Delhi High Court
Mahanagar Telephone Nigam Ltd vs World Phone India Pvt Ltd on 3 December, 2018
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO (OS) NO. 166/2017
Reserved on: 12th September, 2018
Date of decision: 3rd December, 2018
MAHANAGAR TELEPHONE NIGAM LTD ..... Appellant
Through: Mr. Kirti Uppal, Senior Advocate
with Mr. S.K. Singh, Mr.Rameezuddin Raja and
Mr.Abhimanyu, Advocates.
versus
WORLD PHONE INDIA PVT LTD ..... Respondent
Through: Mr. Abhinav Vasisth, Senior Adv.
with Advocate with Mr. Virender Goswami,
Ms. Soni Singh and Mr. Shamik Saha, Advocates
FAO(OS) (COMM) 119/2017
MAHANAGAR TELEPHONE NIGAM LTD ..... Appellant
Through: Mr. Kirti Uppal, Senior Advocate
with Mr. S.K. Singh, Mr.Rameezuddin Raja and
Mr.Abhimanyu, Advocates.
versus
WORLD PHONE INDIA PVT LTD ..... Respondent
Through: Mr. Abhinav Vasisth, Senior Adv.
with Mr. Virender Goswami, Ms. Soni Singh and
Mr. Shamik Saha, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE CHANDER SHEKHAR
SANJIV KHANNA, J.:
The above captioned intra-Court appeals by Mahanagar Telephone
Nigam Ltd. („MTNL‟ for short) assail the order dated 10th February, 2017
passed by the learned single Judge dismissing OMP No.562/2008 filed by
MTNL and partly allowing OMP (COMM) No.575/2016 filed by World
Phone India Pvt. Ltd. (WPIPL, for short) under Section 34 of the Arbitration
and Conciliation Act, 1996 (A & C Act, for short) challenging the arbitral
award dated 25th July, 2008, passed by a sole Arbitrator, Mr. B.K. Khurana.
2. MTNL, a Government of India undertaking registered under the
Indian Companies Act, 1956, is a licensee of the Central Government under
the Indian Telegraph Act, 1885 and authorized to establish and operate
telephone and telegraph services in Delhi and Mumbai.
3. Pursuant to the Department of Telecommunication‟s decision to
introduce Intelligent Network Service („IN service‟ for short) on an
experimental basis from 1st April, 1999, MTNL had invited applications for
providing Premium Rate Services (PRM Services) to its
customers/subscribers in Delhi. Paragraph 15 of the instructions and
information to the applicants read;-
"15. Premium Rate Service (PRM): It enables services subscribers
to provide Value Added Information based service to user. Different
type of information related to stock market, astrology, weather
condition, consultation services etc. can be provided through PRM.
The subscriber of this service will be allocated a „premium rate
number‟. The calls made to this number are charged to Calling
Subscriber at a higher rate than the normal call rate. (Premium Rate
Charging).
The revenue generated by premium rate call is shared between MTNL
and PRM subscriber as per the terms agreed upon."
4. Pursuant to the invitation on the above instructions, WPIPL vide letter
dated 7th December, 1998 had submitted duly signed application form,
which had set out the following broad terms and conditions;-
"1. Subletting of Premium Rate Service is not allowed.
2. The subscriber is required to fully comply the provisions of the
Indian Telegraph Act, 1885, and the Indian Telegraph Rules made
thereunder and any amendments or replacement made there to from
time to time.
3. The subscriber is required to ensure that he or any other person
does not make objectionable or obscene activities, which are
inconsistent with the established laws of the country on his Premium
Rate Number.
4. MTNL/DOT may revise the tariff for MTNL Premium Rate
Service from time to time at its discretion.
5. Subscriber is required to take a dedicated telephone connection for
Premium, Rate Service and keep this telephone PSTN number secret.
MTNL will share the revenue for only those incoming calls, which are
logged at IN platform at Bikhaji Cama Place. The call will be logged at
IN Switch only when the subscriber has accessed Premium Rate Service
number through 1605 Code.
6. It is the responsibility of the subscriber to advertise the rate
alongwith Premium Rate number by which they are going to charge
their customers for their valued service.
I/We have carefully read the terms and conditions of the agreement
and technical specifications of MTNL Premium Rate Service and
agree to abide by the same."
5. Application of WPIPL was accepted and it was granted registration
for providing PRM Services to MTNL subscribers in Delhi. WPIPL and
MTNL accept that the allotment was on experimental basis without any
formal written agreement being executed. The broad outlines set out in the
instructions inviting the offer and the application form were to govern the
mutual arrangement.
6. As noticed and held below this experimental or preliminary phase was
from 1st April, 1999 to 31st March, 2000.
7. The tariff or call rate fixed by MTNL for all telephone calls during the
period was Rs. 1.25 per pulse. This call rate was also applicable to calls
made by subscribers to avail the PRM service. However, WPIPL as a PRM
service provider, in terms of the application form, had the option to keep/fix
the pulse rate at 2, 3, 4, 8 or 12 seconds per unit. Each unit/pulse was
chargeable as per tariff fixed by MTNL for the subscribers. WPIPL had
elected and opted for 2 seconds pulse or 30 pulses for every minute of the
call to avail PRM Service. In other words, the subscribers were liable to pay
Rs.1.25 for every two seconds or Rs. 37.50 per minute for availing PRM
service from their phones.
