REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6706 OF 2010

B.S.N.L. … Appellant (s)

Versus

Reliance Communication Ltd. … Respondent(s)

J U D G M E N T

S.H. KAPADIA, CJI

1. Whether clause 6.4.6 of the Interconnect Agreement

between Bharat Sanchar Nigam Limited (BSNL) and M/s.

Reliance Infocomm Limited is penal or a pre-estimate of

damages is the question which arises for determination in this

civil appeal?

Facts

2. On 18

th

March, 1997, Reliance had entered into BSO

Interconnect Agreement with Department of

Telecommunications (DoT) for interconnection of their

networks within their respective circles. In October, 2000,

with its establishment, the BSNL took over from DoT the

aforementioned BSO Agreement. In November, 2003, the BSO

regime was replaced by Unified Access Services regime which

granted the licence to service providers for both basic and

mobile telephony services as part of a single unified licence.

Reliance was allowed to operate as a Unified Access Service

provider from November 14, 2003 though it was formally

granted the Unified Access Service Licence on 21

st

September,

2004 with effect from 14

th

November, 2003. By an addenda

dated 28

th

February, 2006, the agreement was formally

amended with retrospective effect from 14

th

November, 2003.

The Agreement deals with local calls, national long distance

calls (NLDC) and international long distance calls (ILD). Calls

of each trunk group are connected through dedicated ports

and are chargeable at rates different from other trunk groups.

Hence, depending on the number of calls handled by a

particular port, charges are levied by BSNL on Reliance, at the

rate of the existing call charges payable for that particular

trunk group.

2

3. On 24

th

June, 2003, the DoT issued a circular

specifying that Calling Line Identification (CLI) cannot be

tampered with under any circumstances and also gave

directions to service providers on how to prevent such

tampering. By its circular dated 28

th

January, 2004, the

above circular of DoT coupled with IUC Regulations dated 29

th

October, 2003 issued by Telecom Regulatory Authority of India

(TRAI) was made effective.

4. In September, 2004, BSNL received several complaints

from its subscribers in Gujarat that they were receiving ILD

calls with local CLI Numbers. On the basis of these reports,

BSNL made its own enquiries by calling the local CLI number,

i.e., 0281-3041000. This was on 5

th

October, 2004, 6

th

October, 2004 and 7

th

October, 2004. Each time the number

was called the response from the other end was that the

number did not exist. Therefore, on 8

th

October, 2004, BSNL

reported the matter to Reliance at which time Reliance had

sent its report to DoT regarding the same. In the said report

to DoT, Reliance stated that the wrong routing of ILD calls was

being done by one of its subscribers, viz., M/s. Raj Enterprises

3

(who was given 60 calls circuits). The series of numbers

allotted to Raj Enterprises was from 2813041000 –

2813041199, i.e., 200 numbers.

5. On 13

th

October, 2004, BSNL gave notice to Reliance

saying that Reliance is having POIs at various Exchanges in

Vadodra; that on monitoring incoming traffic to BSNL as

indicated in CDRs at the above POIs, it was found that there

were numerous calls with CLI as 281 3041000; that, such

calls have been received from 4

th

September, 2004 and,

therefore, BSNL will charge at Rs. 5.65 per minute for all

incoming calls at POI of Reliance from July, 2004. It may be

noted that Rs. 5.65 per minute is the rate of incoming ISD

calls at TAX POI of Reliance (the word ‘TAX’ stands for Trunk

Automatic Exchange).

6. On 25

th

October, 2004, BSNL issues its circular to all its

officers by which continuation of unauthorized diversion in

routing of ILD calls is brought to their notice with specific

reference to the case of Reliance. In the circular, it is

highlighted that although Reliance claims that tampering of

CLI has been stopped w.e.f. 16

th

September, 2004, it is found

4

that international calls have been delivered on the local POI of

Reliance, at trunk group meant for intra circle terminating

traffic, at various SDCC tandem exchanges, with CLI of

Reliance network of other SDCAs which is different from STD

Code and 3039xxxx.

