Penalty on telephone companies for call-drops illegal: Supreme Court

Upholding the grievance of the telephone companies challenging the validity of the regulations, the Supreme Court in its recent decision Cellular Operators Association of India v. Telecom Regulatory Authority of India Civil Appeal No. 5017/2016 (decision dated 11.05.2016] has set aside these regulations citing lack of legal basis for enacting them. The Court even repelled the argument of "public interest" canvassed by the Government of India to justify these regulations being of the view that legal and constitutional rights cannot be undone solely by citing public interest.

The relevant legal observations of the Court are as under;

32. We find that it is not necessary to go in detail into many of the submissions made on either side as to the technical difficulties which may or may not lead to call drops. This is for the reason that even if we accept the demarcation of the cause of call drops to be what the learned Attorney General says it is, the Impugned Regulation must be held to be manifestly arbitrary and an unreasonable restriction on the appellants’ fundamental rights to carry on business. According to the learned Attorney General, the cause for call drops is twofold – one owing to the fault of the consumer, and the other owing to the fault of the service provider. And, for this dichotomy, he has referred to the technical paper dated 13.11.2015, which shows that an average of 36.9% can be call drops owing to the fault of the consumer. If this is so, the Impugned Regulation’s very basis is destroyed: the Regulation is based on the fact that the service provider is 100% at fault. This becomes clear from a reading of the text of the said Regulation together with the Explanatory Memorandum set out hereinabove. This being the case, it is clear that the service provider is made to pay for call drops that may not be attributable to his fault, and the consumer receives compensation for a call drop that may be attributable to the fault of the consumer himself, and that makes the Impugned Regulation a regulation framed without intelligent care and deliberation.

33. But it was said that the aforesaid Regulation should be read down to mean that it would apply only when the fault is that of the service provider. We are afraid that such a course is not open to us in law, for it is well settled that the doctrine of reading down would apply only when general words used in a statute or regulation can be confined in a particular manner so as not to infringe a constitutional right. ...

...

39. We were then told that the Impugned Regulation was framed keeping in mind the small consumer, that is, a person who has a pre-paid SIM Card with an average balance of Rs.10/- at a time, and that the Regulation goes a long way to compensate such person. The motive for the Regulation may well be what the Attorney General says it is, but that does not make it immune from Article 14 and the twin tests of Article 19(6). The Authority framing the Regulation must ensure that its means are as pure as its ends – only then will regulations made by it pass constitutional muster.

40. We were also told that huge profits were made by the service providers, and that the amount they would have to pay would not even be a flea bite compared to the profits they make, viewed in the background that they are not pouring in enough funds for infrastructure development. This was stoutly resisted by the appellants, pointing out that the so called huge profits earned is misleading, as the figure of net debt is far greater than that of revenue earned, and that huge sums had been pumped in for infrastructure development. Without going into the factual controversy thus presented, there are two answers to this submission. First and foremost, whether the service providers make profits or losses cannot be said to be relevant for determining whether the Impugned Regulation is otherwise arbitrary or unreasonable. If the Attorney General were correct, then the converse proposition would also be true – namely, that even if all the service providers were suffering huge losses, then such regulation, since it makes them fork out crores of rupees and add to their losses, would have to be held to be unconstitutional. Assuming that six out of the twelve service providers make profits, and the other six make losses, the Impugned Regulation cannot be held to be constitutional so far as those making a profit, and unconstitutional qua those making losses. And what if the same service provider makes a profit in one year and a loss in the succeeding year. Is the Impugned Regulation unconstitutional in the first year and constitutional in the succeeding year? Obviously not. Secondly, it is always open to the Authority, with the vast powers given to it under the TRAI Act, to ensure, in a reasonable and non-arbitrary manner, that service providers provide the necessary funds for infrastructure development and deal with them so as to protect the interest of the consumer. Consequently, this submission is also without substance.

...

45. In view of the aforesaid, it is clear that the Quality of Service Regulations and the Consumer Regulations must be read together as part of a single scheme in order to test the reasonableness thereof. The countervailing advantage to service providers by way of the allowance of 2% average call drops per month, which has been granted under the 2009 Quality of Service Regulations, could not have been ignored by the Impugned Regulation so as to affect the fundamental rights of the appellants, and having been so ignored, would render the Impugned Regulation manifestly arbitrary and unreasonable.