8. Paragraph 15 of the instructions and information had stipulated that
the revenue generated by premium rate call would be shared between MTNL
and the PRM subscriber as per the terms agreed. The application form had
stipulated that MTNL would share the revenue for only those incoming calls
that were logged at IN platform at Bikhaji Cama Place. The calls would be
logged at IN switch only when the subscriber had accessed Premium Rate
Service number through 1605 Code.
9. It is an accepted position and both sides state that WPIPL was paid by
MTNL at the rate of Rs.0.75 per pulse for the month of April, 1999 and
thereafter at the rate of Rs. 0.70 per pulse as per calls recorded in the IN
switch Platform. The reduction to Rs.0.70 per pulse was accepted by WPIPL
and was not a dispute referred to arbitration.
10. MTNL had made payments to WPIPL on the above pulse rate of
Rs.0.75/0.70 on basis of calls recorded in the IN switch, whether or not the
revenue was realized from the customers. In absence of proper data and
verification it took time for MTNL realize that the bills raised for the PRM
service were not being paid by the customers/subscribers. Thus, MTNL
instead of sharing the revenue generated, was making payments to WPIPL
for payments not received by them from the subscribers.
11. MTNL thereupon took steps to correct their folly and imprudence on
„revenue sharing‟ with WPIPL on the IN switch data and not on the basis of
actual payment realized. MTNL wrote letter dated 15th February, 2000 to
WPIPL proposing:-
"To
M/S World Phone India (P) Ltd
M-2, L G Floor GK-II, N.D.-48
Sub: Payment of Revenue Share in respect of PRM Service
As you may be aware, in respect of PRM Service provided by you, the
revenue earned is shared between the service provider and network
provider. For this purpose, the number of unit that are registered against
each PRM number are made available by our Intelligent Network.
In this connection, based on detailed discussion held, the following
decisions were taken:
1. In order to ensure that in accordance with DOT instructions, the
bills in respect of calling parties are issued before releasing the revenue
share to the service provider, it has been decided that , in respect of
called units registered during a particular bi-monthly period of January -
February 2000, the revenue share will be paid to the service provider in
May 2000 instead of March 2000.
2. Even though certain selected categories of telephone connections
have been barred from calls to PRM numbers, in respect of calls/ units
registered in the past periods, the bad debts, if any, will be shared
between the service provider and the network provider in the same ratio
as that for commission sharing.
3. Bank guarantee equivalent to one months's revenue taking an
average of last 6 months, (and for the initial 6 months equivalent to the
actual revenue of 1st 2 months) will be taken from the service providers
to safe guard the interest of M.T.N.L.
4. An agreement will also be entered between the service provider
and the network provider ie, MTNL.
In accordance with above and considering your immediate needs, we
have released 50% of November- December 99 revenue shares in
January 2000. Balance 50% will be released in March 2000."
Referring to the Department of Telecommunication instructions,
WPIPL was informed that the revenue share of WPIPL would be released
after issue of calling party bills and accordingly bi-monthly payment for the
period January-February, 2000 would be made in May, 2000 and not March,
2000. To deal with bad debts, select categories of subscribers had been
barred from making calls to PRM numbers. Further, the past period bad
debts, if any, shall be shared between the service provider i.e. WPIPL and
the network provider i.e. MTNL in the same ratio as commission sharing.
Formal agreement was envisaged to be entered into between MTNL and the
„service provider‟.
12. MTNL, having learnt from the experience that could be described as
experimental and ad-hoc arrangement, wanted a formal agreement on
revenue sharing on actual realization and not on calls recorded in the IN
switch data. Past bad debts, they had asserted, should be equally shared by
WPIPL in the same ratio as commission sharing.
13. WPIPL vide letter dated 24th February, 2000 responding to MTNL on
the issue of bad debts had stated:-
"2. Bad Debts: As per the existing system, the company providing
the PRM service is only paid for the units that come through the IN
switch. Due to lack of features in several exchanges and lack of
secrecy in the system, quite a few calls come to our call centers that
are not coming through the IN switch and we are not paid for this.
In addition to this if we also have to face the uncertainty of bad
debts, it may make the whole business very risky and unviable. We
do our best by advertising the rate of the call in all our
advertisements and MTNL too has bared the PRM numbers from all
non-STD phones. We feel that as before, the service provider should
be paid for all traffic, which comes through the IN switch,
irrespective of its origin."
WPIPL while not clearly rejecting the proposal in paragraph 2 of the
letter of MTNL dated 15th February,2000, had raised the grievance
and issue of some calls not being routed through the IN switch and
consequently not being recorded and paid. WPIPL had pleaded
uncertainty on account of bad debts making the business risky and
unviable. WPIPL had stated that they on their part had done their
best to advertise the call rates and MTNL had barred PRM numbers
from all non-STD phones."
14. WPIPL was clearly aware of the problem of bad debts and non-
recovery. They were also conscious and aware of the reasons, namely
extremely high call rates, lack of awareness and knowledge about the high
call rates amongst the users. MTNL was insisting that they would share
revenue on the actual revenue earned. WPIPL did not completely reject the
proposal for revenue sharing on actual recovery, albeit had stated that they
should be paid for all traffic through the IN switch irrespective of its origin.
