Scam - no - Scam: 2G Judgments of the Supreme Court and Special Court

But the Supreme Court earlier on the same matter, when the trial had not even commenced, by its Judgment dated 02.02.2012² canceled 122 licenses and allocation of 2G spectrum ("SC 2G Judgment"). These 122 licenses³ were granted to 10 applicants pursuant to two controversial Press Releases dated 10.01.2008⁴ ("Press Releases dated 10.01.2008"), which tweaked the 'First Cum First Serve' Policy dated 14.12.2005⁵ ("FCFS Policy"). The allegation before the Supreme Court was that the FCFS Policy was tweaked vide the Press Releases dated 10.01.2008 only to favor a select few, who had advance information and were ready to meet the conditions of the tweaked FCFS Policy. Under the original First Cum First Serve Policy, an application received was first processed, Letter of Intent ("LOI") was issued and upon compliance of LOI conditions the license was granted. Since spectrum was bundled with the license, whoever got the license first would be allocated spectrum first. The tweaked FCFS Policy provided that the 'time and date' of meeting the LOI conditions would be treated as the criteria for grant of license. Whoever met the LOI conditions first would be granted the license and be the first for the allocation of spectrum. The Supreme Court found this tweaked FCFS Policy flawed and arbitrary. The Supreme Court canceled the licenses, directed that all future allocation of natural resources shall be through auction only and imposed costs on certain operators, who according to the Supreme Court had benefited from the tweaked FCFS Policy and had offloaded their stakes in the name of infusion of equity. The Special Court did not find any irregularity. Could the Supreme Court have canceled 122 licenses without looking into individual cases? It did so but principles of natural justice demanded that after the Supreme Court found the FCFS Policy flawed, each operator should have been called to explain its conduct.

The Supreme Court presumed that infusion of equity in telecom companies was only because of the grant of the licenses pursuant to the tweaked FCFS Policy. The Supreme Court noted the examples of four companies. Out of these, one was not a party to the proceedings and had neither applied for nor was granted any license after 2008. The other company was an established telecom operator, having been in the business since 1997 with millions of subscribers, and had been granted 19 licenses much before the FCFS Policy of the Department of Telecommunications. This company had applied for only 3 licenses in 3 smaller circles and there too, it had opted for CDMA spectrum. There were no takers for CDMA spectrum and only two operators had applied (one for 3 licenses and other for 21 licenses) for grant of licenses with CDMA spectrum. The other two operators referred to in the SC 2G Judgment were new operators, who had applied for GSM spectrum. All other operators, whose licenses were canceled, were also applicants for license using GSM spectrum. Interestingly, neither any statute nor a government policy nor a court order prohibited infusion of equity immediately after the grant of licenses. Can it be said that the infusion of equity in a company, which was already holding 19 licenses, was only because three licenses were granted to it on or after 10.01.2008, the date of controversial Press Releases? Was there a similarity for raising the funds between an established operator with the new licenses, who did not have operations or assets?

The petitions, which culminated in the blanket cancellation of 122 licenses, were mainly based on Comptroller and Auditor General Report dated 16.11.2010⁶ ("CAG Report"), which had observed that the public exchequer has potentially suffered a loss of ₹1.76 lakh crores because of the allocation of 2G spectrum. This estimation and calculation of ₹1.76 lakh crores' loss is still being questioned and debated. The entire CAG Report was considering GSM spectrum and not CDMA spectrum, which was in abundance and had no takers. Could the licensees with CDMA spectrum be equated with licensees with GSM spectrum?

These aspects did not weigh with the Supreme Court when it passed the judgment canceling the licenses. The review and curative petitions filed by various operators also did not find any favor.

The SC 2G Judgment has had a far-reaching impact on the telecom sector, which has changed the entire landscape. Prior to the said judgment, 2G spectrum allocation had paved the way for entry of many new telecom companies. Foreign investors were investing and taking stakes in the Indian telecom companies. This changed by one stroke of a pen i.e., blanket cancellation of 122 licenses. Since then, foreign investors/companies such as Russia's Sistema, Norwegian Telenor and Abu Dhabi headquartered Etisalat have moved out of the Indian market. Loop Telecom, Videocon, S-Tel, Swan/Etisalat have closed their operations. The number of direct and indirect job losses has been astronomical.

The Government's response to the SC 2G Judgment was that the reserve price for auction of spectrum must be kept very high. In fact, it also called upon operators to pay market price for already held spectrum, beyond a particular quantity. To compete in the auction and/or to survive in the market, operators had to borrow which has buried the telecom industry in heavy debt⁷. Some of the telecom operators such as Reliance Communications and Aircel are already in insolvency proceedings. The number of main telecom service providers has gone down to three. The smaller number of telecom players in the market may have an impact on competition, and ultimately on the quality of the service and rates at which such services are being provided to the customers.

While the Supreme Court found a big scam in allocation of 2G spectrum, the Special Court did not find any manipulation of FCFS Policy and criminality in the allocation of spectrum. Whether there is a scam or not, the jury is still out. The Special Court's Judgment is in appeal and will ultimately be decided by the Supreme Court. We will have to wait and see. Scam-no-scam saga continues.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.