7. On 21

st

March, 2005, BSNL raised its bill on Reliance

(RIL) levying “penalty” of Rs. 9,17,27,746 with interest from

15

th

October, 2004 to 15

th

April, 2005 at 21% p.a. for months

of July, 2004 to October, 2004 in all amounting to Rs.

9,89,68,892/- for illegal routing of calls. This bill dated 21

st

March, 2005 superseded the provisional bill dated 15

th

October, 2004 raised by the Vadodra Unit of BSNL for Rs. 6.89

cr. for the said period July, 2004 to September, 2004. In the

said bill, the rate applied was Rs. 5.65 per minute. This

demand was made on the basis that numerous calls have been

detected in the POI with CLI as 281 3041000 which pertained

to ISDNB PRI connection given to M/s. Raj Enterprises of

Rajkot. According to Reliance, the calls received in its POIs

were “grey market” calls. That, they were neither wrongly

routed nor their CLIs were tampered. Ultimately, after

5

detailed correspondence between BSNL and Reliance, petition

No. 275 of 2009 was filed by Reliance against the above

impugned demand.

8. By the impugned judgment, TDSAT has held that the

impugned demand of BSNL under clause 6.4.6 of the

Interconnect Agreement is penal in nature; that under the said

clause unauthorized calls had to be detected by BSNL and

that in case of such detection charges were to be levied on

such calls at the highest applicable IUC; that BSNL was under

an obligation to draw distinction between unauthorized calls

and calls without/ modified CLI in the impugned demand

which in the present case has not been done; that no

opportunity of hearing was given to Reliance and, lastly, the

amount of penalty was not commensurate with actual damage

suffered by BSNL. Accordingly, the impugned demand was set

aside. Aggrieved by the impugned judgment of TDSAT dated

24

th

May, 2010, BSNL has come to this Court by this civil

appeal.

Submissions

6

9. On interpretation of clause 6.4.6, Shri Gopal

Subramanium, learned senior counsel appearing for BSNL

submitted that the said clause merely prescribes the payment

of a sum by Reliance on the happening of an event other than

breach and, consequently, the distinction between penalties

and liquidated damages would not apply because such

distinction applies only to sums payable on breach of the

contract and not when a clause prescribes payment of a sum

on the happening of an event other than breach. In this

regard, learned senior counsel submitted that the Agreement

pertains to telecommunication services which is capital

intensive venture and which requires seamless and

uninterrupted service. A disruption in such services would

result not only in financial loss to BSNL and Reliance but also

to a large number of subscribers of both the companies.

Moreover, learned senior counsel submitted that it is

technically impossible for BSNL to trace or block a call with a

tampered (masked) CLI. That, on a given day a single POI

handles millions of minutes of calls which are handed over to

BSNL and in such a situation it is not commercially feasible to

7

decipher which call is genuine and which call is without

CLI/tampered CLI. Thus, clause 6.4.6 should be interpreted

against the background knowledge referred to above and, if so

read, it becomes clear that the said clause is inserted in the

Agreement for commercial prudence as a thumb rule and

should as such be interpreted in that manner. According to

the learned counsel, the onus of proving the nature of a clause

as penal is on the party who has sued upon it. According to

the learned counsel, clause 6.4.6 gives BSNL an option of

terminating the contract or to prolong the contract on the

payment of an additional sum and thus the same cannot be

characterized as penalty but must be classified as

representing the price for the option of continuing the

contract. Thus, according to the learned counsel clause 6.4.6

represents a condonable default under the contract as

payment under the said clause results in continuance of the

contract. Consequently, the amount paid under the said

clause cannot be brought under Section 74 of the Contract

Act. According to the learned counsel the situation in clause

6.4.6 amounts to an alternative mode of performance of the

8

contract. Lastly, according to the learned counsel where a

contract prescribes payment of a sum on default, even if the

sum payable may be larger than the actual loss, when the

contract is between parties with equal bargaining power, and

as long as the sum payable is not extravagant, it should not be

characterized as penalty. Similarly, where an agreed sum is

payable upon a default if the loss accruing to the claimant

from the default in question cannot be accurately or even

reasonably be ascertained, then such sum cannot be classified

as penalty and once a stipulation is held not to be a penalty,

there is no need for actual proof of loss.

