29 Dec 2010

2G scam: Revisiting the factual matrix

For those of our readers who have missed a link (or are totally unaware) of the series of events which have led to (and are currently as well) the continuous relays on the news channels of the biggest scam ever in the largest democracy, the post of ours brings to you the Supreme Court order which chronologically and eruditely brings the facts into perspective so as to enlightened the reader as to what and how things have proceeded in the infamous 2-G spectrum scam.
The Supreme Court in its order passed on 16.12.2010 in Centre for Public Interest Litigation v. Union of India and others has noted all these factual issues to pass directions for the investigation to be undertaken by the CBI in this matter. A division Bench of the Supreme Court, comprising of Justice G.S. Singhvi and Justice Asok Kumar Ganguly noted the factual background in the following terms;
6. For detailed examination of the issues raised by the appellants, it will be useful to notice the background in which spectrum licences were given to different parties in 2008. These are:
(i) Till 1994, telecommunication services were absolute monopoly of the Government of India. In November, 1994, the Central Government framed National Telecom Policy (NTP) permitting private sector involvement in the telecommunication sector.
(ii) In the first phase, two Cellular Mobile Telephone Services (CMTS) licenses were awarded in each of the four metro cities i.e. Delhi, Mumbai, Kolkata and Chennai to the private entrepreneurs, who satisfied a predetermined set of criteria. The license fee payable by the operators was also predetermined and there was no bidding.
(iii) In the second phase, two CMTS licenses were awarded in 18 telecom circles sometime in December, 1995 through bidding process. 
(iv) In January, 1995, tenders were invited for award of Basic Service Operator (BSO) licenses for license fee payable over a period of 15 years.
(v) In 1997, Parliament enacted the Telecom Regulatory Authority of India Act (for short, ‘the Act’) for facilitating establishment and incorporation of Telecom Regulatory Authority of India (TRAI).
(vi) On 20.11.1998, Government of India constituted a high level group on telecom matters for making recommendations on three major issues including formulation of new telecom policy. The group recommended changes in the existing telecom policy and resolution of the problem of the existing operators. These recommendations were considered by the Union Cabinet, which approved the New Telecom Policy, 1999 (NTP 1999).
(vii) In July, 1999, the Central Government decided to offer migration package to the existing licensees to the revenue sharing regime under the new policy.
(viii) In 1999-2000, the Central Government granted CMTS licenses to MTNL and BSNL as third CMTS operator.
(ix) The CAG in his Report No.6 of 2000 – P&T severely criticized the concession granted by the Department of Personnel as also the offer of migration to the existing licensees. However, no concrete action appears to have been taken except that the DoT had made available para-wise reply to the CAG.
(x) In September/October, 2001, the Government accepted the recommendations of TRAI and 17 new CMTS licenses were issued to private companies as fourth operator (one each in 4 metro cities and remaining 13 in other telecom circles).
(xi) On 25.1.2001, DoT issued guidelines for issue of license for basic telephone service.
(xii) On 27.10.2003, TRAI forwarded its recommendations on Unified Licensing Regime.
(xiii) The recommendations of the TRAI were considered by the Group of Ministers (GoM), which, in turn, recommended the following course of action:
(i) ….The scope of NTP-99 may be enhanced to provide for licensing of Unified Access Services for basic and cellular licence services and unified Licensing comprising all telecom services. Department of Telecommunications may be authorised to issue necessary addendum to NTP-99 to this effect.
(ii) The recommendations of TRAI with regard to implementation of the Unified Access Licensing Regime for basic and cellular services may be accepted.
(xiv) The recommendations of GoM were accepted by the Union Cabinet in its meeting held on 31.10.2003. Thereafter, NTP 1999 was amended vide office memorandum dated 11.11.2003. On the same day, guidelines were issued for Unified Access (Basic and Cellular) Services License (UASL).
(xv) On 14.11.2003, TRAI clarified that the entry fee of the new Unified Licensee would be the entry fee of the 4th cellular operator and in service areas where there is no 4th operator – the entry fee of the existing BSO fixed by the Government (based on TRAI’s recommendations).
(xvi) In November, 2003, the DoT decided to accept and process UASL applications in the same manner as was done in the case of BSO applications.
(xvii) On 13.1.2005, TRAI recommended that till Unified Licensing comes into effect, the current regime of spectrum pricing will continue and the telecom services should not be seen as a source of revenue for the Government. On 14.12.2005, revised UASL guidelines were issued.
