Full Judgment Text
Non-Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 2332-2333 OF 2008
UNION OF INDIA & ANR. ... APPELLANT(S)
Versus
MILLENIUM DELHI BROADCAST
LLP ETC. ...RESPONDENT(S)
J U D G M E N T
L. Nageswara Rao, J .
1. In the year 1999, a notice was issued by the
Ministry of Information and Broadcasting, on behalf of
Government of India inviting tenders for licensing of
private F.M. broadcasting services at 40 centres across
India. The said notice was issued pursuant to a decision
taken by the Ministry of Information and Broadcasting to
open Radio Broadcasting in the VHF FM band (87-108
MHz) with the following objectives :-
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Open up the FM Broadcasting for
entertainment, education and
information dissemination by
commercial broadcasters.
To make available quality programmes
with a localised flavour in terms of
content and relevance ; encourage new
talent and generate employment
opportunities directly and indirectly.
Supplement the service of AIR and
promote rapid expansion of the
broadcast network in the country for the
benefit of the society.
Clause 8 in the Tender Document thereof relates to
license fee, auction process and license period.
According to clause 8(f), a license fee has to be paid by
each licensee every year in advance within seven days
of the beginning of the year. For the first year, balance
of the licence fee will have to be paid within 10 days of
Wireless Planning & Coordination Wing’s (for short
“ WPC ”) intimation that operational licence is ready to
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be issued. Failure to do so will result in forfeiture of
amount already deposited. The licence period will be
reckoned from the date of issue of operational licence by
WPC , Ministry of Communications. The Reserve Licence
Fee for Delhi and Chennai for the first year was fixed at
Rs. 125 Lakhs and Rs.100 Lakhs respectively. The
respondent bid for allotment of a channel in Delhi and
Chennai after depositing 50% of the Reserve Licence
Fee. 11 Companies were declared as successful bidders
for Delhi and Chennai. However, only 5 companies in
Delhi and 4 companies in Chennai signed an agreement
for operationalization.
2. On 27.10.2000, the respondent signed an
agreement to operationalize F.M. Stations at Delhi and
Chennai. The respondent was granted a licence to
establish, maintain and operate FM Radio Broadcasting
Station within Delhi and Chennai, on a non-exclusive
basis, for a period of 10 years . The effective date of the
licence period shall be reckoned from the date of issue
of the Wireless Operational Licence (for short “ WOL ”) by
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the WPC. Article 2.1 of Schedule C to the agreement
requires the licensee to complete installation of
broadcasting facility including studios, transmitter,
infrastructure etc. and commission the Applicable
System within 12 months from the date of frequency
earmarking by WPC . According to Article 2.3 of
Schedule C, the licensee was to apply for WOL for
frequency allotment and SACFA clearance within three
months from the date of issuance of letter of intent.
Article 16 of Schedule C refers to Bank Guarantee. This
article requires the licensee to furnish a Bank Guarantee
which is equivalent to the first year’s licence fee. The
said bank guarantee is valid for a period of 10 years and
has to be issued by a Scheduled Bank in the prescribed
form which shall be renewed till the expiry of licence
period. Article 14 of Schedule C refers to Dispute
Resolution and Jurisdiction. According to the said clause,
in case of a dispute or difference arising under this
licence, the same shall be referred to the sole arbitration
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of the Secretary, Department of Legal Affairs or his
nominee.
3. On 30.10.2000, respondent applied for frequency
allocation. On 29.12.2000, the respondent was allocated
frequency 94.6 by the WPC . A notice of termination of
the agreement was issued by the respondent on
27.08.2002. Thereafter, the respondent preferred an
arbitration petition before the High Court of Bombay
seeking an injunction restraining the appellants from
encashing the Bank Guarantee. The High Court of
Bombay passed an interim order dated 26.11.2002 in
favour of the respondent and directed the appellant to
keep the bank guarantee alive.
4. On 02.01.2006, the respondent filed a petition
under Section 14A(1) of the Telecom Regulatory
Authority of India Act, 1997 before the Telecom Disputes
Settlement and Appellate Tribunal (for short “Tribunal” )
for the following reliefs :
“(A) Declare that Petitioners delay in
commencing broadcast on 29.08.2002 is
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condoned due to bona fide reasons as applicable
to other broadcasters in Chennai vide order of
Union Cabinet dated 13.07.2005.
