Kartikeya Tanna’s views on yesterday’s Supreme Court order cancelling 122 licenses allotted under the 2G spectrum on or after January 10, 2008..By Kartikeya Tanna.The Court’s views on the FCFS policy gives rise to legal uncertainty.The government spokespersons have plucked a few statements from the judgment to turn tables on the NDA asking it to apologize for its act of introducing the policy of first-come-first-served (“FCFS”). Without getting into the political slugfest, it is important to dissect the Court’s pronouncement..One of the questions [Question (iv)] before the Court was whether the FCFS policy followed by DoT for grant of licenses was invalid under the provisions of Article 14 of the Constitution and whether the said principle was arbitrary changed by Raja to favour some applicants. In clubbing together its answers on this question and Question (iii) [whether DoT’s grant of licenses is vitiated due to arbitrariness], the Court has not categorically stated that the FCFS policy as unconstitutional or legally impermissible under Article 14 even though that has been the common interpretation..The Court does state that FCFS policy bears a fundamental flaw and has dangerous implications in as much as it involves an element of pure chance or accident. Those having access to the power corridors may be able to obtain information and apply for licenses thus being first in the queue. In order to ensure transparency in the process, the Court does opine that a duly publicized auction is “perhaps the best method” and, in a subsequent paragraph (Para 73), states that auction “could be” the only rational transparent method for distribution of national wealth. The only place where the Court is categorical is in Para 76 stating that while transferring or alienating the natural resources, the State is “duty bound” to adopt the method of auction..However, whether this is the same as unequivocally saying that FCFS policy is in violation of Article 14 is doubtful. This leaves the specific question of ruling on the constitutionality or legal validity of FCFS policy per se unanswered, at least directly. Does the Court mean that all future allocation of natural resources must be by auction? If M.S. Dhoni wants land (a scarce finite natural resource) in a prime location for building a cricket academy, what should the concerned Government do? Or is the Court simply holding that the FCFS policy is unconstitutional? Since it does not state so anywhere directly, must that be inferred from this pronouncement?.An additional reason these questions remain unanswered is that the Court in the operative part quotes its earlier judgment in the case of Sachidanand Pandey v State of West Bengal which states that distributing resources by auction or tenders is one of the methods of securing the larger public interest. The case also states that while an auction or a tender is the ordinary rule, it is not an invariable rule and that there may be compelling reasons requiring departure from the rule. Any departure must be in consonance with the basic principles which the Court establishes as under:.– There must be a sound, transparent, discernible and well-defined policy made known to the public..– Such policy must be implemented fairly, equitably, without discrimination and arbitrariness and in larger public good..The Court does not either overrule or distinguish the Sachidanand Pandey judgment which leads to the question: can the FCFS policy meet these basic principles? Possibly, it can..As Arun Shourie, former Telecom Minister in the NDA government, has repeatedly pointed out, the Telecom Ministry tried to invite entities in the auction process back then, but elicited little interest in those days. In the interests of advancing the telecom market, it adopted an alternative route – the FCFS policy – with well-defined transparent parameters. Incidentally, this approach is not without precedents. In a similar situation in Sachidanand Pandey, a PIL opposing the grant of land to a five-star hotel group by the West Bengal government was rejected. The Court held that just because the State of W.B. did not invite tenders or hold a public auction did not automatically invalidate the grant of land. In absence of any other leading hotel groups coming forward, direct negotiations at arm’s length with those who had come forward with proposals to construct five star hotels was the most reasonable and rational way of proceeding rather than holding auction which, according to the Court, was “most impractical in the circumstances”..Certainly, in 2007, the telecom market had drastically changed. The Court has rightly criticized the continued use of the FCFS policy in 2007-2008 and, more particularly, its implementation..The argument of cancelling all prior licenses granted under the FCFS policy is legally untenable.Some legal experts have opined that in light of the fact that 122 licenses granted by the 2G licensing process in 2007-2008, the licenses granted under the same policy of FCFS since 2001 must also be quashed. It is important to understand the basis of cancellation of 122 licenses in order to thereafter understand the possible problems in arguments suggesting cancellation of all previous licenses..To state at the outset, the Supreme Court has not opined either way on the fate of the earlier licenses simply because the challenge brought by petitioners was limited only to the 122 licenses granted in 2008..Next, the question put before the Court [Question (v)] was “whether licenses granted to ineligible applicants and those who failed to fulfill the terms and conditions of the license are liable to be quashed” and not whether licenses granted are liable to be quashed merely because they were so granted under an FCFS policy..The process under which licenses were granted by Raja suffered from various legal and constitutional infirmities which are well-known now. Some of the major ones are:.