46. Secondly, no facts have been shown to us which would indicate that a particular area would be filled with call drops thanks to the fault on the part of the service providers in which consumers would be severely inconvenienced. The mere ipse dixit of the learned Attorney General, without any facts being pleaded to this effect, cannot possibly make an unconstitutional regulation constitutional. We, therefore, hold that a strict penal liability laid down on the erroneous basis that the fault is entirely with the service provider is manifestly arbitrary and unreasonable. Also, the payment of such penalty to a consumer who may himself be at fault, and which gives an unjustifiable windfall to such consumer, is also manifestly arbitrary and unreasonable. In the circumstances, it is not necessary to go into the appellants’ submissions that call drops take place because of four reasons, three of which are not attributable to the fault of the service provider, which includes sealing and shutting down towers by municipal authorities over upon they have no control, or whether they are attributable to only two causes, as suggested by the Attorney General, being network related causes or user related causes. Equally, it is not necessary to determine finally as to whether the reason for a call drop can technologically be found out and whether it is a network related reason or a user related reason.

...

48. In the present case, also, a mandatory penalty is payable by the service provider for call drops that may take place which are not due to its fault, and may be due to the fault of the recipient of the penalty, which is violative of Articles 14 and 19(1)(g).

49. The reason given in the Explanatory Memorandum for compensating the consumer is that the compensation given is only notional. The very notion that only notional compensation is awarded, is also entirely without basis. A consumer may well suffer a call drop after 3 or 4 seconds in a voice call. Whereas the consumer is charged only 4 or 5 paise for such dropped call, the service provider has to pay a sum of rupee one to the said consumer. This cannot be called notional at all. It is also not clear as to why the Authority decided to limit compensation to three call drops per day or how it arrived at the figure of Re.1 to compensate inconvenience caused to the consumer. It is equally unclear as to why the calling party alone is provided compensation because, according to the Explanatory Memorandum, inconvenience is suffered due to the interruption of a call, and such inconvenience is suffered both by the calling party and the person who receives the call. The receiving party can legitimately claim that his inconvenience when a call drops, is as great as that of the calling party. And the receiving party may need to make the second call, in which case he receives nothing, and the calling party receives Re.1 for the additional expense made by the receiving party. All this betrays a complete lack of intelligent care and deliberation in framing such a regulation by the Authority, rendering the Impugned Regulation manifestly arbitrary and unreasonable.

...

53. Viewed at from a slightly different angle it is clear that if an individual consumer were to go to the consumer forum for compensation for call drops, he would have to prove that the call drop took place due to the fault of the service provider. He would further have to prove that he has suffered a monetary loss for which he has to be compensated, which the Explanatory Memorandum itself says is impossible to compute. Thus, the Impugned Regulation completely avoids the adjudicatory process, and legislatively lays down a penal consequence to a service provider for a call drop taking place without the consumer being able to prove that he is not himself responsible for such call drop and without proof of any actual monetary loss. Whereas individual consumers, either before the Consumer Forum, or in a dispute as a group with service providers before the TRAI, would fail in an action to recover compensation for call drops, yet a statutory penalty is laid down, applicable legislatively, and without any adjudication. This again makes the Impugned Regulation manifestly arbitrary and unreasonable.

In the wake of these legal challenges, the Supreme Court further went on to observe that it was expedient if the Parliament enacted another legislation whereby transparency could be
attained in making of sub-ordinate legislation such as these regulations. On this count the Court observed as under;

74. We find that, subject to certain well defined exceptions, it would be a healthy functioning of our democracy if all subordinate legislation were to be “transparent" in the manner pointed out above. Since it is beyond the scope of this judgment to deal with subordinate legislation generally, and in particular with statutes which provide for rule making and regulation making without any added requirement of transparency, we would exhort Parliament to take up this issue and frame a legislation along the lines of the U.S. Administrative Procedure Act (with certain well defined exceptions) by which all subordinate legislation is subject to a transparent process by which due consultations with all stakeholders are held, and the rule or regulation making power is exercised after due consideration of all stakeholders’ submissions, together with an explanatory memorandum which broadly takes into account what they have said and the reasons for agreeing or disagreeing with them. Not only would such legislation reduce arbitrariness in subordinate legislation making, but it would also conduce to openness in governance. It would also ensure the redressal, partial or otherwise, of grievances of the concerned stakeholders prior to the making of subordinate legislation. This would obviate, in many cases, the need for persons to approach courts to strike down subordinate legislation on the ground of such legislation being manifestly arbitrary or unreasonable.

One hopes that policy-makers will take heed for its not just the end which is important but also the means to the end which require justification. Penalty for call-drops, even if found to be a legitimate medium to ensure better telecom services, would need to be legislated in a more rational manner which is compliant with the legal and constitutional limitations.