(B) Hold and declare that the Applicant was not
required to deposit the balance of the first year’s
license fee on 29.08.2002 even before the WPC’s
intimation that the wireless operational license
was ready for being issued.
(C) Hold and declare that the Respondent could
not have issued the Deemed Operational Status
to the Petitioner on 29.08.2002 which would have
reduced the effective license period as stated in
the license agreement.
(D) Hold and declare that the action of the
Respondent Union of India to invoke and encash
the bank guarantee of Rs.7.125 Crores is
arbitrary, high handed and is contrary to the
license agreement and the tender document and
further restrain the Union of India from encashing
the bank guarantee.
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(E) Direct the Respondent to return the Bank
Guarantee for an amount Rs.7.125 Crores to the
Petitioner.
(F) Direct the Respondent to refund with penal
interest, the advance license fee of Rs.62.5 Lakhs
paid by the Petitioner in March 2000 and the
earnest money deposit (EMD) of Rs. 2 Lakhs paid
by the Petitioner in October 1999 keeping in mind
the condonation of delay due to bona fide reasons
as per the order of the Union Cabinet dated
13.7.2005.
(G) Direct the Respondent to compensate the
petitioner to compensate the Petitioner with a
sum of Rs.40 Lakhs which is the approximate cost
incurred by the Petitioner in keeping its Bank
Guarantee of Rs.7.125 Crores alive till date and a
sum of Rs.20 Lakhs in maintaining its operations
from March 2000 till 29.8.2002.
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(H) Pass such other relief as this Hon’ble
Tribunal may deem fit and proper in the facts and
circumstances of the case.”
5. The Tribunal, by an order dated 14.09.2007,
allowed the said petition and declared the invocation of
bank guarantee by the appellant as illegal. The Tribunal
further directed the appellants to return the bank
guarantees to the respondent. Therefore, the appellants
have approached this Court by filing these appeals
which have been pending consideration since 2008.
6. The respondent contended before the Tribunal that
the conditions for encashment of the bank guarantee
were not satisfied and therefore, the invocation of bank
guarantee by the appellants was unjustified. It was
argued before the Tribunal, that only 5 bidders were left
as 6 out of 11 successful bidders dropped out.
Resultantly, cost of co-location had to be borne by the 5
surviving bidders which originally was to be shared by
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the 11 bidders. Consequently, this resulted in high
escalation of the cost.
7. The respondent further contended that several
representations were made by the broadcasters to the
appellants for appointment of an Integrator, and for
extension of time as completion of common transmission
infrastructure within the specified timeframe was not
possible. The difficulties of the Broadcasters were
considered favourably and the appellants agreed for
extension of time. However, on 06.06.2001, the
Broadcasters were directed to utilize the facilities of
Prasar Bharati. Having no alternative, the Broadcasters
were forced to enter into an agreement with Prasar
Bharati for the usage of All India Radio’s transmission
infrastructure. On 01.05.2002, the Broadcast Engineers
Consultants of India Ltd. ( BECIL ) was appointed as
Integrator. In a meeting held on 08.08.2002, it was
proposed by BECIL, that the timeframe for
commissioning the co-located infrastructure be extended
by a period of 24 weeks from the date of the meeting. As
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the appellant was insisting on payment of balance 50%
licence fee for the first year though there was no
occasion for the said payment, the respondent
terminated the licence agreement on 28.08.2002 and
surrendered the frequency.
8. The respondent relied on the official Policy on
Expansion of FM Radio Broadcasting Services through
private agencies in July, 2005 wherein it was decided to
condone the delays in operationalization in the case of
nine channels in the three metros viz., Delhi, Chennai
and Kolkata. It was argued on behalf of the respondent
before the Tribunal, that there was no intentional delay
on its part in operationalizing the said FM Stations.
According to the respondent, as WOL was not issued by
WPC , the question of payment of licence fee did not
arise.
9. The appellants contended before the Tribunal that
there was no error in invoking the bank guarantee
clause as the respondent had failed to abide by the
terms of the agreement in not operationalizing the FM
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service within the time schedule. The Tribunal was
convinced that the conditions enabling invocation of
bank guarantee were not satisfied. The Tribunal further
held that the bank guarantee which was essentially a
performance bank guarantees could not have been
invoked as the stage of performance of the license
agreement did not arise.