10.On interpretation of clause 6.4.6 of the Interconnect

Agreement, Shri C.S. Vaidyanathan, learned senior counsel for

Reliance and Shri Ramji Srinivasan, learned senior counsel for

Tata Teleservices Limited, submitted that there is no dispute

between the parties regarding the existence of the grey market

and its operations by miscreants who use the telecom facilities

provided by various telecom service providers, including

government operators, like BSNL and MTNL. In this

connection learned counsel placed reliance on the compilation

9

submitted by BSNL. Learned counsel also placed reliance on

the statistical data in support of his above contention. The

learned counsel has also relied upon directions dated

25.10.2004 issued in the form of a circular by BSNL to its field

offices suggesting steps to be taken by them to detect what is

called as “gateway bypass scam”. On the interpretation of

clause 6.4.6, learned counsel submitted that the said clause

carries a heavy penalty; that the said clause is attracted in

cases of tampering/wrong routing of calls attributable to some

fault on the part of the operator and not otherwise, and since

in the present case the actions complained are attributable to

an unscrupulous subscriber and not to Reliance, clause 6.4.6

cannot be invoked. In other words, according to the learned

counsel, grey market operations of telecom are a reality

affecting all telecom service operators and cannot become a

ground for invoking clause 6.4.6 which is a unilateral clause

regardless of the fault of the private operator. Learned senior

counsel further submitted that the contention of BSNL

regarding “strict civil liability” is entirely misplaced as BSNL

does not possess any statutory power to impose such liability.

10

On applicability of Section 74 of the Contract Act, learned

counsel submitted that interconnection between different

telecom service providers is essentially in the interest of the

subscribers. That, such interconnection is mandated by the

license; that the interconnection charges are regulated by TRAI

under Section 11 of the 1997 Act; that no service provider can

charge interconnection charges more than what is specified by

the regulator; and that clause 6.4.6 of the Interconnection

Agreement between BSNL and Reliance is a one sided penal

provision insisted upon by BSNL. That, what BSNL can

recover is either consideration for services rendered by their

interconnection or compensatory damages in case of breach of

any of the clauses of the said Agreement. This is because the

Contract Act does not contemplate any other amount being

received by one contracting party (BSNL) from the other

contracting party (Reliance). That, the consideration for

services rendered by interconnection is regulated by TRAI it is

not open to BSNL to charge what they like. On the other

hand, the TRAI regulations do not provide for quantum of

damages or a penalty in case of breach of the interconnection

11

agreement. Therefore, if clause 6.4.6 is attracted before

breach, as submitted by learned counsel for BSNL, and if

clause 6.4.6 is not compensatory, then the amount demanded

is without consideration and would be unconscionable.

According to the learned counsel clause 6.4.6 in the

Interconnect Agreement confers only a contractual right.

BSNL, according to the learned counsel, is neither the

sovereign exercising legislative or executive or police powers

nor is BSNL a regulator. It is not vested with any powers to

impose any penalty for breach of contractual terms nor can

BSNL be vested with such powers as BSNL is one of the

several operators in the National Telecom Policy of 1994 and

1999. That, DoT or the TRAI may exercise regulatory or police

powers imposing a penalty or strict civil liability for violation of

any of the terms and conditions of the license when public

interest so requires. However, BSNL does not have any

statutory, regulatory or police powers to impose strict civil

liability. That, strict civil liability has been recognized and

upheld where it is imposed by the State exercising legislative

power in respect of violation of tax liabilities. It has also been

12

recognized and enforced by courts in tortuous action in regard

to ultra hazardous activity or product liability but even in such

cases the liability is strict in the sense that no negligence need

be proved but quantum of damages will have to be proved and

it will be only compensatory and not penal because penal

liability can be imposed only by legislation. According to the

learned counsel the concept of strict civil liability or absolute

liability is alien to the scheme, purport and intent of the law of

contracts. On clause 6.4.6 learned counsel submitted that the

said clause occurs in Chapter 8 relating to interconnection

charges and it is in respect of “wrongly routed calls”.

