Cellular Operators Association of India and Others Vs. Telecom Regulatory Authority of India and Others

[Civil Appeal No. 5017 of 2016 arising out of S.L.P. (Civil) No.6521 of 2016]

[Civil Appeal No. 5018 of 2016 arising out of S.L.P. (Civil) No.6522 of 2016]

R.F. Nariman, J.

Leave granted.

This group of appeals before us is by various telecom operators who offer telecommunication services to the public generally. Various writ petitions were filed in the Delhi High Court challenging the validity of the Telecom Consumers Protection (Ninth Amendment) Regulations, 2015 (hereinafter referred to as the "Impugned Regulation"), notified on 16.10.2015, (to take effect from 1.1.2016), by the Telecom Regulatory Authority of India.

The aforesaid amendment was made purportedly in the exercise of powers conferred by Section 36 read with Section 11 of the Telecom Regulatory Authority of India Act, 1997. By the aforesaid amendment, every originating service provider who provides cellular mobile telephone services is made liable to credit only the calling consumer (and not the receiving consumer) with one rupee for each call drop (as defined), which takes place within its network, upto a maximum of three call drops per day. Further, the service provider is also to provide details of the amount credited to the calling consumer within four hours of the occurrence of a call drop either through SMS/USSD message.

In the case of a post paid consumer, such details of amount credited in the account of the calling consumer were to be provided in the next bill. A brief background is necessary in order to appreciate the controversy at hand. Under an Act of ancient vintage, namely, the Indian Telegraph Act, 1885, the Central Government or the Telegraph Authority is the licensing authority by which persons are licenced under Section 4(1) of the said Act for providing specified public telecommunication services.

Given the fact that it is the Central Government or the Telegraph Authority who is the licensor in all these cases, the said licensor enters into what are described as licence agreements for the provision of Unified Access Services in the specified service areas. Various standard terms and conditions are laid down in these licences, some of which are described hereinbelow. Vide clause 2.1, such licences are granted to provide telecommunication services, as defined, on a non-exclusive basis in designated service areas.

It is mandatory that the licensee provides such services of a good standard, by establishing a state of the art digital network. Licences are usually given for a period of 20 years at a time with a 10 year extension if the licensor so deems expedient. Under clause 5 of the aforesaid licence agreement, the licensor reserves the right to modify, at any time, the terms and conditions of license, if in its opinion it is necessary or expedient so to do in public interest, in the interest of security of the State, or for the proper conduct of telegraphs.

Under condition 28, which is of some relevance to determine the question involved in these appeals, the licensee shall ensure that the quality of service standards as prescribed either by the licensor or the Telecom Regulatory Authority of India shall be adhered to. The licensee is made responsible for maintaining performance and quality of service standards and is to keep a record of the number of faults and rectification reports in respect of a particular service which is to be produced before the licensor/TRAI as and when desired.

It is also important that the licensee be responsive to complaints lodged by its subscribers and rectify the same. Under clause 34, which deals with roll-out obligations, the licensee is to ensure that coverage of a district headquarters/town would mean that at least 90% of the area bounded by municipal limits should get the required street and in- building coverage. Interestingly, under clause 35, liquidated damages are also provided for, in case the licensee does not commission the service within 15 days of the expiry of the commissioning date and for certain other delays relatable to commissioning of service.

It may also be noted that right from September, 2005, TRAI has been lamenting the shortage and consequent distance of mobile towers from each other and both the Government as well as TRAI have been writing to the Chief Secretaries of various State Governments to grant timely permissions for establishing telecom towers. In this behalf, we have been shown guidelines issued by DOT to the Chief Secretaries dated 1.8.2013.

We have also been shown an amendment to the Quality of Service Regulations dated 21.8.2014 by which TRAI has noticed practical difficulties that are faced due to various reasons by which cable breakdowns and indoor faults take place, with the Authority requiring the striking of a balance between the problems faced by the licensees and the need to ensure quality of service to customers. We were also shown a letter from the Ministry of Communications written to Chief Ministers of all the States to permit installation of towers on Government buildings.

This letter is dated 3.8.2015. Further, there is a constant tussle between cell phone operators and municipal authorities, landing cell phone operators in court against municipal authorities, who seek to restrict the setting up of cell phone towers, given the apprehension that radiation from these towers has a direct causal link with cancer in human beings. It is also important to note that by a Quality of Service Regulation dated 20.3.2009, issued under Section 11 read with Section 36 of the TRAI Act, TRAI has provided, insofar as cellular mobile phone services are concerned, for a call drop rate of 2% averaged over a period of one month.

It has also provided for financial disincentives in case there is a failure to meet this parameter by enacting a second amendment to the Quality of Service Regulations dated 8.11.2012 by which a service provider is liable to pay, by way of financial disincentive, an amount not exceeding Rs.50,000/- per parameter that is contravened as the Authority may by order direct, and in the case of second or subsequent contravention, to pay an amount not exceeding Rs.1,00,000/- per parameter for each such contravention as the Authority may by order direct.

One day before the Impugned Regulation, i.e., on 15.10.2015, this financial disincentive was raised from Rs.50,000/- to Rs.1,00,000/-, and Rs.1,00,000/- to Rs.1,50,000/- for the second consecutive contravention, and Rs.2,00,000/- for each subsequent consecutive contravention. It is in this background that the impugned Ninth Amendment to the Telecom Consumers Protection Regulations of 2015 was made, on 16.10.2015. The Impugned Regulation reads as under:-

TELECOM CONSUMERS PROTECTION (NINTH AMENDMENT) REGULATIONS, 2015 (9 OF 2015)

No. 301/2015-F & EA -----

In exercise of the powers conferred by section 36, read with sub-clauses (i) and (v) of clause (b) of sub-section (1) of section 11, of the Telecom Regulatory Authority of India Act, 1997 (24 of 1997), the Telecom Regulatory Authority of India hereby makes the following regulations further to amend the Telecom Consumers Protection Regulations, 2012 (2 of 2012), namely:-

(1) These regulations may be called the Telecom Consumers Protection (Ninth Amendment) Regulations, 2015.

