes. It  contains different provisions   to    review    the    functioning    of    the telecommunications and vests power in authorities in respect of supervision  and implementation  of the  said policy.  In Australia,  AUSTEL   is  responsible   for   regulation   of telecommunication  services,  equipment  and  cabling  under Telecoms Act,  1991. AUSTEL determines standards relating to network integrity  and safety,  compliance  with  recognized international standards  and end-to-end  quality of service. In   France,    General    Directorate    for    Post    and Telecommunications,  ’DCPT’   has  the  responsibilities  of determining  and   adapting  the   economic  and   technical framework  for   post  and   telecommunications  activities, ensuring  the  conditions  of  fair  competition  among  the various competitors  in the  telecommunications field. There are other  supervisory and  advisory  bodies  assisting  the regulation  of   the  telecommunications.   In   Japan   the Telecommunications   Technology   Council   has   over   all responsibility to  coordinate  the  services,  with  outside administrative  bodies  and  various  manufacturers,  users, institutes  and  other  organizations  in  establishing  the standards for  Japan. Similar  is the position in many other countries developed as well as under-developed.      It appears  that the  Telecom Regulatory  Authority  of India Ordinance, 1996 has been promulgated after the hearing of the  writ petitions  concluded. From  the preamble of the said  Ordinance   it  appears  that  object  thereof  is  to establish the  Telecom  Regulatory  Authority  of  India  tn regulate the  telecommunication services,  and  for  matters connected therewith  or  incidental  thereto.  Section  2(i) defines ’telecommunication  service’.  Chapter  II  contains provisions in  respect of  the establishment  of the Telecom Regulatory Authority  of India  and conditions of service in respect of  Chairperson and members thereof. The Chairperson shall be  a person who is or has been a Judge of the Supreme Court or  who is  or has  been the  Chief Justice  of a High Court. A Member shall be a person who is holding the post of Secretary or Additional Secretary to the Government of India or to  any equivalent  post in the Central Government or the State Government  for a  period of  three years. The term of the Chairperson  has been  fixed at five years from the date

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on which  he enters  upon his  office. So  far the Member is concerned, he  has to  hold office  for a term of five years from the date on which he enters upon his office or until he attains the age of 62 years, whichever is earlier. The other conditions have been prescribed in the said Chapter. Chapter III  prescribes   the  powers  and  functions  of  the  said Authority. Section  11  opens  with  a  non-obstante  clause saying that notwithstanding anything contained in the Indian Telegraph Act, 1885, the functions of the Authority shall be as  specified  in  the  said  Section  including  to  ensure technical  compatibility  and  effective  inter-relationship between different  service providers,  to ensures compliance of  licence   conditions  by   all  service   providers,  to facilitate  competition   and  promote   efficiency  in  the operation of  telecommunication  services,  to  protect  the interest of the consumers of the telecommunication services, to levy  fees at such rates and in respect of such  services as may  be determined  by regulations.  Sub-section  (2)  of Section 11 says:      "Notwithstanding anything contained      in the  Indian Telegraph Act, 1885,      the Authority  may,  from  time  to      time, by order, notify the rates at      which    the     telecommunication.      services within  India and  outside      India shall  be provided under this      Ordinance including  rates at which      messages shall  be  transmitted  to      any country outside India." Sub-section (2) of Section 11 has also a non-obstante clause giving over-riding effects to said sub-section over anything contained in  the Indian Telegraph Act,’1885. In view of the aforesaid sub-section,  the Authority  may from time to time by order notify the rate at which telecommunication services within India  and outside  India  shall  be  provided.  Sub- section (3)  of Section  11 enjoins the Authority not to act against the  interest.  of  the  sovereignty,  integrity  of India, the  security of  the State,  friendly relations with foreign States,  public order,  decency or morality. In view of Section  12 if the Authority considers it expedient so to do, it  may by  order  in  writing  call  upon  any  service provider at  any time to furnish in writing such information or explanation  relating to its affairs as the Authority may require. It  can also  appoint one  or more  persons to make enquiry in  relation to the affairs of any service provider. The Authority  can  also  direct  any  of  its  officers  or employees  to   inspect  the  books  of  accounts  or  other documents of  any service  provider. The  Authority has been vested with  the powers  to issue such directions to service providers  ’as   it  may  consider  necessary’,  for  proper functioning  by   the  service  provider.  Section  13  also reiterates the  said power  of the  Authority by saying that for its  functions under  sub-section (1) of Section 11, the Authority can  issue such  directions from  time to  time to service provider  as it  may consider  necessary. Chapter IV contains provision  tn respect  of settlement  of  disputes. Section 29  provides for  penalty if any person violates the directions of  the Authority  and Section  30 prescribes for punishment if  the offence is alleged to have been committed by  a   Company.  With  the  establishment  of  the  Telecom Regulatory Authority  of India,  it  can  be  said  that  an independent telecom  Regulatory   Authority is  to supervise the functioning  of different  Telecom service providers and their activities  can be  regulated in  accordance with  the provisions of the said Ordinance.

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Section V of Tender Documents contains financial Conditions. Clause 2.0 thereof says:      "TARIFF:  Tariff  for  the  SERVICE      provided by  the LICENSEE shall not      be more  than DOT’s  Tariff. Tariff      is subject to regulation by Telecom      Regulatory Authority  of India,  as      and when  such an  authority is set      up by the Government of India." The aforesaid  condition provides  that licensee  shall  not charge tariff  for service  more than  DOT’s tariff and such tariff shall  be subject to regulation by Telecom Regulatory Authority of  India.  This  condition  shall  safeguard  the interest of the persons to whom services are provided by the licensees.      The new Telecom Policy is not only a commercial venture of the  Central Government,  but the object of the policy is also to  improve the service so that the said service should reach the  common man  and should  be within  his reach. The different licensees should not be left to implement the said Telecom Policy according to their perception. It has rightly been urged  that while  implementing the  Telecom Policy the security aspect  cannot be  overlooked. The  existence of  a Telecom Regulatory  Authority with the appropriate powers is essential for  introduction  of  plurality  in  the  Telecom Sector. The  National Telecom Policy is a historic departure from the  practice followed  during the  past century. Since the private  sector will  have to  contribute  more  to  the development of the telecom network than DOT/MTNL in the next few years,  the role  of an  independent Telecom  Regulatory Authority with  appropriate powers  need not  be  impressed, which can harness the individual appetite for private gains, for social  ends. The  Central Government  and  the  Telecom Regulatory  Authority  have  not  to  behave  like  sleeping trustees, but  have to  function as  active trustees for the public good.      Subject to  the directions  given above,  the writ  and Transferred Cases  petitions are  dismissed. However,  there shall be no orders as to costs.