The statement that "we (i.e. WPIPL) have to face the uncertainty of bad
debt, it may make the whole business very risky and unviable"- would
equally apply and was the very argument of MTNL that the risk and revenue
must be shared equally. MTNL had made it clear that actual revenue
realized would be shared. MTNL had pressed that WPIPL must share the
past bad debts in the same ratio as the commission.
15. Correspondence followed and letters were exchanged. MTNL had
thereupon circulated a draft agreement which vide clause 5 inter-alia had
provided that MTNL would pay only for the amount realized from
customers. Revenue sharing was not to be on the basis of pulse recorded in
the IN switch. WPIPL had responded raising objections to different clauses
of the proposed agreement. WPIPL in one of their letters dated 14th
February, 2001 referring to clause 5 on sharing of actual revenue had
stated:-
"This has reference to the draft agreement received by us in
connection with the above. We take this opportunity to submit a few
clarifications which may kindly be incorporated after your due
consideration.
XXXXX
3. Clause 5: Payments made only for amounts realised: There
should be a provision for credit to the PRM Service Provider for
realization of amounts beyond the specified period."
16. By the subsequent letter dated 19th June, 2001 WPIPL informed
MTNL that they had agreed with most of the clauses of the draft agreement,
but had reservations on two aspects. Firstly, the agreement should be
applicable from the date of signing, as the revenue share of the uncollected
amount as commission had already been paid as per the previous agreement
and precedent. Secondly, there was no need for bank guarantees from
WPIPL as MTNL had been releasing commission payment after 2 to 4
months. The relevant portion of the said letter dated 19th June, 2001 reads as
under:-
" This has reference to our letter no. WPI:MTNL dated 06.06.2001
(Copy Enclosed) addressed to Sh. S.R. Singh, Assistant General
Manager (B.C), MTNL, K.L. Bhawan, New Delhi-110050. In
response to his, letter no. CO(NS)/PRM/Genl/2000-2001 dated
19.05.2001 signed by him on 23.05.2001, received by us on
26.05.2001 and copy to your good self as well as to The CGM,
MTNL, K.L. Bhawan, New Delhi-50 vide which we are in
agreement with most clauses of the Draft agreement there are two
points that we fell(sic) are most important to be included in this
agreement, which have been discussed since October 2000.
A. The agreement should be applicable from the date of signing of
this agreement. This is important especially for cause relating to the
revenue share of uncollected amount, commission for which has
already been paid as per previous agreement and precedence.
B. As MTNL is releasing our commission to us after 2 to 4
months, we feel that there is no need for any bank guarantee from
our side.
As our best efforts to have the above points incorporated in the
agreement have not yielded any results. We are extremely sorry to
point out that inspite of our repeated requests we neither heard any
think(sic) nor we received any communication in the matter under
report till date."
17. We would now refer to others facts required to be noticed before we
examine the reasoning and findings given in the arbitral award and the
reasons recorded in the impugned order to reverse the findings and
conclusion of the arbitrator. MTNL had continued making payment to
WPIPL on the calls recorded in the IN switch till June, 2000,
notwithstanding the bad debts (unrealised amounts from users) incurred by
them and even after they had asked WPIPL to agree to commission being
paid on revenue actually realized retrospectively. Thereafter, MTNL had
paid WPIPL on actual revenue received basis and not on the pulse rate
recorded in the IN switch. MTNL had quantified and claimed that WPIPL
had received excess payment of Rs. 1,74,95,735/- during the period April,
1999 to June, 2000. (The quantification is disputed by WPIPL.) Post June,
2000 MTNL had commenced recovery of excess payment by way of
adjustments from bi-monthly payments made to WPIPL. On 16th July, 2001
the arrangement was terminated with the MTNL withholding the PRM
service from all phones.
18. The disputes raised and decided by the Arbitrator were primarily the
claim of WPIPL for recovery of commission as per calls recorded in the IN-
switch for the period 1st June, 2000 till termination on 16th July, 2001.
Secondly, MTNL was not entitled to recover „excess‟ payment made during
the period 1st April, 1999 till June, 2000, by making adjustment from the
payments made post June, 2000. Accordingly, the adjustments made should
be paid. MTNL had defended the proceeding on merits and had also prayed
for recovery of the entire amount of Rs.1,74,95,735/-. Plea and contention
were that „revenue sharing‟ means actual revenue generated and not IN
switch call data.
19. Arbitrator rejected MTNL‟s contention regarding breach of conditions
by not offering services like job consultation, share market etc. and by
offering services like filmi chat and cool chat as MTNL should have taken
objection and stopped such services and not continued to honour the bills.
Allegation of misuse on account of obscene and objectionable content in
violation of the agreed broad arrangement was rejected by the Arbitrator
observing that the terms „obscene‟ and „objectionable‟ had not been
formally defined and were difficult expressions to define. Arbitrator held
that MTNL had failed to prove misuse of services for objectionable and
obscene calls.
20. Arbitrator divided the period of dispute into two parts or periods. The
initial or the experimental phase was till 31st March, 2000 and the second
phase was from 1st April, 2000 till termination of PRM service on 16th July,
2001. For the experimental phase, Arbitrator held that MTNL was liable to
pay commission to WPIPL on IN switch data and not on actual recovery.
However, for the second period from 1st April, 2000 till termination on 16th
June, 2001 MTNL was liable to pay commission to WPIPL on actual
recovery and not on recordings as per IN switch data. To appreciate and
understand the reasoning of the Arbitrator we would reproduce paragraph 28
of the award, which reads :-
As per documents placed in file, MTNL adopted a policy for bill
settlement, which was circulated internally vide letter dated 23.7.99.