According to the learned counsel the said clause 6.4.6 is

premised entirely on the breach of contractual term requiring

calls being handed over in the specific trunk route or calls

being handed over with an appropriate CLI. That, clause 6.4.6

(d) is a pointer to sub-clause (a) and sub-clause (b) being the

remedy for breach, in addition to the rights that BSNL has for

disconnection of POI or temporary suspension of Interconnect

Agreement for misuse. Thus, sub-clauses (a) and (b) and (d)

can be invoked only in case of a breach of the term requiring

13

handing over of calls in the specified trunk route or handing

over of calls with appropriate CLI and, therefore, it is incorrect

to say that clause 6.4.6 is attracted before the breach of

contract and that the provision for remedy of breach is only in

clause 8.2 or 8.3. That, it is equally incorrect to contend that

the provision for breach or damages is only what is contained

in clause 11 of the general terms. According to the learned

counsel clause 6.4.6 can be in the nature of reasonable

compensation or compensatory damage only if the charges are

recovered in respect of the offending calls and not in respect of

the legitimate calls. Any other interpretation will militate

against the compensatory nature of damages and will amount

to imposition of a penalty without legislative sanction and by

one party to the contract usurping sovereign, police and

regulatory powers. Learned counsel submitted that the two

months time limit cannot make clause 6.4.6 reasonable or

compensatory, if all calls, irrespective of whether they are

rightly or wrongly routed, or with CLI or without CLI or

disguised CLI are charged at the highest IUC rates. Such a

provision, according to the learned counsel, will be ex facie

14

penal in nature. Learned counsel submitted that there is no

merit in the contention of BSNL that technology does not

enable tracing of every disguised call. According to the

learned counsel this argument of lack of technology would be

available to BSNL only to the extent that all calls of the

offending subscriber, such as Raj Enterprises, may be treated

as unauthorized calls. However, beyond that, calls of other

subscribers, in respect of whom there is not even a whisper of

illegality, cannot be clubbed with the offending calls because

that would amount to imposition of penalty. Learned counsel

submitted that under the Contract Act no party is entitled to

recover punitive damages for any breach of contract. That, in

terms of Section 73 of the Act, the party which suffers by any

breach of contract is entitled to receive, from the party who

has broken the contract, compensation for any loss or damage

caused to him thereby, which naturally arose in the usual

course of things from such breach. Such compensation is not

to be given for any remote or indirect loss or damage.