(2) They shall come into force from the 1st January, 2016.

2. In regulation 2 of the Telecom Consumers Protection Regulations, 2012 (hereinafter referred to as the principal regulations), after clause (ba), the following clauses shall be inserted, namely:--

"(bb) "call drop" means a voice call which, after being successfully established, is interrupted prior to its normal completion; the cause of early termination is within the network of the service provider;";

(bc) "calling consumer" means a consumer who initiates a voice call;"; After Chapter IV of the principal regulations, the following chapter shall be inserted, namely :-

"CHAPTER V"

RELIEF TO CONSUMERS FOR CALL DROPS

16. Measures to provide relief to consumers.-

Every originating service provider providing Cellular Mobile Telephone Service shall, for each call drop within its network,

(a) credit the account of the calling consumer by one rupee:

Provided that such credit in the account of the calling consumer shall be limited to three dropped calls in a day (00:00:00 hours to 23:59:59 hours);

(b) provide the calling consumer, through SMS/USSD message, within four hours of the occurrence of call drop, the details of amount credited in his account; and

The explanatory memorandum to the aforesaid amendment makes interesting reading. In the first paragraph of the said memorandum, the 2009 Quality of Service Regulation referred to hereinabove, granting an allowance of an average of 2% call drops per month, is specifically referred to. Also, interestingly enough, the service providers have stated that they are meeting this benchmark completely with one or two minor exceptions.

Despite this, the Authority has embarked on the Impugned Regulation, stating that consumers, at various fora, have raised the issue of call drops, complaining that in their experience, the quality of making voice calls has deteriorated. The Authority responded by issuing a consultation paper marked "Compensation to the Consumers in the event of dropped calls" dated 4.9.2015. Stakeholders were given till 21.9.2015 to submit their comments in writing with counter comments thereto being given one week thereafter, i.e., by 28.9.2015.

The Authority records that written comments were received from 4 industry associations, 11 Cellular Mobile Telephone Service Providers, 2 consumer advocacy groups, 2 organizations, and 518 individual consumers. 5 counter comments were also received. The Authority notes that an open house discussion was held on 1.10.2015 in New Delhi with the stakeholders. According to the Authority, consumers wanted relief in the event of dropped calls under two broad heads - excess charging and inconvenience caused to them. In paragraphs 6 and 7, the arguments of service providers have been noted, in which service providers stated their difficulties in the matter of sealing/closing down existing sites for towers by municipal authorities and other related issues together with spectrum related issues.

They specifically informed the Authority that a large proportion of call drops are beyond their control. In reply thereto, consumers spoke of the inconvenience caused to them by call drops. Some consumers also contended that the financial disincentive levied for failing to meet the benchmark for call drop rates should be revised upwards. (This was in fact done, as we have seen, just one day before the Impugned Regulation itself, i.e., on 15.10.2015). The Explanatory Memorandum then goes on to state:- "18. Based on the above, it is clear that while all CMTSPs and the industry associations have argued that question for compensation to the consumers on call drops does not arise as it is neither justifiable nor practicable, most of the consumers and consumer advocacy groups have insisted that they should be compensated by the CMTSPs for the inconvenience caused to them.

19. After a careful analysis, the Authority has come to the conclusion that call drops are instances of deficiency in service delivery on part of the CMTSPs which cause inconvenience to the consumers, and hence it would be appropriate to put in place a mechanism for compensating the consumers in the event of dropped calls. The Authority is of the opinion that compensatory mechanism should be kept simple for the ease of consumer understanding and its implementation by the CMTSPs.

While one may argue that amount of compensation should be commensurate to the loss/ suffering caused due to an event but in case of a dropped call it is difficult to quantity the loss/suffering/inconvenience caused to the consumers as it may vary from one consumer to another and also in accordance to their situations.

Accordingly, the Authority has decided to mandate originating CMTSPs to credit one Rupee for a dropped call to the calling consumers as notional compensation. Similarly, the Authority has decided that such credit in the account of the calling consumer shall be limited to three dropped calls in a day (00:00:00 hours to 23:59:59 hours). The Authority is of the view that such a mandate would compensate the consumers for the inconvenience caused due to interruption in service by way of call drops, to a certain extent.

20. The Authority is also aware that communication to the consumers is important and therefore, the Authority has decided to mandate that, each originating CMTSP, within four hours of the occurrence of call drop within its network, inform the calling consumer, through SMS/USSD message the details of amount credited in his account for the dropped call, if applicable. 21. The Authority is conscious of the fact that for carrying out the afore-mentioned mandate, the CMTSPs would have to make suitable provisions in their systems, which would require time and efforts. Accordingly, the Authority has decided that the afore-mentioned mandate would become applicable on the CMTSPs with effect from the 1st January, 2016.

22. The Authority shall keep a close watch on the implementation of the mandate as well as the measures being initiated by the CMTSPs to minimize the problem of dropped calls as given in their submissions during the consultation process and may review after six months, if necessary."

At this stage, it is necessary to refer to a technical paper issued by the very same Authority a few days after the Impugned Regulation.

On 13.11.2015, TRAI issued a paper called "Technical Paper on call drops in cellular network".

TRAI noticed that the consumer base in the country is growing very fast and that the mobile telecom infrastructure is not growing at the same pace. This leads to a dip in the quality of service provided. It is interesting to notice that TRAI specifically adverts to the fact that call drops can take place due to a variety of reasons. It pointed out that one of the reasons is due to the consumer's own fault, and that 36.9% of call drops are attributable to consumer faults.

It further went on to notice that the benchmark set for call drops is 2%, and it is seen that only 3 out of 12 licensees are not adhering to the said benchmark - 2 of them being BSNL, who is not an appellant before us, the other one being Aircel. The Authority ultimately concluded:-

"5.27. In light of the reasons discussed above about the increase in call drops, it must be realized that mobile towers do not have an unlimited capacity for handling the current network load.