There can be no manner of doubt that internally, commission was
paid to the Claimant on the basis of pulses received from the IN
switch and the same was also admitted by Respondent. It was
submitted by the Respondent that when it came to their knowledge
that a large amount of o/s dues can not be realized from the
subscribers who have called PRM numbers, they decided to pay the
commission on the amount which is realized rather than on the date
received from the IN switch. For the purpose of calculating
unrealized amounts, they developed a software which could bifurcate
the realized and unrealized amount. However, the Claimant denied
the existence of such a software. Arbitral Tribunal directed the
Respondent to give a demo of said software but it was submitted by
Respondent that the said software was developed in 2000 and after
the shutting down of PRM services, the said software is not
operational. The vendor who has developed the said software is also
not available, however they produced on record computer generated
sample statements of the said software for a certain period, and
handwritten voluminous data for some of the earlier period.
The PRM service was started on 1.4.99. The experimental phase was
for one year i.e. up to 31.3.2000. As per the Broad Terms and
Conditions, the revenue generated was to be shared between the
parties. Respondent continued to pay the commission on the basis of
revenue generated on the basis of exchange meter reading
irrespective of revenue realized or not till it came to his notice that
heavy bad debts are being accumulated on account of PRM service.
Respondent decided to pay the commission on revenue realized
instead of revenue generated and the same was communicated to the
claimant vide letter dated 15.2.2000 and reconfirmed in reply to
Claimant‟s initial objections. MTNL also unilaterally started
adjusting previous period‟s unrealized payments on this account
from the future commission. Since MTNL is a government PSU,
and as per DoT policies, it had the right and privilege to alter the
terms after the "experimental phase" based on the experience gained
in the light of overall public and company interest. Therefore,
Respondent forwarded an agreement to the Claimant consisting of
various terms to run the said service including the terms that the
commission will be paid on realized amount and that too
retrospectively. Claimant protested against the said agreement and
did not agree to sign the same and returned back to the Respondent
with some modifications. The main concern of the Claimant was
that the terms that commission will be paid on realized amount at the
most can be agreed prospectively. In the controversy period neither
agreement could be signed nor services were closed by the
respondent or the claimant, and the service continued as before,
including release of revenue share till June 2000, and on the
proposed Respondent‟s terms thereafter.
On the basis of above facts, I am of the view that services were
started on 1.4.99 and were guided by broad terms and conditions
which was a basis of frame work to start the said services. The
experimental phase was ending on 31.3.2000 and the problems
encountered in the experimental phase needs to be addressed before
starting services in full fledged way. Respondent seems to be
genuine in their contention that how they can pay the commission on
the amount which was never received by them and that too from
public money, on the other hand Claimant has a right to the mutually
agreed terms of settlement and also to know, as to how the disputed
amounts are settled? Respondents forwarded modified draft
agreement to claimant which was however, not agreed to by the
Claimant, who instead, reverted back-with their objections. The
Respondent did not agree and reiterated its earlier stand. If the same
was not agreed by the Claimant, they should have stopped he service
but they continued with the service without signing any agreement.
At the same time even the respondent did not initiate any action to
disconnect the network facilities. It is simply a case of acquiescence
Services were continued to run without any valid agreement between
the parties. Even revenue share payments were said to have been
released. Hence, I am of the view that broad term and conditions
hold good, at the most upto the end of experimental phase i.e. 31st
March 2000, since respondent MTNL (Govt. undertaking) informed
of its revised bill settlement procedure vide its communication of
15th February, 2000.
Claimants are entitled to commission on the revenue generated
irrespective of whether realized or not, only upto that date. It was
brought to the notice of claimant by respondent on 15.2.2000 that in
future they are going to receive commission on the realized amount
only and there was sufficient time till end of March, for the claimant
to wind up the service. Therefore claimant is entitled to commission
on only realized amount after 31.3.2000. However, details of
unrealised amounts PRM no. wise need to be furnished to the
Claimant.
In any case, Respondents are not entitled to withhold the future
payments in the name of excess payments made by them to the
Claimant upto 31.3.2000 i/e commission upto 31.3.2000 is payable
irrespective of amount realised or not. Therefore MTNL may work
out the actual payments based on the IN switch data, and settle the
claims, after adjusting the amounts already paid. The issues no. 12
& 13 disposed of accordingly."