According to the learned counsel in terms of section 73 of the

Contract Act in order to receive compensation for loss or

15

damage, the party claiming such compensation must prove

the alleged loss or damage. However, section 74 carves out an

exception to the ordinary legal requirement of proving loss or

damage. In terms of section 74 when a contract is breached, if

a sum is named in the contract as the amount to be paid in

case of such breach or if the contract contains no other

stipulation by way of penalty, the party complaining of the

breach is entitled, whether or not actual loss or damage is

proved to have been caused thereby, to receive from the party

who has broken the contract, reasonable compensation not

exceeding the amount so named or, as the case may be, the

penalty stipulated for. It thus follows, according to the learned

counsel, from section 74 of the Contract Act that regardless of

whether the contract specifies a sum to be paid in the event of

breach or whether it contains any other penal provision, the

party complaining of the breach is only entitled to receive

reasonable compensation. In the alternative, learned counsel

submitted that inasmuch as clause 6.4.6 provides for payment

of an amount beyond reasonable compensation for loss or

damage, it is to that extent unenforceable in law. In this

16

connection learned senior counsel has placed reliance on the

judgments, Fateh Chand v. Balkishan Das [(1964) 1 SCR

515]; Bharat Sanchar Nigam Limited v. Motorola India

Private Limited [(2009) 2 SCC 337]; Maula Bux v. Union of

India [(1969) 2 SCC 554] and Union of India v. Raman Iron

Foundry [(1974) 2 SCC 231]. According to the learned

counsel clause 6.4.6 is wholly one sided penal provision

inasmuch as it entitles the appellant to receive moneys from

Reliance on account of breach and not vice-a-versa. Learned

counsel further submitted that in the instant case BSNL has

alleged that international calls have been delivered on its

network as local/national calls from a particular number

(02813041000), belonging to a particular subscriber (Raj

Enterprises), of the network of Reliance and are consequently

wrongly routed/tampered calls. However, BSNL is unable to

precisely identify such calls. In other words, BSNL is not in a

position to prove which precise calls delivered from the said

number were, in fact, international calls delivered as

local/national calls. However, applying clause 6.4.6 BSNL

seeks to charge for not only all calls delivered from said

17

number at the highest possible IUC rates, but, additionally

seeks to charge at the highest rate for all calls delivered at the

concerned POI for the relevant month as also all calls for the

preceding two months from entirely different numbers

belonging to other subscribers where there is no allegation

whatsoever by BSNL of wrong routing or tampering. In other

words, even for numbers and calls with respect to which there

is no allegation of breach, wrong routing or tampering, BSNL

seeks to charge at the highest IUC rates which bears no nexus

whatsoever with the loss or damage suffered by BSNL. It is

submitted that to this extent clause 6.4.6 falls foul of section

74 and is therefore unenforceable. Charging for numbers and

calls which have no nexus whatsoever with the number

identified by BSNL as having been misused is to impose in

terrorem penalty upon Reliance bearing no connection with

the loss suffered by BSNL on account of alleged wrong routing

or tampering and therefore the amount claimed by BSNL does

not fall within the ambit of “compensation” and is legally

unrecoverable. At the highest reasonable compensation in

terms of section 74 might cover charging at the rate prescribed

18

by clause 6.4.6 for all calls received from the number of Raj

Enterprises, without having to prove that all such calls were,

in fact, international calls delivered as local/national calls, but

no more. In this connection, learned counsel pointed out that

in the instant case the calls from Raj Enterprises are about

one lakh for the month of September and October 2004.

However, the total number of calls on the POI for September

and October are about 34 lakhs and if one adds the entire

calls for July and August 2004 also there are about 35 lakh

calls in addition and, therefore, the charges in terms of clause

6.4.6 at the highest rate can be only for 69 lakh calls in

addition to one lakh calls from the subscribe in respect of

whose number the allegation of wrong routing/tampering is

leveled by BSNL. Lastly, learned counsel submitted that there

is no merit in the contention of the BSNL that clause 6.4.6

prescribes the payment of a sum on the happening of an event

other than breach and consequently section 74 would have no

application. According to the learned counsel if such

contention is accepted it would lead to absurd consequence

because it would mean that wrong routing of calls and

19

tampering of CLI would amount to performance of the contract

rather than its breach. Moreover, according to BSNL the bills

raised by them are by way of penalty. It is clear from the bill

dated 21.03.2005. For the aforestated reason it is submitted

that there is no merit in any of the above contentions. Coming

to the validity of the demand notice and disconnection notice

issued by BSNL, learned counsel submitted that the demand

notices issued by BSNL are invalid since the same have been

raised in 2004 without any provision in the Interconnect

Agreement. That, the bills raised by BSNL were admittedly

issued not in terms of any provision in the Interconnect

Agreement but in terms of the letter of BSNL(Headquarters)

