Reforms 2.0: India mulls out-of-court settlement to resolve telecom cases

telecom reform settlements
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India is mulling over an out-of-court settlement process to resolve ongoing legal cases with private telecom operators as part of the next phase of telecom reforms.

The Indian telecom industry has suffered significantly over the last decade due to numerous legal cases related mainly to interpreting telecom licence conditions. One of the prominent cases was the adjusted gross revenue (AGR) definition issue, which severely impacted Vodafone Idea’s operations in the country.

As per reports, there are currently about 19 court cases between the Indian government and Vodafone Idea alone.

The out-of-court settlement process is similar to the ‘Vivaad se Vishwas’ (VSV) or “No Dispute but Trust Scheme” scheme and will significantly reduce the litigation burden on the Indian telecom industry.

The government introduced the VSV scheme in March 2020 to reduce income tax-related litigation. It allowed taxpayers to clear their outstanding dues by paying only the tax component of the overall demand by the authorities. It is aimed at generating timely revenue for the government.

“Telcos and the government are locked in numerous court cases and the only ones benefiting out of this are lawyers. Telcos themselves want these court cases settled as soon as possible and the government also wants to reduce the burden on telcos so that the sector grows healthily,” a senior government official was quoted as saying by the Economic Times.

“…a mechanism similar to ‘Vivaad se Vishwas’ (VSV) might be a good way to reduce litigation in a sector that has seen the government and operators spar legally at practically every step,” he added.

The report added that the authorities are currently discussing details of the new scheme for the telecom sector.

Last month, India’s telecom and IT minister Ashwini Vaishnav introduced structural and operational reforms to ease the financial burden on Indian telecom operators and unlock new business potential. He had then said that phase 2 of telecom reforms would be introduced soon.

The telecom relief package announced last month includes a 4-year moratorium on payment of statutory dues by telecom companies and 100% FDI through the automatic route. India has also devised a mechanism for telecom operators to convert the dues arising from interest accrued during the moratorium period into equity owned by the government.

Vaishnaw recently described the Spectrum Usage Charge (SUC) as similar to ‘double taxation’ on the telecom sector. The Indian government levies 3-5% SUC of the adjusted gross revenue (AGR).

The Indian government is now exploring ways to abolish the SUC as part of the subsequent reforms. It had already scrapped the fees for airwaves to be bought in future auctions.

India’s telecom department (DoT) and Bharti Airtel and Vodafone Idea are currently fighting a legal battle over the one-time spectrum charge (OTSC). The DoT on Tuesday sought another three weeks to reconsider continuing with its appeal against an earlier telecom tribunal decision.

The Telecom Disputes Appellate Tribunal (TDSAT) ruled in July 2019 that the charges could be levied prospectively, not retrospectively. However, DoT contended that it wants to levy the fee retrospectively.

Airtel’s OTSC dues stand at Rs 8,414 crore ($1.14 billion), whereas Vodafone Idea’s dues at the end of March 2021 stood at Rs 4,389.8 crore ($593.22 million).

Credit Suisse, in its note, said that Airtel and Vodafone Idea had made provisions for 67% and 53% of the total OTSC demand by the government.  “…but, any settlement with the government at amounts lower than the provisions created will likely lead to a reversal of provisions and exceptional gains for these telcos,” it added.

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