21. We would now turn to and examine the reasoning given in the
impugned order whereby the learned single Judge had upset and reversed the
Arbitrator's finding and held that WPIPL would be entitled to payment from
MTNL even post the experimental phase that had ended on 31st March, 2000
on the basis of pulse recorded through the IN service even if MTNL had not
been able to realize and receive payment from the subscribers/customers. In
other words, MTNL would have to bear the burden and pay from their
pocket @ 70 paisa per pulse for the calls recorded through the IN service
even in respect of the unrealised revenue i.e. bills raised but not paid by the
subscribers. Learned single Judge has interfered with the award and reversed
the finding of the Arbitrator for the following reasons:-
"37. In the present petitions, it is not in dispute that there was no
written agreement between the parties which would form the basis of
providing PRM service and the payment of commission to be made
therefor by MTNL to WPIPL. The basis of the claims and in fact the
counter-claim of MTNL was the broad terms and conditions
contained in the instructions accompanying the application notified
by MTNL for IN services. These broad terms and conditions give
information about the PRM service. It stated that the revenue
generated by premium rate call would be shared between MTNL and
the service provider as per the terms agreed upon. It is significant
that these terms and conditions included the tariff for Free Phone
Service and PRM service. As far as PRM services are concerned
under the title „Feature Charges‟ there were:
(a) basic feature charge (which is treated as „Nil‟ in the
experimental phases)
(b) bi-monthly charges for each additional feature (payable in
advance) (where again, it is indicated as „Nil‟ in the experimental
phases)
38. However, under Clause B for „Tariff for FPH & PRM
Services‟, it was indicated that "the pulses duration offered will be
two, three, four, eight & twelve second per unit call." It was
further indicated that "each unit will be charged as per existing
tariff." It was clearly stated that the commission will be paid by
MTNL to the service provider at 75 paisa per unit. It is on this
basis that bills were raised by WPIPL and paid by MTNL at least
till 31st March, 2000. The letter dated 23rd July, 1999 also
instructed the officers of MTNL to process the bills for
commission for providing PRM service on the above basis.
39. Mr. Kathpalia is right in pointing out that there were internal
contradictions in the impugned Award which are under challenge
in these petitions. Indeed under Issue No. 3, the finding is that by
its letter dated 15th February, 2000, MTNL attempted to
"unilaterally supplement the broad terms and conditions with a
new set of conditions." Having given this finding, it is
inexplicable that the learned Arbitrator proceeded to hold that if
WPIPL did not agree with the changed terms proposed by MTNL,
then WPIPL should have stopped the service. However, the fact
further noted by the learned Arbitrator is that services in fact
"continued to run" even thereafter.
40. Indeed, there could not have been a unilateral termination of
the PRM services by MTNL. The internal letter dated 23rd July,
1999 of MTNL whereby instructions were issued as to the
procedure to be followed for processing of the bills of WPIPL is
sufficient indication that MTNL was aware of its obligation to pay
on that basis. The revenue sharing model did not necessarily mean
that the payment of commission was linked to what was collected
by MTNL from its subscribers. If that was the basis, then WPIPL
could never raise a bill on the basis of the pulses recorded till
information was made available by MTNL whether the
subscribers had in fact paid the bills raised by MTNL on them.
That would render the system of WPIPL raising bills for the PRM
services impractical and delay the payments due to WPIPL
indefinitely. Therefore, it was logical that the parties did not
proceed on that basis. The basis of the payment of commission for
IN services appears to be the recording of pulses. There was no
rational basis for the Delhi office of MTNL to unilaterally alter the
said basis of payment of commission.
41. The impugned Award passed by the learned Arbitrator
proceeds on the basis that MTNL being a PSU had an obligation
to cater to public interest. The learned Arbitrator was in terms of
Section 28 (2) read with Section 28 (3) of the Act required to
adhere strictly by the agreed terms on the basis of which the
services were provided by WPIPL to MTNL. In fact, those agreed
terms formed the basis for the payment of commission till at least
31st March, 2000. With WPIPL having acted on that agreement
and spent money for laying out infrastructure, it was not open to
MTNL to unilaterally announce by its notice dated 15 th February,
2000 that it would pay commission only on the basis of the
amounts realized from its subscribers. This part of the impugned
Award, therefore, appears to be contrary to the statutory mandate
of Section 28 (2) read with Section 28 (3) of the Act."
22. We begin by referring to the reasoning given in paragraph 41 of the
impugned order, which states that the Arbitrator was required to strictly
adhere to the terms on the basis of which services were provided by WPIPL
to MTNL under Section 28(2) read with Section 28(3) of the A & C Act. It
is also recorded that these terms have to be made the basis for payment till at
least 31st March, 2000. Accordingly, it was not open to MTNL to
unilaterally announce by letter dated 15th February, 2000 that it would pay
commission only on the basis of amount realized from the subscribers. We
feel there are fallacies and incongruities in the aforesaid reasoning. The
reasoning accepts that the broad terms and conditions were „in existence at
least‟ till 31st March, 2000. In other words, broad terms and conditions were
not squarely applicable after 1st April, 2000. In these circumstances,
reliance placed on sub-section (2) read with sub-section (3) to Section 28 of
the A & C Act would falter. Further, paragraph 37 of the impugned order
specifically records that there was no written agreement between the parties,
which would form the basis for providing PRM services and commission.
The broad terms and conditions which were agreed upon had stipulated
„revenue sharing‟. Method and manner of „revenue sharing‟ was not defined
and elaborated. MTNL had initially made payments to WPIPL on the basis
of pulse rate recorded through the IN service @ 75 paisa per unit, which was
reduced and then @ 70 paisa per unit. The broad terms and conditions were
as per the award valid only during the experimental phase till 31st March,
2000. Accordingly, the Arbitrator had rejected MTNL‟s plea for
refund/adjustment of payments made to WPIPL from 1 st April, 1999 to 31st
March, 2000 on actual payment received. However, for the period post 1st
April, 2000 learned Arbitrator for detailed reasons had held that payment of
commission to WPIPL should be on the basis of actual receipts and not on
call data recorded in IN switch.