dated 28.1.2004 which was issued only for implementation of

IUC regulations of TRAI dated October, 2003. Therefore,

according to the learned counsel bills dated 13.10.2004,

15.10.2004 and 21.3.2005 are invalid. Learned counsel

submitted that clause 6.4.6 was inserted through an Addenda

signed on 28.2.2006. The said Addenda was made applicable

retrospectively with effect from 14.11.2003 with the exception

of applicable IUC charges including ADC and interconnection

20

arrangements made between the parties during the

intervening period which included ICU charges. That, the said

clause 6.4.6 is covered in the IUC charges which was carved

as an exception. Admittedly, at the relevant time, TRAI had

prescribed applicable IUC charges whereby depending on the

nature of the call (local, national, international) certain

identified charges were applicable. The applicable IUC charges

did not however contemplate charges for local/national call at

the highest available international rate, which the BSNL now

seeks to do purportedly by invoking clause 6.4.6. Thus,

according to the learned counsel from the express terms of the

Addenda itself it is clear that clause 6.4.6 falls within the

chapter entitled Interconnection Charges “which is expressly

excluded from retrospective operation”. Learned counsel

submitted that in any event such purported retrospective

application of a penal provision such as clause 6.4.6 violates

Article 20(1) of the Constitution. It is submitted that BSNL

could not have validated the bills issued illegally in 2004 on

the basis of the provisions introduced in the Interconnect

Agreement subsequently in 2006 when clause 6.4.6 was not

21

given retrospective effect and in the absence of any express

provision in the subsequent Addenda the bills cannot be

validated. In any case, according to the learned counsel the

disconnection notice dated 2.2.2009 was for alleged illegal

routing under NLD interconnect agreement; that the said NLD

interconnect agreement was signed on 1.11.2002 which did

not have clause 6.4.6 as it exists in the Addenda dated

28.2.2006; that clause 6.4.6 in the interconnect agreement for

NLD was different from clause 6.4.6 in the Addenda dated

28.2.2006 of the Interconnect Agreement and that clause 6.4.6

of the NLD interconnect agreement did not provide for

charging at the highest rate and that too for the previous two

months. Learned counsel submitted that the Addenda to the

NLD agreement was signed on 17.11.2005 incorporating

therein clause 6.4.6 (a), (b), (c) and (d) but the said agreement

was not retrospective and was effective from the date of

signing of the Addenda dated 17.11.2005. Consequently,

according to the learned counsel the impugned bills raised by

BSNL were illegal and invalid inasmuch as they were not

raised in accordance with the provisions of the Interconnect

22

Agreement between the parties. For the afore-stated reasons,

learned counsel submitted that there was no merit in the civil

appeal filed by BSNL and the same needs to be dismissed.

Relevant provisions of:

11.(i)Interconnect Agreement dated 18

th

March, 1997

2.4 Numbering Plan

2.4.1 The same area codes for SDCAs will

be used for both DoT and LICENSEE network.

However, distinguishing exchange codes will

be used for the DoT and the LICENSEE’s

exchanges i.e. linked numbering scheme will

be followed within the SDCA as per the latest

National Fundamental Plan.

2.4.5 Separate exchange codes or number

ranges shall be allocated to the DoT and the

LICENSEE’s exchanges by the TELECOM

AUTHORITY. Utilisation of unused exchange

codes or number ranges out of those allocated

to the DoT and the LICENSEE’s exchanges

shall be reviewed by TELECOM AUTHORITY

from time to time for optimum utilisation.

2.5 Calling Line Presentation

2.5.1 LICENSEE’s network shall be capable

of transmitting and receiving calling line

identification which shall include Access code,

Area code and Subscriber number.

Chapter 6

Interconnection Charges

23

6.1 Interconnectivity to DOT Network

6.1.1 Provision of links to interconnect

LICENSEE’s network with DoT’s network will

be the responsibility of the LICENSEE as

provided under Clause 2.1.2 and 2.1.3.

6.2 Detailed Billing

6.2.1 For every STD/ ISD call originating

from the LICENSEE’s network and accepted by

DoT, a detailed billing and/ or bulk billing

record will be generated in the LDCC TAX. For

this purpose calling subscriber’s identity shall

be supplied by the LICENSEE for detailed

billing purpose.

6.4 Access Charges

6.4.1 For purposes of calculating the

access charge, the point at which the calls are

delivered to DoT’s network is treated as

originating point. The calls will be measured

from the point of entry to the destination at the

applicable rate of DoT.

