Union Of India vs Microwave Communications Ltd.
2011 Latest Caselaw 6251 Del

        IN THE HIGH COURT OF DELHI AT NEW DELHI

                                  O.M.P. 235/2004

                                       Reserved on: November 24, 2011
                                       Decision on: December 20, 2011

        UNION OF INDIA                            ..... Petitioner
                      Through Ms. Geeta Sharma with
                      Ms. Priya Singh, Advocates.

                         versus

        MICROWAVE COMMUNICATIONS LTD. ..... Respondent
                    Through Mr. Jasbir Singh, Advocate

        CORAM: JUSTICE S. MURALIDHAR

                                     JUDGMENT

20.12.2011

1. Union of India (`UoI') in this petition under Section 34 of the

Arbitration and Conciliation Act, 1996 (`Act') challenges an Award

dated 13th February 2004 to the extent it rejects the Petitioner's claim

against the Respondent to recover a sum of Rs. 1,21,42,490/- together

with interest from 1st January 2003 till the date of payment.

2. The Respondent Microwave Communications Ltd. (`MCL') applied

to the Department of Telecommunications (`DoT') for grant of licence

for operation of Voice Mail Service (`VMS') on their Radio Paging

Network in Mumbai, Delhi, Calcutta, Ahmedabad and Surat. The

Petitioner DoT issued to the Respondent a letter of interest (`LOI') on

30th January 1996 granting licences for the said five Service Areas.

3. As per the terms of the LOI, the Respondent MCL furnished to the

Petitioner 10% licence fee for all the five Service Areas, Financial

Bank Guarantee (`FBG') for a sum of Rs. 22.5 lakhs towards 90% of

the balance minimum licence fee payable for the five Service Areas

and two Performance Bank Guarantees (`PBGs') of Rs. 5 lakhs each.

Five separate licences for each of the five cities were signed between

the Petitioner and Respondent on 17th May 1996.

4. In terms of the LOI, the minimum licence fee payable in respect of

the Service Areas was as under:-

           Sl. No.       Service Area     Minimum      Licence
                                          Fees Payable per
                                          annum
           1.            Delhi            Rs. 7.5 Lacs

           2.            Mumbai           Rs. 7.5 Lacs

           3.            Calcutta         Rs. 5 Lacs

           4.            Surat            Rs. 2.5 Lacs

           5.            Ahmedabad        Rs. 2.5 Lacs

                         Total             Rs. 25 Lacs

5. According to the Petitioner, the above licence fee would be doubled

if the Respondent provided service to the other customers besides their

own registered radio paging subscribers. The schedule of payment of

licence fee, interest/penalty on the late payment of the licence fee was

also specifically indicated in the licence agreement.

6. According to condition 1.1 of Part II Schedule C of the Licence

agreements, MCL was to instal and commission the service within 12

months from the date of signing of the licence agreement in all the five

Service Areas. As per condition 6 of Part II, Schedule C of the licence

agreement, in the event MCL failed to bring the service of any part

thereof into commission within the prescribed period, the DoT would

be entitled to recover liquidated damages (`LD') from the licensee for

each Service Area at Rs. 5,000/- for each week of the delay or part

thereof, subject to a maximum of Rs. 1 lakh for each Service Area. By

a letter dated 24th September 1996 the Respondent informed the DoT

that VMS had been commenced in the Calcutta and Ahmedabad

Service Areas from 26th August 1996 and 22nd August 1996,

respectively. By a further letter dated 17th January 1997, MCL

informed the DoT that the VMS at Calcutta and Ahmedabad had been

offered to the subscribers. By a letter dated 17th February 1997 MCL

submitted to the DoT a TEC Certificate for testing of the installation at

Surat and Delhi and requested the DoT to give it permission to

commission the service in Delhi in view of the conditionalities in TEC

Certificate. TEC Certificates dated 16th January 1997 and 30th January

1997 were issued pursuant to the said letter stating that prior to the

commissioning of service, approval had to be obtained from the

licensing authority. In its letter dated 15th April 1997 written to MCL,

the DoT pointed out that 90% licence fee was still to be paid by it in

four Service Areas, i.e., Ahmedabad, Calcutta, Surat and Delhi and as

a result of the delay in payment of the said licence fee, a total amount

of Rs. 1,34,339/- was due towards interest. As regards Mumbai City,

90% of the licence fee for Rs. 6,75,000/- plus 25% licence fee of the

first quarter in the second year (Rs. 1,87,500) was due and payable on

7th May 1997. MCL was asked to inform the DoT whether the service

had started in the Mumbai area, and if so to also pay the licence fee.

By its letter dated 4th June 1997 MCL requested the DoT to grant it

approval to launch the services in the five cities.

7. In its letter dated 13th May 1997 the DoT reminded MCL about the

outstanding licence fee. Thereafter, on 30th October 1998 a notice was

issued informing MCL that its reply to the show cause notice dated

14th August 1997 was not found satisfactory and, therefore, the

competent authority had decided to terminate the Licence agreement at

the risk and cost of MCL. It was also mentioned that the termination of

the licences was without prejudice to the rights of the licensor. The

notice required MCL to pay DoT the outstanding dues as on that date

amounting to Rs. 52,13,475/-, i.e. licence fee of Rs. 36,45,833/- and

interest of Rs. 15,67,642/- including LD of Rs. 1 lakh as per condition

6 Schedule C, Part II of the licence agreement. A further reminder was

sent to the MCL by the DoT on 30th November 1998.