There is an urgent need to increase the number of the towers so as to cater to the demands of a growing subscriber base. At the same time, problems like removal of towers from certain areas by Authorities should be adequately addressed. This problem is particularly evident in urban areas. Moreover, with the increase in the usage of 3G networks, the growth rate of mobile towers supporting 2G networks has reduced.

This must be addressed. 5.28. The previous sections highlighted some important countermeasures at the TSPs' end. Measures like Dynamic Channel Allocation, multiple call routing and optimized resource management can be employed by the TSP's besides usage of mobile signal boosters through the TSPs at users' buildings or premises. Some prioritization schemes like MBPS, CAC, Guard Channels, Handoff Queuing and Auxiliary Stations essentially need to be incorporated by TSPs to reduce call drops."

8. A Writ Petition, being Writ Petition (Civil) No.11596 of 2015, was filed before the Delhi High Court, together with various other petitions, in which the Ninth Amendment, being the Impugned Amendment to the Regulation pointed out hereinabove, was challenged. By the impugned judgment dated 29.2.2016, the Delhi High Court noticed the various arguments addressed on behalf of the various appellants, together with the reply given by Shri P.S. Narasimha, learned Additional Solicitor General of India appearing on behalf of TRAI.

The High Court then went on to discuss the validity of the Impugned Regulation under two grounds - the ground of being ultra vires the parent Act, and the ground that the Regulation was otherwise unreasonable and manifestly arbitrary. The High Court repelled the challenge of the appellants on both the aforesaid grounds. The High Court first referred to BSNL v. Telecom Regulatory Authority of India, (2014) 3 SCC 222 in some detail, and then went on to hold that the power vested in TRAI under Section 36(1) to make regulations is wide and pervasive, and that as there can be no dispute that the Impugned Regulation has been made to ensure quality of service extended to the consumer by the service provider, it would fall within Section 36(1) read with Section 11(1)(b)(v).

The High Court further held that the contention that the compensation provided under the Impugned Regulation amounts to imposition of penalty is liable to be rejected, since compensation as provided under the Impugned Regulation is only notional compensation to consumers who have suffered as a result of call drops. The High Court then went on to say that a transparent consultative process was followed by TRAI in making the Impugned Regulation, and that the technical paper on call drops issued on 13.11.2015 addressed all issues that were sought to be raised in the present petitions. The contention that 100% performance is demanded under the Impugned Regulation was rejected as being factually incorrect and without any basis.

It was further added that the impossibility of identification of the reason for the call drop was incorrect inasmuch as these reasons are network related, and that is something that has not been disputed by telecom equipment manufacturers like M/s. Nokia and M/s. Ericsson. It was further held that the Impugned Regulation attempted to balance the interest of consumers with the interest of service providers by limiting call drops that are to be compensated to only 3 and also mandating that only the calling consumer and not the receiving consumer was liable to be so compensated. In dealing with manifest arbitrariness, the High Court held that the 2% standard imposed by the Quality of Service Regulations is distinct and different from compensation provided to consumers for dropped calls.

The High Court sought to make a distinction between the 2% tolerance limit as being a quality parameter for the entire network area, as against compensation provided which specifies an individual standard. On the plea that the difficulties faced by service providers in setting up mobile towers being something beyond their control, the High Court declined to enter into the said controversy since the High Court does not have the expertise to adjudicate on such rival claims. The validity of the Impugned Regulation was upheld and the Writ Petitions were dismissed.

9. At this stage, it would be important to notice the arguments made on behalf of the various appellants before us. We have heard learned senior advocates Shri Kapil Sibal, Dr. Abhishek Manu Singhvi, and Shri Gopal Jain. The arguments that were made by them can fall into four neat logical compartments. First and foremost, they argued that the Ninth Amendment to the Telecom Consumers Protection Regulations, 2015, is ultra vires Section 36 read with Section 11 of the Telecom Regulatory Authority of India Act, 1997.

They argued that, in any event, these Regulations, being in the nature of subordinate legislation, were manifestly arbitrary and unreasonable, and therefore affected their fundamental rights under Article 14 and Article 19(1)(g) of the Constitution. They further went on to state that there was no power in the TRAI to interfere with their licence conditions which are contract conditions between the licensor and the licensee, and that the said Regulations in seeking to impose a penalty not provided for by the licence should be struck down as such. Fourthly, they argued that Section 11(4) of the said Act requires the Authority to be transparent in its dealings with the various stakeholders, and it has miserably failed in this also.

10. Under the broad head "ultra vires" learned counsel have argued that Regulations can only be made under Section 36(1) of the TRAI Act if they are consistent with and carry out the purposes of the Act. The present Regulations having purportedly been made under Section 11(1)(b)(i) and (v) of the Act are in fact de hors Section 11(1)(b)(i) and (v), and contrary to the Quality of Service Regulations already made by the same Authority under the self-same provision.

They argued that the present Impugned Regulation has nothing to do with ensuring compliance of the terms and conditions of licence inasmuch as none of such terms and conditions empowers the Authority to levy a penalty based on No Fault Liability. They also argued that no standard of quality of service is prescribed by the Regulation at all, and therefore the so-called protection of the consumers is without laying down a standard of quality of service and is also directly contrary to the 2% standard already laid down.

It was argued by them that as all of them met the 2% standard laid down by the 2009 standard of quality regulation, they could not be penalized as that would then amount to substituting 98% with 100% as even one call drop would lead to a payment of penalty of rupee one. They also argued that such penalty was not authorized by either Section 36 or by Section 11, and, unlike Section 29 of the Act, no such authority is to be found in the said Sections.

