Letter to Law Students – Lessons from the Adjusted Gross Revenue (‘AGR’) Case

[Ed Note: We are delighted to bring to our readers this post as part of a series of letters addressed to law students from Prof. (Dr.) Nigam Nuggehalli, Dean, School of Law, BML Munjal University. In this letter, he talks about the importance of the AGR Case for law students in the country, and makes a larger point towards how they should look at the law and its various facets.]

Dear Students,

Last week, I conducted an informal survey with some of my law students. I asked them, “Have you read the AGR judgment?” They replied, “No.” “Did you read about the Ayodhya judgment, CAA, Article 370, and Paatal Lok?” – “Yes, yes, yes and of course yes”. “What about a 1.4 lakh crore case that involves important questions of state revenue and public trust?” “Nope!”

My dear law students, I feel a bit lost sometimes in the face of your tendency to focus on the most sensational cases around you. In fact the more boring ones are the ones that should keep you awake at night! I understand your predicament. As a tax professor, I am an old hand at sifting through boring cases and nothing pushes the boundaries of boredom like the AGR case. Often, the discussion in the case alternates between clauses in a telecom license and accounting standards designed to make your eyes water. But this case is a wake up call for you. Every single point I am going to make in this letter is from the Supreme Court (‘SC’) judgments on AGR or the pronouncements of the judges as reported in the press; it’s all a matter of public record which makes it all the more surprising that many law students haven’t heard of this case.  Before I explain why the case is important, here’s a brief primer on the facts of the AGR issue.

Despite their current financial woes, telecom companies in India have made an enormous amount of money in the past from telephony, (INR 2,37,676 Crore in 2015) but their source of revenue depends on using spectrum or radio frequencies. Under the Telegraph Act, 1885, the Government has the sole right to decide on the use of spectrum. The AGR case is about the license fees owned by telecom companies to the Government for making use of spectrum. In the mid nineties, the government used to collect the license fees at a flat rate. The telecom companies complained that the license fees were too high and lobbied the government to allow them to pay the license fee as a percentage of their revenues, called the Adjusted Gross Revenue (AGR). The AGR was agreed to in a license agreement between the government and the telecom companies and a detailed formula was adopted. The Government insisted on a formula because it wanted to avoid any frivolous arguments based on accounting jugglery.

Ultimately, the Government and the telecom companies disagreed about the license fee liability under the AGR scheme and the matter came to be decided by the Supreme Court. The Supreme Court decided in favor of the Government and in September, 2020, ordered the telecom companies to pay the license fees over a period of 10 years. Here’s why the AGR case is significant for you as law students.

Something is rotten and broken in our legal system. In an excellent case of the use of irony in public economics, the idea of AGR was agreed between the government and the telecom companies in order to avoid litigation! A supposedly crystal clear definition was provided in the license agreement with paragraphs, sub paragraphs and exceptions.  More than twenty years later, the matter is still being litigated. The Supreme Court barely restrained itself in October last year when it said there was ‘no justification for the licensees to raise the objections and to keep them pending for over two decades’. If you have the time, please read this 153-page judgment. Virtually, the entire judgment follows the same pattern: the Supreme Court lists the objections of the telecom companies to the AGR formula and then states that the definition is clear enough and there is no reason to revisit the definition of the same.

By March of this year, when the telecom companies were once again seeking a reassessment of their dues under the AGR formula, the Supreme Court was done with its decorous attitudes towards them. It said any further reassessment would be a fraud on the Court. Earlier this month, when the AGR dues were once again in the court’s horizon, the Supreme Court gave the telecom companies ten years to pay their debts. The Government, the lender, asked for a twenty year repayment plan while the telecom companies, the debtors, asked for a fifteen year repayment plan. Everything looked topsy-turvy. But wait, the Supreme Court also asked the National Company Law Tribunal (‘NCLT’) to look into some additional issues regarding the status of spectrum licenses for insolvent telecom companies, discussed below, which in all likelihood will come back in appeal to the Supreme Court in several years’ time. 

My dear law students, public revenues to the tune of several billion dollars are struck in litigation with respect to a clause that was drafted expressly to avoid litigation. The total dues owed by the telecom companies are INR 1.4 lakh Crore. By way of comparison, the annual union budget allocation in 2020 for health is INR 69,000 Crore and for education is INR 99,300 Crore.  

You are young and ambitious and most importantly optimistic. The Indian legal system will face a reckoning soon and one of you has to find a solution. If an iron clad clause can continue to be litigated until the highest court in the land turns livid with exasperation, is there any hope for other kinds of litigation? Is it unsurprising that the Indian public has lost confidence in the ability of the justice system to deliver justice on time?

I want to end on another note. We have all been hearing that technology is going to transform us, but please remember that the old legal issues will not go away. Spectrum was going to be the new fangled thing but we are still talking about the Telegraph Act, 1885. That’s right! The most cutting edge technology in India is being litigated under an enactment from the last century. That’s not the only anachronism here. The Supreme Court referred the question of whether spectrum is a public resource to the NCLT. The last time this issue was in question was when coal was being allocated. So whether it is a rock or a radio wave, old legal paradigms do not go away. The concepts you are going to study in law school today will be relevant tomorrow; only the circumstances of their application will change.

Prof. (Dr.) Nigam Nuggehalli

Prof. Nigam Nuggehalli is the Dean, School of Law at BML Munjal University. Before this, he has been associated as a faculty with the National Law School of India University Bangalore, School of Policy and Governance at Azim Premji University and the BPP Law School, London. Professor Nuggehalli holds a DPhil from the University of Oxford Faculty of Law, an LLM in Taxation from New York University and a BA., LLB (Hons.) from the National Law School of India University.

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