(xviii) On 13.4.2007, a reference was made to TRAI by the DoT stating that after finalisation of UASL policy, 159 licences had been issued for providing Access Services (CMTS/UASL/Basic) in the country and the Access Service Providers were mostly providing services by using the wireless technology (CDMA/GSM). It was also indicated that as per the existing policy of granting license, there was increase in the demand on spectrum in a substantial manner and the Government was contemplating review of its policy. A suggestion was also made that a limit can be put on the number of Access Service Providers in each service area because the spectrum is a scarce resource and to ensure that adequate quantity of spectrum is available to the licensee to enable them to provide their services and to maintain the quality of service. The issues on which opinion of TRAI was sought included transfer of licences, guidelines dated 21.2.2004 on mergers and acquisitions, to permit service providers to offer Access Service using combination of technologies (CDMA/GSM/Basic or any other) under the same license and rollout obligations.
(xix) In May, 2007, respondent No.5 took over as Minister for the Department of Telecommunications. 
(xx) The TRAI submitted its recommendations on 28.8.2007, paragraphs 2.37, 2.78 and 2.79 whereof are as under:
Para 2.37: No cap be placed on the number of access service providers in any service area.
Para 2.78: “Keeping in view the objective of growth, affordability, penetration of wireless services in semi-urban and rural areas, the Authority is not in favour of changing the spectrum fee regime for a new entrant. Opportunity for equal competition has always been one of the prime principles of the Authority in suggesting a regulatory framework in telecom services. Any differential treatment to a new entrant vis-à-vis incumbents in the wireless sector will go against the principle of playing field. This is specific and restricted to 2G bands only i.e. 800, 900 and 1800 MHz. This approach assumes more significance particularly in the context where subscriber acquisition cost for a new entrant is likely to be much higher than for the incumbent wireless operators. 
Para 2.79 It is therefore recommended that in future all spectrum excluding the spectrum in 800, 900 and 1800 bands should be auctioned so as to ensure efficient utilization of this scarce resource. In the 2G bands (800 MHz/900MHz/1800 MHz), the allocation through auction may not be possible as the service providers were allocated spectrum at different times of their license and the amount of spectrum with them varies from 2X4.4 MHz in CDMA technology. Therefore, to decide the cut off after which the spectrum is auctioned will be difficult and might raise the issue of level playing field.
(xxi) The recommendations of TRAI were placed before Telecom Commission sometime in October, 2007. However, none of the four nonpermanent members of the Telecom Commission i.e. the Finance Secretary, Secretary, Department of Industrial Policy and Promotion, Secretary, Department of Information Technology and Secretary, Planning Commission were even informed about the meeting of the Telecom Commission. In that meeting, a committee of 6 officers all belonging to DoT was constituted and the committee submitted its report on 10.10.2007 virtually dittoing the recommendations of the TRAI.
(xxii) Three of the four companies, which were providing CDMA based mobile services under UAS licence had applied in 2006 for permission to use GSM technology. At the relevant time, combination of technologies (CDMA, GSM and/or any other) was not permitted. Therefore, the DoT did not accept their request. After receipt of the recommendations of TRAI, a decision was taken by the DoT on 17.10.2007 for use of alternate technology albeit without referring the mater to full Telecom Commission. DoT issued press release on 19.10.2007 on the issue of use of alternate technology. However, a day before that i.e., 18.10.2007, three operators who had applied for use of alternate technology were given ‘in principle’ approval for using GSM technology.
(xxiii) In the meanwhile, a press note was issued by DoT incorporating therein the decision that new applications for UASL will not be accepted after 1.10.2007 till further orders. As on that date, 167 applications had been received. These included the applications which had not been processed since March, 2006. After publication of the press release, 408 more applications were received. Thus, as on 1.10.2007, 575 applications were received for UASL in respect of 22 service areas.
(xxiv) Member (Technology), Telecom Commission sent letter dated 26.10.2007 to the Secretary, Department of Legal Affairs, Ministry of Law and Justice for obtaining opinion of the learned Attorney General of India/Solicitor General of India on the issue of grant of new licences as well as grant of approval for use of dual technology spectrum to the existing operators so as to enable the DoT to handle the unprecedented situation in a fair and equitable manner, which will be equally tenable. The letter was accompanied by a statement of case.
(xxv) The Law Secretary prepared a note on 1.11.2007, which was placed before the Law Minister. The latter opined that keeping in view the importance of the case and various options indicated in the statement of case, the whole issue needs to be first considered by an empowered Group of Ministers and in that process legal opinion of the Attorney General can be obtained.
