India's Supreme Court building in New Delhi. Photo: AFP

In a major setback for Indian telecom companies, the Supreme Court on Thursday dismissed their petition seeking a review of the court’s earlier order on Adjusted Gross Revenue.

On October 24, the Supreme Court widened the scope of revenue calculation by bringing income from non-core activities into its ambit as demanded by the Department of Telecom.

It stated that all revenue accruing to telecom operators, including those from handset sales, rent, dividends, interest income, profit from the sales of scrap, termination fees and roaming charges, would also be included while calculating adjusted gross revenue.

According to the new definition, the telecom firms will have to collectively pay 1.47 trillion rupees (US$20.7 billion) as past statutory dues. The license fee and spectrum usage charges are calculated on the basis of adjusted gross revenue. With the dismissal of their petition, the telecom firms need to shell out the money to the government by January 23.

Last November the telecom companies approached the court after the government made it clear it was up to the companies to seek a review of the order to get relief, or if they wanted more time to pay the dues.

The telecom firms had separately sought a limited review of the court ruling. While Bharti Airtel had reportedly filed for a review of interest, penalty and interest on penalty, Vodafone Idea had sought a review of the penalty and a new look at the sums attributed to notional revenue.

The Supreme Court bench said it did not find any merit in the review petition and dismissed it. The telecom companies had sought an open court hearing on their review petition, but the apex court decided to stick to its convention of doing an in-chamber hearing.

“Applications for hearing in open court/oral hearing are rejected. Having perused the review petitions and the connected papers with meticulous care, we do not find any justifiable reason to entertain the review petitions. The review petitions are, accordingly, dismissed,” the bench said.

According to the court norms, a review petition always goes to the same bench that pronounced the earlier verdict, so it is rarely accepted.

Legal experts say the only way out for the telecom firms is to file curative petitions in the top court, which according to conventions will be heard by five of the senior-most judges, but even in this scenario they are not very hopeful.

The worst hit by the new ruling are the legacy telecom operators Vodafone Idea and Bharti Airtel. They will have to pay statutory dues of 530 billion rupees ($7.47 billion) and 356 billion rupees ($5.02 billion) respectively.

Salt-to-software conglomerate Tata Group’s now defunct telecom arm Tata Teleservices faces dues of 138 billion rupees ($1.95 billion). The company was sold to Bharti Airtel after being unable to cope with the predatory pricing launched by Reliance Jio. Some 15 telecom companies need to collectively pay 1.47 trillion rupees.

Telecom Minister Ravi Shankar Prasad told Parliament in November that telecom companies owed the government 922 billion rupees ($13 billion) in unpaid license fees and another 550 billion rupees ($7.75 billion) in outstanding spectrum usage charges.

With the rejection of the review petition, industry expert feels the very survival of Vodafone Idea and Bharti Airtel is in doubt. Shortly after the court delivered its verdict in October, both the companies posted heavy quarterly losses in order to make provisions for the adjusted gross revenue.

Vodafone Idea’s loss of 509 billion rupees is the worst in India’s corporate history. Bharti Airtel posted the third-worst quarterly loss ever for an Indian listed company at 230 billion rupees.

Bharti Airtel has managed to raise $3 billion to fund the dues, but Vodafone Idea said it would have to shut down if forced to pay the entire dues. Both Vodafone chief Nick Read and Idea Cellular chief Kumar Mangalam Birla expressed concern over the future of the joint-venture company.

The government earlier said it would ensure the telecom market, where Reliance Jio is the sole profit-making enterprise, is not reduced to a monopoly. Industry experts though say the government can ill-afford a Vodafone Idea collapse, as it would badly dent India’s image among foreign investors and also lead to huge job losses.

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