10. We have heard Mr. Nachiketa Joshi, learned counsel
appearing for the appellant and Mr. Nikhil Majithia, for
the respondent. Mr. Joshi relied upon the notice inviting
tender document and the agreement entered between
the parties to submit that there is clear non-compliance
of the time lines fixed in the licence. The respondent,
unlike the other similarly situated licensees, could not
successfully operationalize the services and
subsequently, obtained an interim order by filing a
petition under Section 9 of the Arbitration and
Conciliation Act, 1996. The respondent did not take any
steps to refer the matter to arbitration. Mr. Joshi also
found fault with the order passed by the Tribunal wherein
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the conditions prescribed in Clause 9 of the tender
document pertaining to bank guarantee were not
satisfied. He submitted that licensee had failed to
deposit the licence fee within 7 days of the beginning of
first year itself which gave rise to invocation of the Bank
Guarantee by the appellants.
11. Mr. Majithia, learned counsel appearing for the
respondent, argued that the delay in operationalizing the
services was due to unforeseen circumstances. A co-
located transmission infrastructure was to be set up for
operationalization of 11 successful bidders, the cost of
which was to be shared by all of them but as 6 bidders
backed out, the remaining 5 companies had to bear the
additional burden. Realising the difficulties faced by the
Broadcasters, Government of India decided to extend
time. In a meeting held on 06.06.2001, Ministry of
Information and Broadcasting waived the co-location
requirement and insisted the private broadcasters utilize
Prasar Bharati’s infrastructure for co-locating the
transmitters. BECIL was appointed as system
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Integrator. On 08.08.2002, the Ministry of Information
and Broadcasting informed the respondent that a
‘Deemed Operational Licence’ shall be issued pursuant
to which it would become mandatory for payment of first
year license fee. BECIL informed that it would require
another 6 months to set up the co-located infrastructure.
The respondent, having no other option, decided to
terminate the contract. Mr. Majithia supported the
judgment of the Tribunal that there was no occasion for
invocation of the bank guarantee as WOL was never
issued. According to him, there was no provision for
issuance of a Deemed Operational Licence. He referred
to a judgment of the Bombay High Court dated
26.11.2002 in an arbitration petition which dealt with
similar facts and held that the bank guarantees could
not have been invoked. It was argued on behalf of the
respondent, that the appellant should be directed to
refund 112.5 Lakhs which was deposited as reserved
licence fee and Rs.3 Lakh deposited as EMD.
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12. After considering the submissions of both the
parties and carefully examining the material on record,
we are of the opinion that the appeals deserve to the
dismissed for following reasons.
Clause 9 of the tender document enables the
appellant to encash the bank guarantee, in case of
failure on the part of the licensee either to deposit
license fee within 7 days of the beginning of each year
or if the licensee stops the service without giving one
year’s notice. The bank guarantee can also be invoked if
the licencee is declared or applies for being declared
insolvent or bankrupt. There is no dispute that the
licensee did not commence its operations and therefore
the second condition does not apply. Admittedly, the
third condition is not applicable to the facts of the case.
According to the appellant, bank guarantee was invoked
due to failure on the part of the licensee to deposit the
licence fee within 7 days of beginning of the year.
Essentially, the bank guarantee given by the respondent
is a performance bank guarantee and was intended to
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ensure the due performance of the license agreement. A
perusal of the conditions of the relevant clauses of the
agreement clearly show that according to Article 1.1 of
Schedule ‘C’ to the agreement, the license was granted
for period of 10 years which has to be reckoned from
the date of issuance of WOL by the WPC . Admittedly,
WOL was never issued by WPC . A Deemed Operational
License, which was to be issued by the appellant, was
not contemplated in the agreement. We are of the
opinion, that Tribunal did not commit any error in its
interpretation of the clause pertaining to bank guarantee
by holding that the conditions provided therein have not
been satisfied for the invocation of the bank guarantee.
13. In view of the aforesaid findings, it is not necessary
for this Court to adjudicate on the other points that have
been raised by the respondent in justifying the delay in
operationalizing the services.
14. We are not inclined to entertain the cross-
objections of the respondent seeking refund of advance
licence fee as the said point was not argued before the
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Tribunal. Thus, we reject the request of the respondent
that the appellants should be directed to refund the
advance license fee and EMD.
15. For foregoing reasons, the judgment of the Tribunal
is upheld. The appeals are dismissed.
..............................J.
[L. NAGESWARA RAO]
.............................J.
[B. R. GAVAI]
New Delhi,
May 02, 2022
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