– Arbitrarily shifting the cut-off date for consideration of applications from 1.10.2007 to 25.09.2007 after all applications were received.– Spectrum granted to ineligible applicants (out of 122, around 85 were ineligible).– Spectrum granted in 2007 at 2001 prices.– Not consulted the Finance Ministry, thus being in violation of the decision taken by Council of Ministers in 2003 mandating consultation with Finance Ministry.– Ignored serious suggestions by the Prime Minister, Ministry of Finance and Ministry of Law and Justice.The Court, therefore, found it obvious that those who had been granted licenses were able to know, or should have reasonably known, the arbitrariness in the implementation of the FCFS policy by Raja and others as explained above. And, as press reports have observed, bouncers were deployed at the gates of Sanchar Bhavan who prevented genuine applicants from coming in whereas some of these successful licensees were sitting in Raja’s office with all papers ready. Rightly therefore, three companies who off-loaded their stakes for a huge sum have been fined Rs. 5 crores. Four more companies have been fined Rs. 50 lakhs because they benefitted by this unconstitutional exercise..Therefore, it is the application of the policy in that year and in those significantly improved market conditions and, most crucially, in that manner that has been found arbitrary, capricious, and in violation of the principle of equality under Article 14. .Should all licenses granted since 2001 be similarly cancelled? The legal basis for such a petition would be that, in allowing those licenses to be valid while these 122 are cancelled, it results in a denial of equal application of law under Article 14. An important prerequisite for Article 14 to apply is that both categories must be similarly situated. No evidence has been proffered or suggested indicating that any of the licenses granted prior to 2007-2008 suffer from an arbitrary, capricious or patently wrong implementation of the FCFS policy. No wrongdoing of any kind has been found in granting licenses despite CBI’s interrogation of Arun Shourie and other officials of that time. Based on the facts known so far, there is a clearly discernible difference in the two categories..Earlier licenses cannot be cancelled solely because they were granted on the basis of the FCFS policy. The argument suggesting such an invalidation of the earlier licenses jumps too many deductive dots at once..Kartikeya Tanna is a Partner at Tanna Associates Advocates, Ahmedabad. He can be contacted at kartikeya@tannaassociates.com.
Kartikeya Tanna’s views on yesterday’s Supreme Court order cancelling 122 licenses allotted under the 2G spectrum on or after January 10, 2008..By Kartikeya Tanna.The Court’s views on the FCFS policy gives rise to legal uncertainty.The government spokespersons have plucked a few statements from the judgment to turn tables on the NDA asking it to apologize for its act of introducing the policy of first-come-first-served (“FCFS”). Without getting into the political slugfest, it is important to dissect the Court’s pronouncement..One of the questions [Question (iv)] before the Court was whether the FCFS policy followed by DoT for grant of licenses was invalid under the provisions of Article 14 of the Constitution and whether the said principle was arbitrary changed by Raja to favour some applicants. In clubbing together its answers on this question and Question (iii) [whether DoT’s grant of licenses is vitiated due to arbitrariness], the Court has not categorically stated that the FCFS policy as unconstitutional or legally impermissible under Article 14 even though that has been the common interpretation..The Court does state that FCFS policy bears a fundamental flaw and has dangerous implications in as much as it involves an element of pure chance or accident. Those having access to the power corridors may be able to obtain information and apply for licenses thus being first in the queue. In order to ensure transparency in the process, the Court does opine that a duly publicized auction is “perhaps the best method” and, in a subsequent paragraph (Para 73), states that auction “could be” the only rational transparent method for distribution of national wealth. The only place where the Court is categorical is in Para 76 stating that while transferring or alienating the natural resources, the State is “duty bound” to adopt the method of auction..However, whether this is the same as unequivocally saying that FCFS policy is in violation of Article 14 is doubtful. This leaves the specific question of ruling on the constitutionality or legal validity of FCFS policy per se unanswered, at least directly. Does the Court mean that all future allocation of natural resources must be by auction? If M.S. Dhoni wants land (a scarce finite natural resource) in a prime location for building a cricket academy, what should the concerned Government do? Or is the Court simply holding that the FCFS policy is unconstitutional? Since it does not state so anywhere directly, must that be inferred from this pronouncement?.An additional reason these questions remain unanswered is that the Court in the operative part quotes its earlier judgment in the case of Sachidanand Pandey v State of West Bengal which states that distributing resources by auction or tenders is one of the methods of securing the larger public interest. The case also states that while an auction or a tender is the ordinary rule, it is not an invariable rule and that there may be compelling reasons requiring departure from the rule. Any departure must be in consonance with the basic principles which the Court establishes as under:.