11. Under the broad head "manifestly arbitrary", and "unreasonable restrictions" learned counsel for the appellants argued that without there being any fault on their part, they were foisted with a penal liability. This is not only contrary to any norm of law or justice, but directly contrary to Section 14 of the Act which speaks of adjudication taking place between a service provider and a group of consumers. The complaint of an individual consumer before a Consumer Disputes Redressal Forum would be dismissed on the ground that penal damages cannot be awarded without the establishment of fault in any adjudication for "inconvenience" as opposed to "loss caused".

To lay down by way of subordinate legislation, a strict no fault penal liability would go contrary to the scheme of the TRAI Act, particularly when it is contrasted with the Electricity Act, 2003. We were shown Section 57 and certain other Sections of the said Act in which the Central and State Commissions for Electricity, unlike the TRAI, also have adjudicatory functions. If, as a result of the adjudicatory function, compensation for loss is decreed, the Commission under the Electricity Act could do so, but not TRAI, as it has no adjudicatory functions but only recommendatory, administrative, and legislative functions.

It was argued by them that Sections 73 and 74 of the Contract Act were also breached as damages by way of penalty, which are not a genuine pre-estimate of loss, have been laid down by the Impugned Regulation, as it is admitted that no loss but only inconvenience has been caused to the consumers. It was further argued, based on the amended Preamble to the TRAI Act, that the Impugned Regulation only protects the interest of the consumers of the telecom sector, whereas a balancing of the interests of service providers and consumers is required by the said Preamble. Further, orderly growth of the telecom sector would also be directly affected if arbitrary penalties of this nature were to be inflicted upon service providers.

It was also argued that having made the financial disincentive for a breach of the 2% benchmark even higher just one day before the Impugned Regulation, the Impugned Regulations were wholly uncalled for. Further, one hand of TRAI does not seem to know what the other hand is doing. A few days after the Impugned Regulation, the TRAI's own technical paper makes it clear that the TRAI has itself admitted that call drops are caused in many ways, most of which are not attributable to service providers. That being so, the impugned amendment is wholly arbitrary in that the assumption on which it is based, namely, that the service provider is at fault every time a call drop takes place, is wholly unfounded, as has been found by TRAI itself in the said technical paper.

12. The learned Counsel have also argued, based on Section 402 of the Companies Act, 1956 and Section 27(d) of the Competition Act, 2002, that no power is given by the TRAI Act for interference with licence conditions, which amount to a contract between licensor and licensee. They also referred to Section 11(1)(b)(ii) which uses the familiar "notwithstanding anything contained in the terms and conditions of the licence .........." which is missing from the other provisions of the TRAI Act. The argument, therefore, being that when the licence conditions/contract itself makes it clear that a no fault liability for call drops cannot be made, the impugned amendment would follow the terms and conditions of the licence between licensor and licensee and would be bad as a result.

13. Finally, it was argued that Section 11(4) of the Act was breached inasmuch as the transparency mandated by the Act in the framing of the regulations was wholly missing as no reason whatsoever has been given for negativing the objections of the service providers and laying down a no fault strict penal liability on them.

14. The learned Attorney General, appearing on behalf of the Telecom Regulatory Authority of India, has countered these submissions and sought to defend the High Court judgment. According to the learned Attorney General, it is first necessary to see the Statement of Objects and Reasons of the Telecom Regulatory Authority of India Act, 1997. Paragraph one of the said statement was referred to in order to emphasize that the National Telecom Policy of 1994 provided for the meeting of customer's demands at a reasonable price, and the promotion of consumer interest by ensuring fair competition. When read in light of the Statement of Objects and Reasons, it is clear that the Impugned Regulation has been made bearing this object in mind.

According to the learned Attorney General, Section 36 of the Act has to be read in a wide and expansive manner, as has been done in BSNL's judgment, and when so read, it is clear that the Impugned Regulation conforms to Section 11(1)(b)(i) and (v) and is otherwise not ultra vires the Act. Countering the submission as to arbitrariness and unreasonableness of the Impugned Regulation, he argued that the said Regulation was really framed keeping the small man in mind, and told us that 96% of consumers are pre-paid customers who recharge their account balance for an average of Rs.10/- at a time. The Impugned Regulation seeks to provide some solace to these persons for dropped calls.

He further argued that members of the appellants have made huge profits from the aforesaid business and have pumped in very little funds for infrastructural development. He referred to funds pumped in in China, for example, which were ten times more than the funds in this country. He, therefore, submitted that if the revenues of service providers were computed at a rough average of approximately Rs.96,560 crores per annum, payments that they would have to make, according to a calculation made by him, for call drops under the Impugned Regulation, would amount to a sum of roughly only Rs.280 crores per annum, which would not therefore really affect the appellants' right to carry on business.

He further argued that the Impugned Regulation is only an experimental measure and was liable to be revisited in six months. This being so, the appellants should not have rushed to court, but allowed the regulation to work, and if there were any shortfalls, these could be ironed out in the working of the Impugned Regulation. He countered the argument made on behalf of the appellants that it is not possible, technically speaking, to arrive at the cause of a call drop, and read manuals from some of the service providers to show that this was, in fact, possible, and that the reason for the call drop could ultimately be pinpointed to the service providers when they are at fault. He also refuted the submission made on behalf of the appellants that there were four broad reasons for call drops, three of which cannot be laid at the appellants door.

He referred to the technical paper dated 13.11.2015, in particular, and to various other documents, to show that call drops occurred basically due to two reasons alone - those that can be said to be due to the fault of the service providers, and those that can be said to be due to the fault of the consumers. In particular, he referred to and relied upon a statistic showing that an average of 36.9% of call drops take place owing to the fault of the consumer - the rest take place because of the fault of the service provider, or the fact that it has not pumped in enough funds for technical advancements to prevent the cause for such call drops.

According to him, with the provision of equipment, including boosters, call drops need not take place inside buildings with thick walls and/or lifts. In any case, the number of call drops that take place owing to such reasons is itself minimal. According to him, therefore, the Impugned Regulation should be read down so that service providers are made to pay only for faults attributable to them, which would come to a rough figure of 63% of what is charged, for amounts payable to the consumers under the Impugned Regulation. The learned Attorney General has assured us that, in point of fact, the authorities will administer the Impugned Regulation in such a manner that service providers would only be made liable to pay for call drops owing to their own fault.