(xxvi) On the next day i.e. 2.11.2007, respondent No.5 dispatched D.O. letter to the Prime Minister in which he indicated that the suggestion of the Law Ministry was totally out of context and, at the same time, asserted that the department had decided to continue with the existing policy i.e. First-Come-First-Served for processing of applications received up to 25.9.2007 and the procedure for processing the remaining applications will be decided at the later stage, if any spectrum is available. 
(xxvii) It appears that even before the D.O. letter sent by respondent No.5 was received in his office, the Prime Minister sent a letter to him drawing his attention to the issues raised by the telecom sector companies and others on the processing of large number of applications in the backdrop of inadequate spectrum. The Prime Minister’s letter was accompanied by a note in which five issues were identified. On the same day, respondent No.5 sent another letter to the Prime Minister stating that it will be unfair, discriminatory, arbitrary and capricious to auction the spectrum to new applicants as it will not give them level playing field.
(xxviii) On 22.11.2007, the Finance Secretary wrote to the Secretary, DoT expressing his serious reservation on the decision of the DoT on the issue of determination of fee for grant of licences in 2007 at the rate determined in 2001. He emphasized that in view of the financial implications, the Ministry of Finance should have been consulted before finalizing the decision and requested that further action to implement the licences may be stayed. In reply, the Secretary DoT sent D.O. dated 29.11.2007 stating therein that entry fee was finalised for UAS regime in 2003 as per the decision of the Cabinet and the dual technology licences were issued on TRAI recommendations of 28.8.2007.
(xxix) On 3.1.2008, a meeting of full Telecom Commission was fixed for 9.1.2008 to consider the following issues: -
(i) Performance of telecom sector. 
(ii) Pricing of spectrum.
(iii) Any other item with the permission of Chairman.
However, vide letter dated 7.1.2008, Joint Secretary (T), DoT informed the members of the Commission that meeting scheduled for 9.1.2008 has been postponed to 15.1.2008.
(xxx) After three days of postponement of the meeting of Telecom Commission, a press release was issued by DoT that the department had decided to issue Letter of Intents (LOIs) only to those applicants, who had applied up to 25.9.2007. It was also indicated that the department has been implementing a policy of First-Come-First-Served for grant of UASL under which initially an application which is received first will be processed first and thereafter, LOI will be granted to those found eligible and UAS licence will be given to those whosoever complies with the conditions of LOI first. On the same day, the DoT issued another press release at 2.45 P.M. asking all the applicants to assemble at the departmental headquarter within 45 minutes to collect response of DoT. The eligible LOI holders were also asked to submit compliance of the terms of LOI within the prescribed period.
(xxxi) All the applicants, eligible or not, collected their LOIs and acceptance of 120 applications was also received on the same day. Compliance of the terms and conditions of LOI was also made for 78 applications on 10.1.2008.
(xxxii) Soon after obtaining the licences, Swan Telecom which had paid licence fee of Rs.1537 crores only off loaded its 45% stake to Etisalat for Rs.4,500 crores and Unitech, which obtained licence for Rs.1651 crores off loaded 60% of its stake to Telenor for Rs.6120 crores.
(xxxiii) S. TEL Ltd., which had submitted application pursuant to press note dated 24.9.2007 but whose application was not considered along with other applicants in view of the anti-dating of the cut off date, filed Writ Petition No. 636/2008 in the Delhi High Court for quashing first press release dated 10.1.2008. The learned Single Judge referred to the recommendation made by the TRAI that there should be no cap on the number of excess service providers in any service area and observed that on the one hand, the Government of India accepted the recommendation of the TRAI but acted just contrary by amending the cut off date and thereby limiting the service providers whose applications could be considered for grant of licence. The learned Single Judge held that there was no rational basis for fixing 25.9.2007 as the cut off date and there was no justification to change the rules of game after the game had begun. Accordingly, he allowed the writ petition and directed the respondents to consider the application of the writ petitioner for 16 circles. (xxxiv) L.P.A. No. 388/2009 filed by the Union of India against the order of the learned Single Judge was dismissed by the Division Bench and the order of the learned Single Judge was upheld.
(xxxv) Special Leave Petition No. 33406/2009 filed by the Union of India, which was converted into C.A. No. 2355/2010 was disposed of by this Court on 12.3.2010 after taking into consideration the additional affidavit filed by the writ petitioner and suggestion made by the Attorney General. However, the finding recorded by the High Court on the issue of change of cut off date was not disturbed.
(xxxvi) On 4.5.2009, appellant No.2 – Telecom Watchdog submitted detailed representation to the Chief Vigilance Commissioner (CVC) pointing out irregularities committed in the grant of UASL. After 5 days, one Shri A.K. Agarwal made a complaint to the CVC to highlight how manipulations were made by some of the applicants for getting the licences and how the exercise undertaken by the DoT for grant of UASL has resulted in serious financial loss to the public exchequer. 