– There must be a sound, transparent, discernible and well-defined policy made known to the public..– Such policy must be implemented fairly, equitably, without discrimination and arbitrariness and in larger public good..The Court does not either overrule or distinguish the Sachidanand Pandey judgment which leads to the question: can the FCFS policy meet these basic principles? Possibly, it can..As Arun Shourie, former Telecom Minister in the NDA government, has repeatedly pointed out, the Telecom Ministry tried to invite entities in the auction process back then, but elicited little interest in those days. In the interests of advancing the telecom market, it adopted an alternative route – the FCFS policy – with well-defined transparent parameters. Incidentally, this approach is not without precedents. In a similar situation in Sachidanand Pandey, a PIL opposing the grant of land to a five-star hotel group by the West Bengal government was rejected. The Court held that just because the State of W.B. did not invite tenders or hold a public auction did not automatically invalidate the grant of land. In absence of any other leading hotel groups coming forward, direct negotiations at arm’s length with those who had come forward with proposals to construct five star hotels was the most reasonable and rational way of proceeding rather than holding auction which, according to the Court, was “most impractical in the circumstances”..Certainly, in 2007, the telecom market had drastically changed. The Court has rightly criticized the continued use of the FCFS policy in 2007-2008 and, more particularly, its implementation..The argument of cancelling all prior licenses granted under the FCFS policy is legally untenable.Some legal experts have opined that in light of the fact that 122 licenses granted by the 2G licensing process in 2007-2008, the licenses granted under the same policy of FCFS since 2001 must also be quashed. It is important to understand the basis of cancellation of 122 licenses in order to thereafter understand the possible problems in arguments suggesting cancellation of all previous licenses..To state at the outset, the Supreme Court has not opined either way on the fate of the earlier licenses simply because the challenge brought by petitioners was limited only to the 122 licenses granted in 2008..Next, the question put before the Court [Question (v)] was “whether licenses granted to ineligible applicants and those who failed to fulfill the terms and conditions of the license are liable to be quashed” and not whether licenses granted are liable to be quashed merely because they were so granted under an FCFS policy..The process under which licenses were granted by Raja suffered from various legal and constitutional infirmities which are well-known now. Some of the major ones are:.– Arbitrarily shifting the cut-off date for consideration of applications from 1.10.2007 to 25.09.2007 after all applications were received.– Spectrum granted to ineligible applicants (out of 122, around 85 were ineligible).– Spectrum granted in 2007 at 2001 prices.– Not consulted the Finance Ministry, thus being in violation of the decision taken by Council of Ministers in 2003 mandating consultation with Finance Ministry.– Ignored serious suggestions by the Prime Minister, Ministry of Finance and Ministry of Law and Justice.The Court, therefore, found it obvious that those who had been granted licenses were able to know, or should have reasonably known, the arbitrariness in the implementation of the FCFS policy by Raja and others as explained above. And, as press reports have observed, bouncers were deployed at the gates of Sanchar Bhavan who prevented genuine applicants from coming in whereas some of these successful licensees were sitting in Raja’s office with all papers ready. Rightly therefore, three companies who off-loaded their stakes for a huge sum have been fined Rs. 5 crores. Four more companies have been fined Rs. 50 lakhs because they benefitted by this unconstitutional exercise..Therefore, it is the application of the policy in that year and in those significantly improved market conditions and, most crucially, in that manner that has been found arbitrary, capricious, and in violation of the principle of equality under Article 14. .Should all licenses granted since 2001 be similarly cancelled? The legal basis for such a petition would be that, in allowing those licenses to be valid while these 122 are cancelled, it results in a denial of equal application of law under Article 14. An important prerequisite for Article 14 to apply is that both categories must be similarly situated. No evidence has been proffered or suggested indicating that any of the licenses granted prior to 2007-2008 suffer from an arbitrary, capricious or patently wrong implementation of the FCFS policy. No wrongdoing of any kind has been found in granting licenses despite CBI’s interrogation of Arun Shourie and other officials of that time. Based on the facts known so far, there is a clearly discernible difference in the two categories..Earlier licenses cannot be cancelled solely because they were granted on the basis of the FCFS policy. The argument suggesting such an invalidation of the earlier licenses jumps too many deductive dots at once..Kartikeya Tanna is a Partner at Tanna Associates Advocates, Ahmedabad. He can be contacted at kartikeya@tannaassociates.com.