He further argued that three documents, if read together, would make it clear that the Impugned Regulation cannot be said to be manifestly arbitrary or unreasonable, and that the consultation paper dated 4.9.2015, the Impugned Regulation dated 16.10.2015, and the technical paper dated 13.11.2015, should all be read together as being part of one joint exercise to alleviate the small consumers' inconvenience because of call drops. He further went on to argue that it is not correct to say that TRAI has contradicted itself in the technical paper of 13.11.2015, when compared to the Impugned Regulation, and stated that the Quality of Service Regulation which allowed a 2% average per month for call drops should not be confused with the Impugned Regulation.

They are, according to him, a parallel set of regulations which have to be read separately, both having been framed by TRAI, in order to protect consumer interest. He also added that guess work is inherent in framing a regulation of the sort that is impugned, and further stated that three call drops per day mitigated the rigour of having to pay for more than 3 call drops per day, and that rupee one per call drop would really be payment or recompense for call drops which take place because the consumer has to incur an extra charge to connect with the person whose call dropped yet again and spend more money for the second call.

He also added that only the consumer who dials the call which has dropped is paid and not the receiving consumer, thereby again mitigating the rigour of what could amount to a double payment for one call. He cited a number of judgments to buttress the aforesaid submissions, stating that the said judgments would show that the Court should not substitute its wisdom for that of the wisdom of legislative policy, and that TRAI being an active trustee for the common good has framed this regulation acting as such. He also refuted the submission that the licence conditions were illegally modified by the Impugned Regulation, and stated that the Explanatory Memorandum to the Impugned Regulation would show that the transparency required under Section 11(4) of the Act was duly and faithfully observed by TRAI.

15. In rejoinder, learned senior counsel for the appellants stoutly resisted the factual statements made by the learned Attorney General. They pointed out that the net debt of the various telecom operators before us, as on 31.12.2015, ran into approximately Rs.3,80,000/- crores and that this was because huge amounts had to be borrowed from banks in order to pay for both spectrum and infrastructure. They were at pains to point out that though service providers in India contributed to 13% of the world's telecommunication services, the revenue earned by them was only 2.7%, and even this was fast decreasing.

According to the learned counsel, they have covered over 500,000 villages in India contributing to 6% of India's GDP, thus being amongst the highest contributors in foreign direct investment in this country in the last decade. They have also made the second large private sector investment in infrastructure amounting to Rs. 800,000/- crores despite the return on investment being only 1%. Contrary to what the learned Attorney General had to say, a vast number of towers have been set up - more than two lac sites in the last 15 months alone. When viewed with the gigantic net debt and return on investment, the figure of gross revenue given by the learned Attorney General is said to be a highly misleading figure.

Also, the comparison with infrastructure investment in China is wholly misplaced inasmuch as the Chinese Government has unlimited funds to pour into its telecom companies, over 70% of their share capital being held by the Government. Spectrum allocation to Chinese operators is at almost no cost, whereas in India, thousands of crores of rupees have to be spent as spectrum is now auctioned to the highest bidder.

Also, the revenue of the top three Chinese telecom operators is more than six times the revenue of the top three Indian operators. In addition, it was argued that the facts and figures reeled out by the learned Attorney General are not based on the record of the case, and, in any case, have very little connection with the challenge to the Impugned Regulation in the present case.

16. We have also heard learned counsel appearing for various consumer groups. They supported the arguments of the learned Attorney General and went on to state that since the focus of the TRAI Act and the Impugned Regulation was for the small and impoverished consumers in India, this Court would be loathe to strike down the Impugned Regulation. They further argued that the doctrine of public trust would apply to the Impugned Regulation, as the Regulation was part of the overall social responsibility that the regulator TRAI has cast upon the service providers in favour of consumers. They also cited a few judgments dealing with the vires of subordinate legislation and with transparency in the context of the Impugned Regulation.

17. Having heard learned counsel for all the parties, it is first necessary to set out the relevant provisions of the Telecom Regulatory Authority of India Act, 1997.

18. The Statement of Objects and Reasons for the said Act is as follows:

"1. In the context of the National Telecom Policy, 1994, which amongst other things, stresses on achieving the universal service, bringing the quality of telecom services to world standards, provisions of wide range of services to meet the customers demand at reasonable price, and participation of the companies registered in India in the area of basic as well as value added telecom services as also making arrangements for protection and promotion of consumer interest and ensuring fair competition, there is a felt need to separate regulatory functions from service providing functions which will be in keeping with the general trend in the world.

In the multi-operator situation arising out of opening of basic as well as value added services in which private operator will be competing with Government operators, there is a pressing need for an independent telecom regulatory body for regulation of telecom services for orderly and healthy growth of telecommunication infrastructure apart from protection of consumer interest."

The Preamble of the Telecom Regulatory Authority Act of 1997 reads as under:

"Preamble - An act to provide for the establishment of the Telecom Regulatory Authority of India to regulate the telecommunication services, and for matters connected therewith or incidental thereto."

Section 11(n) read as under:-

Functions of Authority -

(1) Notwithstanding anything contained in the Indian Telegraph Act, 1885, the functions of the Authority shall be to -

(n) settle disputes between service providers"

19. In 2000, the Act was amended. By the Amended Act, the adjudicatory function of the TRAI was taken away from it and was vested in an Appellate Tribunal. The relevant provisions of the Act as amended in 2000 are as follows:- "Preamble- An Act to provide for the establishment of the Telecom Regulatory Authority of India and the Telecom Disputes Settlement and Appellate Tribunal to regulate the telecommunication services, adjudicate disputes, dispose of appeals and to protect the interests of service providers and consumers of the telecom sector, to promote and ensure orderly growth of the telecom sector and for matters connected therewith or incidental thereto"

11. Functions of Authority.

(1) Notwithstanding anything contained in the Indian Telegraph Act, 1885, the functions of the Authority shall be to-

(b) discharge the following functions, namely:-

(i) ensure compliance of terms and conditions of license;

(ii) notwithstanding anything contained in the terms and conditions of the license granted before the commencement of the Telecom Regulatory Authority (Amendment) Ordinance,2000, fix the terms and conditions of inter- connectivity between the service providers; xx

(v) lay down the standards of quality of service to be provided by the service providers and ensure the quality of service and conduct the periodical survey of such service provided by the service providers so as to protect interest of the consumers of telecommunication services;

11. (4) The Authority shall ensure transparency while exercising its powers and discharging its functions.