(xxxvii) The CVC got conducted an inquiry under Section 8(d) of the Central Vigilance Commission Act, 2003 and noticed some grave irregularities in the grant of licences. On 12.10.2009, a copy of the report prepared on the basis of the said inquiry was forwarded by the CVC to the Director, CBI to investigate into the matter to establish the criminal conspiracy in the allocation of 2G Spectrum under UASL policy of DoT and to bring to book all wrong doers. On receipt of the aforesaid communication from the CVC, CBI registered FIR No. RC-DAI-2009-A-0045 dated 21.10.2009 against unknown officials of DoT and unknown private persons/companies and others for offence under Section 120B IPC read with Section 13(2) and 13(1)(d) of the Prevention of Corruption Act, 1988.
In this background taking note of the submissions of the parties and the allegations of corruption, the Supreme Court opined that a thorough investigation was required and thus passed the following directions;
14. We have considered the respective submissions and carefully scanned the record. We have also gone through the reports produced by Shri K.K. Venugopal and Shri Harin P. Raval. In our opinion, the Division Bench of the High Court committed a serious error by dismissing the writ petition at the threshold ignoring that the issues raised by the appellants, whose bonafides have not been doubted, are of great public importance. We are, prima facie, satisfied that the allegations contained in the writ petition and the affidavits filed before this Court, which are supported not only by the documents produced by them, but also the report of the Central Vigilance Commission, which was forwarded to the Director, CBI on 12.10.2009 and the findings recorded by the CAG in the Performance Audit Report, need a thorough and impartial investigation. However, at this stage, we do not consider it necessary to appoint a Special Team to investigate what the appellants have described as 2G Spectrum Scam because the Government of India has, keeping in view the law laid down in Vineet Narain’s case and orders passed in other cases, agreed for a Court monitored investigation. The reports produced before the Court show that the CBI and the Enforcement Directorate have started investigation in the right direction. At the same time, keeping in view the statements made by the learned Solicitor General and the learned senior counsel representing the CBI and with a view to ensure that in a serious matter like this, comprehensive and coordinated investigation is conducted by the CBI and the Enforcement Directorate without any hindrance, we deem it proper to issue the following directions: 
(i) The CBI shall conduct thorough investigation into various issues highlighted in the report of the Central Vigilance Commission, which was forwarded to the Director, CBI vide letter dated 12.10.2009 and the report of the CAG, who have prima facie found serious irregularities in the grant of licences to 122 applicants, majority of whom are said to be ineligible, the blatant violation of the terms and conditions of licences and huge loss to the public exchequer running into several thousand crores. The CBI should also probe how licences were granted to large number of ineligible applicants and who was responsible for the same and why the TRAI and the DoT did not take action against those licensees who sold their stakes/equities for many thousand crores and also against those who failed to fulfill rollout obligations and comply with other conditions of licence.
(ii) The CBI shall conduct the investigation without being influenced by any functionary, agency or instrumentality of the State and irrespective of the position, rank or status of the person to be investigated/probed.
(iii) The CBI shall, if it has already not registered first information report in the context of the alleged irregularities committed in the grant of licences from 2001 to 2006-2007, now register a case and conduct thorough investigation with particular emphasis on the loss caused to the public exchequer and corresponding gain to the licensees/service providers and also on the issue of allowing use of dual/alternate technology by some service providers even before the decision was made public vide press release dated 19.10.2007.
(iv) The CBI shall also make investigation into the allegation of grant of huge loans by the public sector and other banks to some of the companies which have succeeded in obtaining licences in 2008 and find out whether the officers of the DoT were signatories to the loan agreement executed by the private companies and if so, why and with whose permission they did so.
(v) The Directorate of Enforcement / concerned agencies of the Income Tax Department shall continue their investigation without any hindrance or interference by any one.
(vi) Both the agencies, i.e., the CBI and the Directorate of Enforcement shall share information with each other and ensure that the investigation is not hampered in any manner whatsoever.
(vii) The Director General, Income Tax (Investigation) shall, after completion of analysis of the transcripts of the recording made pursuant to the approval accorded by the Home Secretary, Government of India, hand over the same to CBI to facilitate further investigation into the FIR already registered or which may be registered hereinafter.
15. The progress reports based on the investigations conducted by the CBI and the Enforcement Directorate shall be produced before the Court in sealed envelopes on 10.2.2011.

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