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Judicial Intervention: Courts increasingly step in to overrule government decisions

November 26, 2014
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Governance in the parochial sense has always been understood as a process by which the institutions of the government make and implement rules and laws. The courts, on the other hand, have been viewed, outside the governance process, as the adjudicatory fora to which recourse is to be had only in case of a dispute. However, this has not always been so, with the “expanding judiciary”. The concept is neither novel nor alien to India. There have been several documented instances, including the Golaknath, Kesavananda Bharati and Minerva Mills cases, where the judiciary, in exercising its power of judicial review, has gone beyond merely setting aside unconstitutional actions of the government. In fact, the courts have bestowed themselves with the role of governance and policymaking.

While conformists may view this as an intrusion into the rule-making power exclusive to the legislature and executive, the reality is that “court governance” is integral to the overarching policy and legal framework in the country. In fact, in recent times, courts have increasingly become emboldened to overrule even sectoral regulators to set to naught any misdemeanours or misconduct perceived in the functioning of the sectors.

The proactive role played by the judiciary in the field of governance can be observed in the Indian telecom sector, where the Supreme Court has been at the forefront in redefining the contours of governance. From the 2G judgment, which led to a complete shift in the spectrum allocation policy, to the recent Supreme Court judgment permitting an audit of telecom companies by the Comptroller and Auditor General (CAG), the apex court has emerged as a pivot of governance in the sector. During the past few years, the spotlight has clearly been on the judiciary, with major policy, legal and regulatory issues ending up in the courts.

The landmark 2G judgment is an avowed example of active governance exercised by the Supreme Court. It effectively set aside the then extant government’s first come, first served (FCFS) policy for spectrum allocation, in stating that all public resources and assets are a matter of public trust and can only be transferred or alienated by auction. Not only did the apex court set aside the extant policy of the government and cancel 122 licences allotted under it, but it is also perceived to have forayed into policymaking by establishing auctions as the policy for the transfer of all natural resources. The original scope of the 2G judgment was so wide that it led to the President of India making a reference to the court under Article 143 of the Constitution. Ultimately, the Supreme Court had to clarify that auctions were not the only permissible method of allocating natural resources. However, as far as spectrum is concerned, the Supreme Court refused to reconsider the 2G judgment, as it was beyond the scope of reference under Article 143. What is also noteworthy is that while setting aside the policy of FCFS, the apex court even overruled certain recommendations of the Telecom Regulatory Authority of India (TRAI), the regulatory body for telecommunications in India.

In fact, the buck doesn’t stop with the 2G judgment. Over the past few years, the telecom sector has been witness to several other important decisions of the Supreme Court, vastly impacting the industry, and perceived as having a definite impact on other sectors of the economy. Beginning with the telecom licence fee judgment (the aggregate gross revenue [AGR] judgment), where the Supreme Court was called upon to decide the definition of AGR in the licence agreement for the purpose of payment of licence fees, and uphold the vesting of exclusive privilege in the central government with respect to telecommunication activities. The Supreme Court went on to hold that once the licensee has accepted the terms and conditions of licence, they cannot question the validity of the same. The apex court expressly excluded the jurisdiction of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), which is the expert disputes settlement and appellate body for telecommunications in India, in deciding the validity of the terms of the licence. With this judgment, the Supreme Court overruled the earlier judgments of the TDSAT and the TRAI recommendations restricting AGR to include only revenue arising from licensed activity. The impact of this decision translates into thousands of crores for the industry, which has so far been paying licence fee on the basis of revenue derived from licensed activity. Operators have now impugned the demand for the short payment of licence fees before the TDSAT, which is in the process of hearing these petitions.  Operators have also filed writ petitions in various high courts challenging the AGR clause in the licence agreement. In both proceedings, operators have stay orders in their favour.

In another judgment regarding interconnect usage charges/port charges, the Supreme Court has held that the power vested in TRAI under Section 36 of the TRAI Act to frame regulations is wide and pervasive. According to the judgment, the powers under Section 36 of the TRAI Act are legislative and not administrative. Being subordinate legislations, the regulations have to be laid before both houses of Parliament, which alone can annul or modify the same. The Supreme Court has also stated that the TDSAT does not have jurisdiction to entertain challenges to the regulations. The impact of the judgment is that regulations can now only be challenged before the high court in writ jurisdiction and not before the appellate tribunal. The Supreme Court has greatly deviated from the earlier judgments issued in the cases of the Cellular Operators Association of India vs. Union of India (UoI) and UoI vs. Tata Teleservices (Maharashtra) Limited. In both scenarios, the apex court had held the TDSAT as a specialised tribunal with wide and exclusive jurisdiction to deal with proceedings arising under the TRAI Act and restrained it from imposing any restrictions and limitations under judge-made law.  The judgment has already raised concerns about how well-equipped the high courts would be to decide on regulations and the protracted nature of judicial proceedings.

Continuing with the above trend, in the recently pronounced judgment on the issue of the CAG audit of telecom companies, the Supreme Court has recognised the power of the CAG to audit accounts of telecom companies to ascertain whether the UoI was getting its due share by way of licence fee and spectrum charges. The court has said that it is the duty of the CAG of India to audit all transactions of the union and state, as also to audit all receipts payable to the consolidated fund of India. The Supreme Court has observed that the CAG’s examination of the accounts of private telecom service providers in revenue-sharing contracts is extremely important to ascertain whether there is an unlawful gain to the service provider and a loss to the union. Although the judgment  is for the telecom sector, it is believed to have widespread  implications for other sectors of the economy,  like power, mining, roadways, ports and airports, in which private companies either share revenues with the government, or partner it in the public-private partnership (PPP) model.

The above judgments could be viewed as examples of governance by court and this is not exclusive to the telecom sector. The recent cancellation of coal block allocations by the apex court is another of many such examples of active governance practised by the judiciary in other sectors. In the coal judgment, the apex court found the approach of the government in allocating coal blocks between 1993 and 2010 to be ad-hoc and casual, lacking in fairness, transparency and objectivity, as well as arbitrary, unreasonable and stained with nepotism; all of which resulted in the unfair distribution of national wealth. The judgment only reinforces the exercise of governance by courts, much of which could be attributable to the manner in which the government has been conducting business, which, more often than not, is in derogation of constitutional ethos.

Thus, one sees an emergent trend where the judiciary is having the final say on all aspects of sectoral governance, including regulatory and policy aspects. Courts have increasingly become integral to governance as a whole. Whether it is challenging regulations, orders or directions passed by the sectoral regulator and/or a policy of the government including executive fiats, the courts are having the final say, and in some cases, they have even been known to have exercised suo moto powers. Courts have shown little hesitation in setting aside long-standing policies of the government, which are deemed unconstitutional by them. They have also gone on to quash any benefit derived under such policies.  From the investor’s perspective, it has never been as important as it is today to have an independent check on the policies or decisions of the government, particularly to check whether such policies or decisions will stand the test of judicial scrutiny. This is a result of the fact that the courts, with the intent of infusing more accountability into the functioning of the government and its institutions, are increasingly taking upon themselves a proactive role in governance. The past practice of perceiving the judiciary as extrinsic to governance has proved to be fatal.  The clear message for the stakeholders is that whenever government institutions are found to be compromising on good governance, the judiciary will step in.

 

 

 
 
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