6.4.3 The traffic delivered on any DOT

LDCC TAX from LICENSEE’s LDCC TAX/

SDCC tandem/ local exchange will be

measured on the incoming junctions of the

DOT’s LDCC TAX at the destination wise pulse

rates applicable to the calls generated locally

at the same station where the DOT’s LDCC

TAX is located.

6.4.5 For international calls originating in

the LICENSEE’s network and accepted by DoT

(ref. para 6.2.1), DoT will bill the LICENSEE on

monthly basis as ISD Access charge at a rate

24

of Rs. 0.70 per unit measured call at the point

of interconnection. The responsibility of

paying to the international carrier (presently

Videsh Sanchar Nigam Limited) will lie with

the DoT.

(ii)Addenda to interconnect agreement after migration

dated 28th February, 2006

Whereas M/s Reliance Infocomm Limited

(previously known as M/s. Reliance Telecom

Private Limited) has signed an Interconnect

Agreement on 18.3.1997 with Department of

Telecommunications {now Bharat Sanchar

Nigam Limited [hereinafter called the BSNL

(previously called as DOT]} for interconnection

of their Basic Service network with the

network of BSNL in Gujarat Circle Service

Area.

Whereas the President of India granted to M/s.

Reliance Infocomm Limited [hereinafter called

the UASL (previously called as LICENSEE)] a

License No. 17-6/95-BS-II/GUJARAT on 18

th

March 1997 under Section 4(1) of the Indian

Telegraph Act, 1885 to provide Basic

Telephone Service in the Service Area of

Gujarat Circle on the terms and conditions

specified in such License.

AND whereas the UASL has, upon permission

of Licensor, migrated to Unified Access Service

License regime on 14

th

November 2003 for

above stated Service Area, whereupon the said

license agreement was amended and revised

on 21

st

September 2004 with effect from 14

th

November 2003 on the terms and conditions

specified in such amended License No.10-

05/2004-BS-II/RIL/GUJARAT and therefore

25

the said Interconnect agreement is required to

be amended and revised as described in

Chapters, Annexures and Schedules appended

hereto with effect from 14

th

November 2003.

AND whereas Interconnect Usage Charges

(IUC) Regulation become effective from 1

st

May

2003 which was amended on 29

th

October

2003 to become effective from 1

st

February

2004 and further amended on 6

th

January

2005 to become effective from 1

st

February

2005.

IT IS NOW FURTHER AGREED AS FOLLOWS:

1.Each party, i.e. BSNL as well as the UASL,

does hereby agree to the terms & conditions as

described herein which shall append as

Addenda to the original agreement and the

combined agreement, hereinafter called

“AGREEMENT”, will become effective from

14th November 2003 except the applicable

Interconnection Usage Charges (IUC) including

ADC, Interconnection arrangements and

associated bill arrangements as prescribed by

BSNL Corporate Office, during this intervening

period till date of signing of this Addenda.

2.Each party, i.e., BSNL as well as the UASL,

does hereby agree to:

a) Interconnect its Network to the

Network facilities of the other party; and

b) Make available to the other party the

services, facilities and information as

specified in this Interconnect Agreement.

c) Provide the other interconnected

party with interconnection traffic carriage

and fault detection of a technical and

26

operational quality that is equivalent to that

which each party provides to itself.

2(2) The UASL shall ensure that its

interconnect facilities delivered at each point of

interconnection (POI) conform to the applicable

quality of service (QOS) standards and

technical specifications for interconnection by

the relevant delivery date determined pursuant

to the provisions of this Agreement.

2(3) UASL shall be responsible to provide,

install, test, make operational and maintain all

interconnection facilities on its side of point of

interconnection (POI) unless otherwise

mutually agreed.

2(11) It is further agreed that any kind of

breach of any of the terms of this agreement by

the UASL shall entitle BSNL to levy damages

on the UASL. Quantum of damages assessed

and levied by BSNL shall be final and not

challengeable by the UASL.