12. Powers of Authority to call for information, conduct investigations, etc. -

(4) The Authority shall have the power to issue such directions to service providers as it may consider necessary for proper functioning by service providers.

13. Power of Authority to issue directions.- The Authority may, for the discharge of its functions under sub-section (1) of Section 11, issue such directions from time to time to the service providers, as it may consider necessary:

Provided that no direction under sub-section (4) of Section 12 or under this section shall be issued except on the matters specified in clause (b) of sub-section (1) of Section 11.

14. Establishment of Appellate Tribunal.- The Central Government shall, by notification, establish an Appellate Tribunal to be known as the Telecom Disputes Settlement and Appellate Tribunal to-

(a) adjudicate any dispute-

(i) between a licensor and a licensee;

(ii) between two or more service providers;

(iii) between a service provider and a group of consumers: Provided that nothing in this clause shall apply in respect of matters relating to-

(A) the monopolistic trade practice, restrictive trade practice and unfair trade practice which are subject to the jurisdiction of the Monopolies and Restrictive Trade Practices Commission established under sub-section (1) of Section 5 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969);

(B) the complaint of an individual consumer maintainable before a Consumer Disputes Redressal Forum or a Consumer Disputes Redressal Commission or the National Consumer Redressal Commission established under Section 9 of the Consumer Protection Act, 1986 (68 of 1986);

(C) the dispute between telegraph authority and any other person referred to in sub-section (1) of Section 7-B of the Indian Telegraph Act, 1885 (13 of 1885);

(b) hear and dispose of appeals against any direction, decision or order of the Authority under this Act.

15. Civil Court not to have jurisdiction.-

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

25. Power of Central Government to issue directions.-

(1) The Central Government may, from time to time, issue to the Authority such directions as it may think necessary in the interest of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.

(2) Without prejudice to the foregoing provisions, the Authority shall, in exercise of its powers or the performance of its functions, be bound by such directions on questions of policy as the Central Government may give in writing to it from time to time:

Provided that the Authority shall, as far as practicable, be given an opportunity to express its views before any direction is given under this sub-section.

(3) The decision of the Central Government whether a question is one of policy or not shall be final.

29. Penalty for contravention of directions of Authority.-

If a person violates directions of the Authority, such person shall be punishable with fine which may extend to one lakh rupees and in case of second or subsequent offence with fine which may extend to two lakh rupees and in the case of continuing contravention with additional fine which may extend to two lakh rupees for every day during which the default continues.

36. Power to make regulations.- (1) The Authority may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely :-

(a) the times and places of meetings of the Authority and the procedure to be followed at such meetings under sub-section (1) of Section 8, including quorum necessary for the transaction of business;

(b) the transaction of business at the meetings of the Authority under sub- section (4) of Section 8;

(d) matters in respect of which register is to be maintained by the Authority under sub-clause (vii) of clause (b) of sub-section (1) of Section 11;

(e) levy of fee and lay down such other requirements on fulfillment of which a copy of register may be obtained under sub-clause (viii) of clause (b) of sub-section (1) of Section 11;

(f) levy of fees and other charges under clause (c) of sub-section (1) of Section 11.

37. Rules and regulations to be laid before Parliament.-

Every rule and every regulations made under this Act shall be paid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in tow or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation."

Parameters of Judicial Review of Subordinate Legislation

20. In State of Tamil Nadu v. P. Krishnamoorthy, (2006) 4 SCC 517, this Court after adverting to the relevant case law on the subject, laid down the parameters of judicial review of subordinate legislation generally thus:-

"There is a presumption in favour of constitutionality or validity of a subordinate legislation and the burden is upon him who attacks it to show that it is invalid. It is also well recognised that a subordinate legislation can be challenged under any of the following grounds:

(a) Lack of legislative competence to make the subordinate legislation.

(b) Violation of fundamental rights guaranteed under the Constitution of India.

(d) Failure to conform to the statute under which it is made or exceeding the limits of authority conferred by the enabling Act.

(e) Repugnancy to the laws of the land, that is, any enactment.

(f) Manifest arbitrariness/unreasonableness (to an extent where the court might well say that the legislature never intended to give authority to make such rules). The court considering the validity of a subordinate legislation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate legislation conforms to the parent statute. Where a rule is directly inconsistent with a mandatory provision of the statute, then, of course, the task of the court is simple and easy. But where the contention is that the inconsistency or non-conformity of the rule is not with reference to any specific provision of the enabling Act, but with the object and scheme of the parent Act, the court should proceed with caution before declaring invalidity." [paras 15 and 16]

21. In the present case, the appellants have raised pleas under paragraphs (b), (d) and (f) of paragraph 15 of the said judgment. We now move on to consider their arguments. Ultra vires 22. The power to make the Impugned Regulation is traceable to Section 36(1) of the Telecom Regulatory Authority of India Act, 1997. This Court in BSNL v. Telecom Regulatory Authority of India, (2014) 3 SCC 222, after analyzing the aforesaid provision in the backdrop of the Act held as follows:-

"We may now advert to Section 36. Under sub-section (1) thereof TRAI can make regulations to carry out the purposes of the TRAI Act specified in various provisions of the TRAI Act including Sections 11, 12 and 13.