23. The impugned order does not disturb or comment on the finding given
by the Arbitrator that the preliminary or experimental phase was from 1 st
April, 1999 to 31st March, 2000. Paragraph 2 of the Award states that IN
service were introduced by the Department of Telecommunication from 1 st
April, 1999. The tariff for experimental phase, which was upto 31st March,
2000, were governed by the tariff circular dated 9 th April, 1999. The said
finding recorded in the Award has not been set aside and quashed. No
reason to deviate from and ignore the said finding has been stated in the
aforesaid paragraphs of the impugned order. However, paragraph 7 of the
impugned order records that WPIPL had denied that the experimental phase
was from 1st April, 1999 to 31st March, 2000. Further there was no
document on record that substantiated the assertion of MTNL. This was the
assertion of MTNL and finding recorded by the Arbitrator. On Court
question, learned counsel for WPIPL stated that they had challenged the said
finding in their objections under Section 34 of the Act. This is correct. At
the same time, we notice that WPIPL in their rejoinder have not
controverted and denied that the experimental or preliminary phase was
from 1st April, 1999 to 31st March, 2000. On the said aspect, we would quote
the relevant portion of the pleadings of MTNL and WPIPL, which are as
under:-
"Counter statement of fact and counter claims on behalf of MTNL
"4. That the Intelligent Network Services were introduced by
the DOT on experimental basis for the period from 1.4.99 to 31 st
March, 2000."
Rejoinder/reply on behalf of the claimant to the counter
statement/counter claim of the respondent
"3-5. That paras 3 to 5 of the preliminary
submissions/objections need no reply being matters of record."
Clearly, the specific assertion that the experimental phase ended on 31st
March, 2000 has not been specifically denied by WPIPL. Arbitrator was
therefore justified in dividing or bifurcating the period of dispute into two
periods. The division was as per and in consonance with the pleadings.
24. Given the aforesaid facts, the Arbitrator was justified in relying upon
the conduct of MTNL and the asymmetrical division or sharing of revenue
post 1st April, 2000, as MTNL had already raised a red flag for good and
valid reasons stating that WPIPL should be paid only on the basis of actual
receipts and not on the basis of billing. The actual payments received being
much lower or less than the billing. Arbitrator held that this would be fair
and just.
25. The tariff fixed for PRM services by WPIPL was rather high at about
Rs.37.50/- per minute on the pulse rate of 2 seconds, chargeable @ Rs.1.25
per pulse. If the pulse rate had been taken at 12 seconds, the charges payable
would have been lower and possibly the bad debts would have been less.
Therefore, there were bound to be defaults and cases of non-payment.
MTNL was responsible and liable for the initial period as they had paid
commission in spite of reservations on call data recovered in IN switch.
They had suffered on this account. Arbitrator looking at the conduct of the
parties, the letter dated 15th February, 2000 written by MTNL,
correspondence exchanged and draft agreement circulated has held that the
revenue actually earned should be shared and that it would be unfair and
unjust to burden and make MTNL liable to pay from their own pocket and
earnings, charges @ 70 paise per pulse i.e. Rs.21/- per minute to WPIPL
even when they had not received payments from the customers. Paragraph 6
of the impugned order refers to and quotes from the tariff circular dated 9 th
April, 1999, the last sentence of which, inter alia, states-"For this service
call charges will be at the higher rate and the revenue earned is shared
between service provider and network provider(DOT)." Revenue earned
would mean the actual and not notional or hypothetical.
26. Paragraph 38 of the impugned order refers to letter/internal
communication dated 23rd July, 1999 by MTNL to its officers, in respect of
bills for payment to WPIPL on the basis of pulse rate. Accordingly,
payments were made by MTNL to WPIPL. However, the internal letter
dated 23rd July, 1999 was written before the reality had dawned on MTNL.
The arbitral award records that based upon the experience in the
experimental phase MTNL had made it clear that they would share revenue
on actuals. MTNL had incurred and suffered loss as they were making
payment to WPIPL @ 70 paisa per pulse even for amounts which were not
received or paid to them by the customers and could not be recovered. The
arbitral award had held that this was unjust, unfair and inequitable.
27. Paragraphs 39 and 40 of the impugned order refer to letter dated 15th
February, 2000 by MTNL, which it was observed was an attempt by MTNL
to unilaterally supplement the broad terms and conditions. As per the
Arbitrator this was inexplicable, further if WPIPL could not change the
terms then neither could MTNL have changed the terms. The reasoning
ignores that the Arbitrator had not interfered with this „revenue sharing‟
arrangement till 31st March, 2000 by treating the first year as the
experimental period. Unilateral alteration of terms of payment to WPIPL
was examined and considered by the Arbitrator and not accepted for the
experimental phase. The Award thereafter proceeds to record and hold that
based on the learning and experience during the experimental period, MTNL
had clarified and clearly stated that the revenue sharing has to be on actuals
i.e. the payment received and not on the basis of billing made. On the
question of contradiction, it is equally plausible to urge and argue that the
Arbitrator had contradicted himself when he had accepted the stand of
MTNL for the period post 1st April, 2000, but not for the period between 1st
April, 1999 till 31st March, 2000. The argument cuts both ways, therefore, it
cannot be the determinative reason. Paragraph 40 of the impugned order
refers to the internal letter of the MTNL dated 23 rd July, 1999 for processing
of bills of WPIPL. This letter was written within a few months after PRM
services were introduced with effect from 1st April, 1999. We observe that
internal communication can always be amended and are not final till
communicated. This internal letter cannot be treated as binding. Further, this
letter was written within the experimental phase and thereafter MTNL had
issued letter dated 15th February, 2000 to WPIPL based upon experience and
reality check. This letter/communication would modify the earlier internal
communication. It is difficult to accept the reasoning that there was no
rational basis for MTNL to pay on actual revenue earned.
