[2G license] Party cannot claim restitution if responsible for contract illegalities: Supreme Court rejects refund plea by Loop Telecom

The Supreme Court on Thursday held that if a party to a contract was equally or more responsible for any illegality in relation to the defendant, restitution claims will fail [Loop Telecom and Trading Limited v. Union of India]..A Bench of Justices DY Chandrachud, Surya Kant and Vikram Nath noted that in such cases, claims for restitution under Section 65 of the Indian Contract Act will fail, even though the illegality has to be determined on case-to-case basis.The Court, therefore, rejected the plea by Loop Telecom seeking refund of entry fees it had paid for 2G license, before the top court had in 2011 quashed the award of licenses in its notable judgment in Centre for public Interest Litigation (CPIL) v Union of India (CPIL judgment).Section 65 of the Act says that “when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.”The Supreme Court held that unless the party claiming restitution was party to the illegal act involuntarily, they would be held in pari delicto or in equal fault.“In determining a claim of restitution, the claiming party’s legal footing in relation to the illegal act (and in comparison to the defendant) must be understood. Unless the party claiming restitution participated in the illegal act involuntarily or the rule of law offers them protection against the defendant, they would be held to be in pari delicto and therefore, their claim for restitution will fail," the judgement stated..The appellant in the instant case was seeking refund of ₹1454.94 crores paid as the Entry Fee (together with interest) for 2G licenses for twenty-one service areas. The licenses were granted to the appellant but later quashed by the Supreme Court in its CPIL judgment..Before approaching the top court, the appellant had instituted a proceeding before the Telecom Disputes Settlement & Appellate Tribunal (TDSAT). However, the TDSAT had rejected the claim and held that the quashing of 2G licenses by the CPIL judgment cannot be equated with the Unified Access Service Licenses (UASL) agreements becoming void within the meaning of Section 65 of the Act. The TDSAT also held that the claim for restitution under Section 65 would be governed by the principle in pari delicto potio rest condition defendentis (in equal fault, better is the condition of the possessor)..Senior Advocate Abhishek Manu Singhvi, appearing for the appellant, claimed that the licenses were quashed due to the fault on account of the Union government and the appellant is entitled to receive the refund of Entry Fees. It was also pointed out that the appellant had already been acquitted by the CBI Court in relation to the 2G Spectrum scam. In this regard, however, the the apex court noted, “It is important to note that the criminal trial before the Special Judge, CBI was limited to the question as to whether the promoters of the appellant had cheated the DoT by providing a false representation of its compliance with Clause 8 of the UASL Guidelines, since it was allegedly being controlled by the Essar group.”.Additional Solicitor General Vikramjit Banerjee appearing for the Central government contended that the fees paid by the appellant is specifically made non-refundable by the UASL guidelines issued by the Department of Telecom. The appellant thus cannot seek a refund, he argued..Senior Advocate Huzefa Ahmadi, also appearing for the appellant, argued that the right to claim restitution would arise only after the licenses were quashed by the top court and hence, the decision in CPIL does not operate as constructive res judicata (a matter that has been adjudicated)..The Supreme Court, however, held that it would be an improper reading of the judgment (in 2G case) to postulate that the decision leaves open a claim for the refund of the Entry Fee. "The payment of the Entry Fee was one element in the overall financial conspectus which led to the award of licences. The adjudication before this Court in CPIL (supra) must be construed as a one composite whole from which its parts cannot be separated,” the Court said..In the instant case, the Supreme Court observed that the appellant has been a beneficiary of a manifestly arbitrary policy adopted by the Union government and the same was quashed by the CPIL judgment. Hence, the appellant was held to be in pari delicto (equal fault).“The decision of this Court in CPIL (supra) leaves no manner of doubt that the appellant was among the group of licensees who were found to be complicit in obtaining benefits under the 'First Come First Serve policy' of the Union government at the cost of the public exchequer. In such a situation and following the well-settled principles which have been enunciated above, the appellant could not be held entitled to claim a refund of its Entry Fee,” the Court said..Finding no merit in the appeals, the Supreme Court dismissed the same. .[Read judgment]