The exercise of power under Section 36(1) is hedged with the condition that the regulations must be consistent with the TRAI Act and the rules made thereunder. There is no other restriction on the power of TRAI to make regulations. In terms of Section 37, the regulations are required to be laid before Parliament which can either approve, modify or annul the same. Section 36(2), which begins with the words "without prejudice to the generality of the power under sub-section (1)" specifies various topics on which regulations can be made by TRAI. Three of these topics relate to meetings of TRAI, the procedure to be followed at such meetings, the transaction of business at the meetings and the register to be maintained by TRAI.

The remaining two topics specified in clauses (e) and (f) of Section 36(2) are directly referable to Sections 11(1)(b)(viii) and 11(1)(c). These are substantive functions of TRAI. However, there is nothing in the language of Section 36(2) from which it can be inferred that the provisions contained therein control the exercise of power by TRAI under Section 36(1) or that Section 36(2) restricts the scope of Section 36(1)...

Before parting with this aspect of the matter, we may notice Sections 33 and 37. A reading of the plain language of Section 33 makes it clear that TRAI can, by general or special order, delegate to any member or officer of TRAI or any other person such of its powers and functions under the TRAI Act except the power to settle disputes under Chapter IV or make regulations under Section 36. This means that the power to make regulations under Section 36 is non-delegable. The reason for excluding Section 36 from the purview of Section 33 is simple.

The power under Section 36 is legislative as opposed to administrative. By virtue of Section 37, the regulations made under the TRAI Act are placed on a par with the rules which can be framed by the Central Government under Section 35 and being in the nature of subordinate legislations, the rules and regulations have to be laid before both the Houses of Parliament which can annul or modify the same. Thus, the regulations framed by TRAI can be made ineffective or modified by Parliament and by no other body. In view of the above discussion and the propositions laid down in the judgments referred to in the preceding paragraphs, we hold that the power vested in TRAI under Section 36(1) to make regulations is wide and pervasive. The exercise of this power is only subject to the provisions of the TRAI Act and the rules framed under Section 35 thereof. There is no other limitation on the exercise of power by TRAI under Section 36(1). It is not controlled or limited by Section 36(2) or Sections 11, 12 and 13." [paras 89, 98 - 100]

23. It will thus be seen that though the Regulation making power under the said Act is wide and pervasive, and is not trammeled by the provisions of Section 11, 12(4) and 13, it is a power that is non-delegable and, therefore, legislative in nature. The exercise of this power is hedged in with the condition that it must be exercised consistently with the Act and the Rules thereunder in order to carry out the purposes of the Act. Since the regulation making power has first to be consistent with the Act, it is necessary that it not be inconsistent with Section 11 of the Act, and in particular Section 11(1)(b) thereof. This is for the reason that the functions of the Authority are laid down by this Section, and that the Impugned Regulation itself refers to Section 11(1)(b)(i) and (v) as the source of power under which the Impugned Regulation has been framed.

Since ensuring compliance with the terms and conditions of licence is the first thing that has been argued on behalf of the respondents, it is important to advert to the provisions of the licence between the service provider and the consumer.

As has been mentioned above, two very important clauses of this licence refer to (i) the power to modify the licence conditions which is contained in clause 5 and (ii) the ensuring by the licensee that the quality of service shall be as prescribed by the licensor or TRAI by clause 28 thereof. Under clause 5, the licensor reserves the right to modify the terms and conditions of the licence if in the opinion of the licensor it is necessary or expedient so to do in public interest or in the interest of security of the State or for the proper conduct of telegraphs.

It may be stated that no modification of the licence has in fact been attempted or has taken place in the facts of the present case. Therefore clause 5 need not detain us further. Clause 28 reads as follows: "28. Quality of Performance:

28.1 The LICENSEE shall ensure the Quality of Service (QoS) as prescribed by the LICENSOR or TRAI. The LICENSEE shall adhere to such QoS standards and provide timely information as required therein.

28.2 The LICENSEE shall be responsible for:-

i) Maintaining the performance and quality of service standards.

ii) Maintaining the MTTR (Mean Time To Restore) within the specified limits of the quality of service.

iii) The LICENSEE will keep a record of number of faults and rectification reports in respect of the service, which will be produced before the LICENSOR/TRAI as and when and in whatever form desired.

28.3 The LICENSEE shall be responsive to the complaints lodged by his subscribers. The Licensee shall rectify the anomalies within the MTTR specified and maintain the history sheets for each installation, statistics and analysis on the overall maintenance status.

28.4 The LICENSOR or TRAI may carry out performance tests on LICENSEE's network and also evaluate Quality of Service parameters in LICENSEE's network prior to grant of permission for commercial launch of the service after successful completion of interconnection tests and/or at any time during the currency of the License to ascertain that the network meets the specified standards on Quality of Service (QoS). The LICENSEE shall provide ingress and other support including instruments, equipments etc., for such tests.

28.5 The LICENSEE shall enforce and ensure QOS, as prescribed by the LICENSOR/TRAI, from the INFRASTRUCTURE PROVIDER(s) with whom it may enter into agreement/contract for leasing/hiring/buying or any such instrument for provision of infrastructure or provision of bandwidth. The responsibility of ensuring QOS shall be that of LICENSEE."

24. Under clause 28 it is a condition that the licensee shall ensure the quality of service as prescribed by the licensor or TRAI, and shall adhere to such standards as are provided. Another important thing to notice is that under clause 28.2 the licensee has to keep a record of the number of faults and rectification reports in respect of its service, which will be produced before the licensor/TRAI as and when desired.

This being the case, it is clear that the Impugned Regulation cannot be said to fall under Section 11(1)(b)(i) at all inasmuch as it does not seek to enforce any term or condition of the licence between the service provider and the consumer. Coming to sub-para (v) of Section 11(1)(b), the Impugned Regulation would again have no reference to the said paragraph, inasmuch as it does not lay down any standard of quality of service to be provided by the service provider. In order that clause (v) be attracted, not only do standards of quality of service to be provided by the service providers have to be laid down, but standards have to be adhered to by the service providers so as to protect the interests of the consumers.