28. We would possibly accept MTNL‟s submission that revenue sharing
during the experimental phase as held by the Arbitrator appears to be
somewhat contrary to the broad terms and conditions. Tariff circular of the
Department of Telecommunication had mandated that the revenue earned
shall be shared between the service provider and the network provider and
not what should have or could have been earned. Revenue sharing did not
mean and imply that MTNL would be liable to pay from their own pocket if
they are unable to realize the amount due from the subscribers/customers.
Nevertheless, MTNL in the beginning had interpreted the term as referring
to call data recorded in the IN switch and not the actual revenue earned.
Therefore, the Arbitrator had refused to interpret the term „revenue sharing‟
differently and had adversely commented on MTNL‟s attempt to unilaterally
enforce a „new term‟ or rather a different interpretation on „revenue sharing‟
to mean actual revenue earned and not mere calls recorded in the IN switch.
At the same time the Arbitrator had affirmatively held that MTNL initially
did not visualize large-scale non-payments resulting in unpaid debts.
Arbitrator has elaborately discussed and given his reasons justifying revenue
sharing on actual receipts post 1st April, 2000.
29. In-spite of our view on the expression „revenue sharing‟, we would
hesitate to set aside and quash the arbitral award to this extent given the
limited jurisdiction of the Court under Sections 34 and 37 of the A&C Act.
Equally this legal position would apply to the reasoning given in the
impugned order in so far as it sets asides and nullifies the reasoning for the
period post 1st April, 2000 and as directs that WPIPL would be paid on the
basis of actual realization for the period post 1st April, 2000.
30. In the aforesaid circumstances, the reasoning of the Arbitrator
predicated on principle of equity, fairness and justice carries weight and
cannot be discarded and rejected. The standards used by the Arbitrator in the
present case are absolutely clear. It is urged that the arbitrator is required to
follow the law, notwithstanding the epithet in Oliver Twist. Contra view
being fair and just is law. Arbitrators like Courts may consider the „apparent
fairness‟ of the respective parties' positions instead of strictly following the
law, which would result in a less favourable outcome for the party who is
favoured by a strict reading of the law. Equity or law as an issue has been
present since antiquity. Aristotle had said "an arbitrator goes by the equity of
a case, a judge by the law, and arbitration was invented with the express
purpose of securing full power for equity." This consideration should not be
overlooked in evaluating the applicability of equity to arbitration. In broad
sense equity is fairness. If Courts can't escape the basic notions of equity,
arbitrators can't either. Just as Courts within law award equitable remedies
when a legal remedy is insufficient or inadequate, Arbitrator may also apply
equitable principles to do justice. Privy Council had stressed on this aspect
in Ramdutt Ramkissendass v. F.D. Sassoon & Co., AIR 1929 PC 103,
stating that "in a modern arbitration, the principles of equity must be applied
just as they would now be applied in a court of law." Though the Code of
Civil Procedure, 1908 and the Evidence Act, 1872 are not applicable in
arbitration, yet the principle of natural justice, equity and fair play do apply
even in such proceedings as, by the award the Tribunal decides the rights for
and against the parties. It is true that arbitrators can't violate the express
terms of the contract. However, when the terms of the contract are
ambiguous or are silent on a particular issue or not fully settled as in the
present case, nothing prevents an arbitrator from taking recourse of
principles of equity. Arbitrators enjoy a degree of flexibility within four
corners of law when they decide and adjudicate or rather arbitrate on the
disputes. This must be respected. Highlighting the aspect of fairness and
equity, the Supreme Court in F.C.I. v. Joginderpal Mohinderpal, (1989) 2
SCC 347 had observed that :
".............But in proceedings of arbitration there must be adherence to
justice, equity, law and fair play in actions. However, the proceedings
of arbitration must adhere to the principles of natural justice and must
be in consonance with such practice and procedure which will lead to a
proper resolution of the dispute and create confidence of the people for
whose benefit these processes are resorted to. It is, therefore, the
function of courts of law to oversee that the arbitrators act within the
norms of justice. Once they do so and the award is clear, just and fair,
the courts should, as far as possible, give effect to the award of the
parties and make the parties compel to adhere to and obey the decision
of their chosen adjudicator. It is in this perspective that one should
view the scope and limit of correction by the court of an award made
by the arbitrator. We should make the law of arbitration simple, less
technical and more responsible to the actual realities of the situation,
but must be responsive to the canons of justice and fair play and make
the arbitrator adhere to such process and norms which will create
confidence, not only by doing justice between the parties, but by
creating a sense that justice appears to have been done................."
31. Learned Senior Advocate for WPIPL had drawn our attention to
communication dated 24th March, 2000 by MTNL office in Mumbai by
which instructions were issued to make payment of commission to WPIPL
irrespective of whether the subscribers/customers had paid the bills or not.
