2G Scam - No Cause Of Restitution If Party Claiming Responsible For Illegality - SC Dismisses Loop Telecom's Appeal For Refund

The Court noted that when the party claiming restitution is equally or more responsible for the illegality of a contract, they are considered in pari delicto.

Dr. AM Singhvi, Senior Advocate advanced submissions on behalf of the appellant while Mr. Vikramjit Banerjee, ASG appeared on behalf of the UOI.

The appeals before the Apex Court were filed under Section 18 of the Telecom Regulatory Authority of India Act 1997 against judgments rendered by Telecom Dispute Settlement and Appellate Tribunal.

The appellant claimed a refund of the Entry Fee paid by it for 2G licenses for 21 service areas. The Supreme Court via judgment rendered in CPIL vs. UOI, (2012) 3 SCC 1, quashed the license granted by UOI to the appellant.

A petition was then instituted by the appellant before TDSAT claiming a refund of the entry fee. The TDSAT dismissed the petition.

The appellant, then, instituted another petition before the TDSAT raising the issue of a refund of the Entry Fee, on the ground that it had been exonerated by the Special Judge. This petition was also dismissed by the TDSAT.

The Court noted that in the CPIL judgment it was held that an auction conducted after due publicity was perhaps the best method for fulfilling the constitutional requirement of preserving equity in the alienation of natural resources. In the absence of such a mechanism, the Court had held that alienation of natural resources/public property is likely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for constitutional ethos and values.

The Court noted that reading the judgment of CPIL, it was impossible to accept the submission which has been urged on behalf of the appellant that the fraud in the First Come First Serve policy lay at the doorstep of the UOI alone and that the appellant was free from taint or wrongdoing.

The Court made the following critical observations.

"The beneficiaries of the patently unconstitutional mechanism deployed for the allocation of spectrum were corporate entities who were favoured under the ―First Come First Serve‖ policy. The appellant is one of them. The distinction made by the judgment of this Court between the three licensees who were subjected to costs of Rs 5 crores and four licensees, including the appellant, who were subject to costs of Rs 50 lakhs was because in the case of a former their stakes had been offloaded ostensibly in the name of a fresh infusion or transfer of equity. However, it is evident that all these licensees were complicit in the illegal exercise of obtaining favours for themselves by the indulgence of those in power. That, above all, was the foundation of the decision in CPIL (supra) and the justification for quashing licences and the allocation of the 2G spectrum. This Court then directed the TRAI to frame fresh recommendations for the grant of licences and for the allocation of spectrum in the 2G band in twenty-two service areas by auction, as was done for the allocation of spectrum in the 3G band. Thus, the decision in CPIL (supra) leaves no manner of doubt that the appellant was in pari delicto along with the Union government."

The Court noted that the entry fee was a one-time non-refundable fee. The Court had noted that TDSAT had held that the submission of UOI would have been upheld if the licences were terminated for breach or if the licensee were to voluntarily surrender the license. However, the Court noted, this was a case where licence was held to be unlawful due to its grant being in breach of Constitutional mandate under Article 14.

On the issue concerning the jurisdiction of TDSAT, the Court noted that "The TRAI Act governs the functioning of the TDSAT. The jurisdiction of civil courts has been ousted by Section 15. Section 16 enables the TDSAT to regulate its own procedure, guided by the principles of natural justice."

On the question concerning the claim of restitution, the Court made the following observations:

"Hence, in adjudicating a claim of restitution under Section 65 of the Indian Contract Act, the court must determine the illegality which caused the contract to become void and the role the party claiming restitution has played in it. If the party claiming restitution was equally or more responsible for the illegality (in comparison to the defendant), there shall be no cause for restitution. This has to be determined on the facts of each individual case."

The Court made the following crucial observations:

"In the present case, the appellant has been held to be in pari delicto. The decision of this Court in CPIL (supra) leaves no manner of doubt that the appellant was among the group of licensees who were found to be complicit in obtaining benefits under the ―First Come First Serve‖ policy of the Union government at the cost of the public exchequer. In such a situation and following the well-settled principles which have been enunciated above, the appellant could not be held entitled to claim a refund of its Entry Fee."

The Court noted that it did not find any reason to entertain the challenge to the set of policy at this stage at the behest of the appellant.

The Court held that the appellant was in pari delicto with the department of telecommunication and the then officials of the Union Government.

The Court also noted that the acquittal of the promoters of the appellant of the criminal charges does not efface the findings contained in the final judgment in CPIL.

The Court noted that " … as a beneficiary and confederate of fraud, the appellant cannot be lent the assistance of this Court for obtaining the refund of the Entry Fee. In any event, such a course of action before the TDSAT was clearly in the teeth of the judgment of this Court in CPIL "

The Court accordingly dismissed the appeals.