We find that the Impugned Regulation is not referable to Section 11(1)(b)(i) and (v) of the Act inasmuch as it has not been made to ensure compliance of the terms and conditions of the licence nor has it been made to lay down any standard of quality of service that needs compliance. This being the case, the Impugned Regulation is de hors Section 11 but cannot be said to be inconsistent with Section 11 of the Act. This Court has categorically held in the BSNL judgment that the power under Section 36 is not trammeled by Section 11.

This being so, the Impugned Regulation cannot be said to be inconsistent with Section 11 of the Act. However, what has also to be seen is whether the said Regulation carries out the purpose of the Act which, as has been pointed out hereinabove, under the amended Preamble to the Act, is to protect the interests of service providers as well as consumers of the telecom sector so as to promote and ensure orderly growth of the telecom sector. Under Section 36, not only does the Authority have to make regulations consistent with the Act and the Rules made thereunder, but it also has to carry out the purposes of the Act, as can be discerned from the Preamble to the Act.

If, far from carrying out the purposes of the Act, a Regulation is made contrary to such purposes, such Regulation cannot be said to be consistent with the Act, for it must be consistent with both the letter of the Act and the purposes for which the Act has been enacted. In attempting to protect the interest of the consumer of the telecom sector at the cost of the interest of a service provider who complies with the leeway of an average of 2% of call drops per month given to it by another Regulation, framed under Section 11(1)(b)(v), the balance that is sought to be achieved by the Act for the orderly growth of the telecom sector has been violated.

Therefore we hold that the Impugned Regulation does not carry out the purpose of the Act and must be held to be ultra vires the Act on this score.

Violation of Fundamental Rights

25. We have already seen that one of the tests for challenging the constitutionality of subordinate legislation is that subordinate legislation should not be manifestly arbitrary. Also, it is settled law that subordinate legislation can be challenged on any of the grounds available for challenge against plenary legislation - [See: Indian Express Newspapers v. Union of India, (1985) 1 SCC 641 at Para 75].

26. The test of "manifest arbitrariness" is well explained in two judgments of this Court. In Khoday Distilleries Ltd. v. State of Karnataka, (1996) 10 SCC 304, this Court held:

"It is next submitted before us that the amended Rules are arbitrary, unreasonable and cause undue hardship and, therefore, violate Article 14 of the Constitution. Although the protection of Article 19(1)(g) may not be available to the appellants, the rules must, undoubtedly, satisfy the test of Article 14, which is a guarantee against arbitrary action. However, one must bear in mind that what is being challenged here under Article 14 is not executive action but delegated legislation. The tests of arbitrary action which apply to executive actions do not necessarily apply to delegated legislation.

In order that delegated legislation can be struck down, such legislation must be manifestly arbitrary; a law which could not be reasonably expected to emanate from an authority delegated with the lawmaking power. In the case of Indian Express Newspapers (Bombay) Pvt. Ltd. and Ors. v. Union of India and Ors. [(1985) 1 SCC 641 : 1985 SCC (Tax) 121 : (1985) 2 SCR 287], this Court said that a piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature.

A subordinate legislation may be questioned under Article 14 on the ground that it is unreasonable; "unreasonable not in the sense of not being reasonable, but in the sense that it is manifestly arbitrary". Drawing a comparison between the law in England and in India, the Court further observed that in England the Judges would say, "Parliament never intended the authority to make such Rules; they are unreasonable and ultra vires". In India, arbitrariness is not a separate ground since it will come within the embargo of Article 14 of the Constitution. But subordinate legislation must be so arbitrary that it could not be said to be in conformity with the statute or that it offends Article 14 of the Constitution." [para 13]

27. Also, in Sharma Transport v. Government of Andhra Pradesh, (2002) 2 SCC 188, this Court held: "... The tests of arbitrary action applicable to executive action do not necessarily apply to delegated legislation. In order to strike down a delegated legislation as arbitrary it has to be established that there is manifest arbitrariness. In order to be described as arbitrary, it must be shown that it was not reasonable and manifestly arbitrary. The expression "arbitrarily" means: in an unreasonable manner, as fixed or done capriciously or at pleasure, without adequate determining principle, not founded in the nature of things, non-rational, not done or acting according to reason or judgment, depending on the will alone. ..."

28. When we come to Article 19(1)(g) of the Constitution, the tests for challenge to plenary legislation are well settled. First and foremost, a sea change took place with the 11-Judge Bench judgment in Rustom Cavasjee Cooper (Banks Nationalisation) v. Union of India, (1970) 1 SCC 248, in which the impact of State action upon fundamental rights was stated thus:

"We have carefully considered the weighty pronouncements of the eminent Judges who gave shape to the concept that the extent of protection of important guarantees, such as the liberty of person, and right to property, depends upon the form and object of the State action, and not upon its direct operation upon the individual's freedom. But it is not the object of the authority making the law impairing the right of a citizen, nor the form of action taken that determines the protection he can claim: it is the effect of the law and of the action upon the right which attracts the jurisdiction of the Court to grant relief.

If this be the true view and we think it is, in determining the impact of State action upon constitutional guarantees which are fundamental, it follows that the extent of protection against impairment of a fundamental right is determined not by the object of the Legislature nor by the form of the action, but by its direct operation upon the individual's rights." [para 49]

29. Under Article 19(6) of the Constitution, the State has to conform to two separate and independent tests if it is to pass constitutional muster - the restriction on the appellants' fundamental right must first be a reasonable restriction, and secondly, it should also be in the interest of the general public. Perhaps the best exposition of what the expression "reasonable restriction" connotes was laid down in Chintaman Rao v. State of Madhya Pradesh, 1950 SCR 759, as follows:-

"The phrase "reasonable restriction" connotes that the limitation imposed on a person in enjo