We may note that this letter was written by the Mumbai office during the
test and trial phase i.e. the experimental phase. This letter not issued by the
Delhi office and related to a different agreement. It was argued that the
Mumbai office had made payments on the basis of the pulse units recorded
irrespective of whether the subscribers/customers had paid the bill. This
would reflect that there was miscommunication and lack of coordination
between the Delhi and Mumbai offices of MTNL. Facts regarding Mumbai
agreement/arrangement do not find any elucidation and examination in the
award. There were two separate agreements/arrangements with regard to the
Mumbai area and the Delhi area. By the same reasoning, the
letter/communication dated 15th February, 2000 etc. can be held equally
applicable to the Mumbai area and the arrangement between MTNL and
WPIPL with respect to Mumbai area. This factum alone would not be
material. In any case, this factor cannot be used as a ground or reason to set
aside the arbitral award under section 34 of the A & C Act.
32. The last issue relates to payment of interest. The impugned order on
the said aspect has interfered with the arbitral award recording the following
reasons:-
"44. As far as the Award in respect of Issue No. 15 is concerned,
there is no basis or reasons given by the Arbitrator for denying
WPIPL the pre-claim and pendente lite interest. The impugned
Award of the learned Arbitrator in regard to Issue No. 15 is hereby
set aside.
45. Consequently, the Award in respect of Issue No. 16 which
denies MTNL refund of commission is not interfered with. The
Award in respect of Issue No. 18 which denies MTNL interest on
its counter-claim also does not call for any interference.
46. The net result is that the impugned Award the challenge by
WPIPL to the impugned Award in respect of Issue Nos. 12, 13
and 15 succeeds in part and the impugned Award to the above
extent is hereby set aside. It is held that WPIPL would be entitled
to commission on the basis of the pulses recorded from the date of
commencement of the PRM services till the date of
discontinuation i.e., from 15th April, 1999 till 16th July 2001. It
would also be entitled to pre-claim and pendente lite interest on
the aforementioned amount at the same rate awarded by the
learned Arbitrator as future interest."
33. On the said aspect, we find that the arbitral award with reference to
issue nos. 15 and 17 on interest had stated as under:-
"30. Claim No. -15
Claimant is not entitled to any past or pendente lite interest;
except on any pending or deducted payments due, covering the
period upto 31st March, 2000 that too upto the date of
commencement of Arbitration proceedings."
"32. Claim No.-17
The Respondents should work out the revenue share claims of the
Claimant for the period upto 31st March, 2000 as per IN switch
data, balance amount if any to be paid, should be released along
with interest @ PLR, till the commencement of Arbitral
proceedings.
In addition, from that day onwards, till the closure of the service,
accounts of the Claimant should be settled as per proposed terms
of the draft agreement."
Last paragraph of the Award relating to post award interest states;-
"Respondent (i.e. MTNL) is directed to pay the above mentioned
amount within 90 days of the receipt of the award failing which
Claimant (i.e. WPIPL) is entitled to recover the said amount along
with interest @12% p.a."
On conjoint reading of the arbitral award with respect to issue nos. 15
and 17, in our opinion, the Arbitrator had awarded interest for the revenue
share as per IN switch data at the PLR, i.e., prime lending rate, till the
commencement of arbitration. It is also recorded that post the closure of
service, WPIPL would be entitled to accounts as per the draft agreement i.e
at PLR. The arbitral award with reference to issue no. 15 does not
contradict itself for it states that WPIPL would be entitled to interest on the
pending or deducted amounts for the period upto 31st March, 2000, i.e., the
payments which had been deducted or adjustments were made on account of
payments made upto 31st March, 2000 would be refunded with interest as
stipulated. However, interest was specifically restricted till the date of
commencement of Arbitration. Future interest has been awarded at the rate
of 12% in case MTNL do not pay the amount due in terms of the award
within 90 days. Arbitrator has exercised his discretion not to award pendente
lite. No reasons are stated for not awarding pendente lite interest. However,
given the facts of the present case, partial success of WPIPL and the manner
in which the Award has struck a balance between the respective claims, it
would not be appropriate and proper for the Court to modify and amend the
award. Award of pendente lite would also depend on conduct of the parties
during arbitration. We would not speculate the reason, albeit the award does
mention that WPIPL had filed documents in August, 2004 and documents
pertaining to generation of bills etc. as late as in February, 2008. Further the
amount payable to WPIPL on the impugned order being set aside would
come down substantially.
34. In view of the aforesaid discussion, we would partly allow the present
appeals filed by MTNL and uphold the arbitral award dated 25th July, 2008
in entirety. In other words, the impugned order dated 10 th February, 2017 to
the extent it partly allows the OMP (COMM) No.575/2016 filed by the
WPIPL, is set aside. The impugned award in a way is incomplete, as the
arbitral award in paragraph 28 has directed MTNL to work out actual
payments based on the IN switch data for the period upto 31st March, 2000,
and settle the claims, after adjusting the amounts already paid. MTNL would
carry out the said exercise as expeditiously as possible and preferably within
a period of 60 days from the date copy of this order is received. We have
made the aforesaid observation out of abundant caution as the matter has
remained pending in the Court. Notwithstanding this time of 60 days,
MTNL would be liable to pay post award interest in terms of the award.
Deposit made pursuant to the order in this appeal would be treated payment
in terms of the award. Interest accrued, if any, on the amount deposited and
payable, would be paid to the respondents. In case of any shortfall interest in
terms of the award would be payable. In the facts of the case, there would be
no order as to costs.
-sd-
(SANJIV KHANNA)
JUDGE
-sd-
(CHANDER SHEKHAR)
JUDGE
DECEMBER 3, 2018
VKR/ssn