8. It is stated that meanwhile the DoT encashed the FBG in the sum of

Rs. 22.5 lakh. A request made to MCL to furnish fresh FBG in the sum

of Rs. 25 lakh was not complied with. It is stated that even after the

encashment of the FBG, a sum of Rs. 31.25 lakhs plus interest etc. still

remained outstanding. The PBG was invoked by the Petitioner to the

tune of Rs. 10 lakh.

9. MCL filed Suit No. 1684 of 1998 in this Court, inter alia, seeking

stay of encashment of the PBG. A statement was made on behalf of the

DoT during the hearing of the said suit that the said PBG would not be

encashed subject to the MCL agreeing to keep it renewed from time to

time. However, according to the DoT, MCL failed to keep the PBG

valid beyond 30th June 2001. After the notices of termination of

licence agreement was sent by the DoT, MCL filed Suit No. 1603 of

1998 seeking to recover from DoT a sum of Rs. 22.5 lakhs together

with interest @ 18% per annum. While filing a reply in the said suit,

the Petitioner reserved its right to invoke Section 8 of the Act and seek

reference of the disputes to arbitration. Thereafter DoT invoked the

arbitration clause and one Shri O.P. Nahar was appointed as the Sole

Arbitrator.

10. The learned Arbitrator, who was a Legal Adviser and Ex Officio

Additional Secretary (Conveyancing) Department of Legal Affairs,

Ministry of Law and Justice delivered his Award dated 13th February

2004. The learned Arbitrator rejected the three preliminary objections

raised by MCL. One concerned the validity of the appointment of the

Arbitrator; the second challenging the appointment on account of there

being no prior notice issued to MCL by the Petitioner and third that the

Petitioner's claim was barred by limitation. The learned Arbitrator also

rejected the Respondent's request for framing issues and leading oral

evidence. The arbitral reference was confined to the three components,

viz., (i) licence fee (ii) liquidated damages and (iii) interest thereon.

11. As regards the case of the Mumbai licence, learned Arbitrator held

that although the licencee (MCL) never started service in Mumbai, the

licensor, i.e. the DoT, did not cancel the licence nor issued MCL any

notice for non-performance. It was held that DoT had not shown any

positive action to mitigate the loss. On the other hand, it allowed the

losses to multiply. It was held that DoT could at best claim the licence

fee for the period from the effective date till the expiry of one year and

LD as agreed between the parties for non-performance. Even as

regards the other licence agreements in relation to the other Service

Areas, the learned Arbitrator found that the DoT continued to await the

start of the provision of service by the Respondent and never really

issued any notice for non-performance either on the expiry of twelve

months or even prior thereto. Judicial notice of the fact was also taken

that the service was not remunerative and DoT, after a certain time,

allowed the said service without payment of any licence fee. It was

held that MCL was entitled to the same treatment although the licence

agreements had been signed at an earlier point in time. Since DoT had

already recovered one year's licence fee in respect of each of the

licence agreements and accepted 10% in cash apart from invoking

FBG in respect of the remaining 90% amount, it was held that DoT

would be entitled at best to Rs. 5 lakhs as LD along with one year's

licence fee. In the circumstances, it was held that the Petitioner was

entitled to Rs. 5 lakhs and nothing more. As regards the payment of

interest, since there was no clause in the contract permitting such

payment, it was disallowed.

12. Ms. Geeta Sharma, learned counsel appearing for the Petitioner

referred to the letter dated 15th April 1997 from the DoT to MCL

which clearly mentioned the amounts of licence fee which were yet to

be paid by MCL as well as the penalty for late payments. According to

her, there was no failure by the Petitioner to take positive steps to

recover the amounts due. It was submitted that the learned Arbitrator

erred in holding that the Petitioner had not taken steps to mitigate the

losses and was therefore not entitled to recover the arrears of licence

fee. It was further submitted that the learned Arbitrator had gone

beyond the licence agreement in holding that if the service itself was

made free of charge the same facility should be extended to MCL as

well. Mr. Jasbir Singh, learned counsel for the Respondent on the other

hand defended the impugned Award. He submitted that it was based

on evidence led by the parties and that given the limited scope of the

powers of interference by the court under Section 34 of the Act, it was

not open to the court to re-appreciate the evidence as a court of appeal.

13. It appears to this Court that the view taken by the learned

Arbitrator on the basis of the documents placed before him was a

plausible one to take. There is no valid explanation offered by the DoT

to the contention of the Respondent that unless the performance tests

required for the successful commissioning of the service was carried

out by the Petitioner, the offering of services could not commence.

There were indeed several obligations cast on the DoT in terms of the

licence agreement, which were not met by it. Added to this was the

fact that the services themselves had begun to be offered free of

charge. In the circumstances, no exception can be taken to the

conclusion arrived at by the learned Arbitrator that at highest the

Petitioner was entitled to only one year's licence fee in regard to the

five licence agreements and LD in the sum of Rs. 1 lakh for every

Service Area. The finding of the learned Arbitrator was a factual one

based on the evidence led before the Arbitrator. It cannot be said that

the rejection of the DoT's claim by the Arbitrator was vitiated by any

'patent illegality'. As rightly observed by the learned Arbitrator, DoT

had already invoked the FBG as regards the 90% amount. In the

circumstances, this Court is not persuaded to interfere with the

impugned Award of the learned Arbitrator.

14. The petition is accordingly dismissed.

S. MURALIDHAR, J.

DECEMBER 20, 2011 akg