Chapter – 1

Definitions

In this Agreement, words and expressions

will have the following meanings as are

respectively assigned to them unless

repugnant to the subject or context:

“UASL”means a registered Indian

Company, which has been awarded License for

providing the UNIFIED ACCESS SERVICE.

CLI or “CALLING LINE IDENTIFICATION”:

means the information generated by the

Network capability which identifies and

27

forwards the calling number through the

interconnected BSNL’s / UASL’s Network.

“FUNDAMENTAL PLA N”:means Numbering

Plan, Traffic Routing and Switching Plan and

transmission Plan issued by Department of

Telecom as amended from time to time.

“GATEWAY SWITCH”: Gateway switch is

defined as a switch, which has the capability

to perform gateway functions like functional

capability to send and receive signals based on

CCS7 signaling system of ITU-T, functional

capability to send and receive various types of

information to other operators’ network in a

multi operator environment such as operator

identity, charging area information etc. as well

as transport of calling line identification,

generating call data record for an off line

billing system giving all necessary details of

the call for proper settlement of accounts in a

multi operator environment and Security

monitoring functions.

“NATIONAL LONG DISTANCE SERVICE

OPERATOR (NLDO)”:means the telecom

operator providing the required digital capacity

to carry long distance telecommunication

service within the scope of LICENSE for

National Long Distance Service, which may

include various types of tele services defined

by ITU, such as voice, data, fax, text, video,

and multi media etc.

“POINT OF INTERCONECTION (POI)” is a

point at which the GMSC of Fully Mobile

network of UASL and Gateway Switch of BSNL

or local / tandem / TAX exchange of the basic

service network of UASL and local / Tandem /

28

TAX of BSNL are interconnected by the facility

of interconnection seeker and where the

specified Network-Network Interface Standards

are applicable.

“PSTN”means Public Switched Telephone

Network.

“SHORT DISTANCE CHARGING CENTRE

(SDCC)”:It means a particular Exchange in a

Short Distance Charging Area declared as

such for the purpose of charging of long

distance trunk calls as defined in the National

Fundamental Plan.

“UNIFIED ACCESS SERVICES”: means

telecommunication service provided by means

of a telecommunication system for the

conveyance of messages through the agency of

wired or wireless telegraphy. The Unified

Access Services refer to transmission of voice

or non-voice messages over LICENSEE’s

Network in real time only. SERVICE does not

cover broadcasting of any messages voice or

non-voice, however, Cell Broadcast is

permitted only to the subscribers of the

service. The subscriber (all types, pre-paid as

well as post-paid) has to be registered and

authenticated at the network point of

registration and approved numbering plan

shall be applicable.

The following abbreviations shall bear the full

expression as mentioned below:

UASP: UNIFIED ACCESS SERVICE

PROVIDER”

29

Chapter – 2

Technical Issues pertaining to Interconnection

2.1Interconnectivity to BSNL Network

2.1.1 As per clause 2.6 of License

agreement The LICENSEE (UASL) will have to

make his own arrangements for the entire

infrastructure required for providing the

SERVICE. Therefore the UASL may develop its

own independent network with its own

transmission links within each of its service

area.

2.1.3 The UASL shall not, directly or

otherwise, extend any type of service to BSNL

subscribers through the access provided by

BSNL except for those services which are

permitted as per the license agreement and are

further mutually agreed between both the

parties.

2.1.4 Interconnectivity between UASL’s

network as specified in the license and the

overseas communication network operated by

licensed ILDOs shall be through the TAXs of

BSNL or of any other operator duly licensed for

the purpose.

2.1.5.2Calls from fully mobile subscribers

of other telecom service providers of different

service area (National Roaming) or other

country (International Roaming), roaming in

the network of UASL shall be treated

separately for the purpose of charging and

routing.

30

2.1.9.1Any facility obtained by the UASL

from BSNL shall not be resold or leased in any

manner to a third party.

2.1.9.2No by pass of traffic shall be

resorted to by any party by delivering the

traffic at any point other than as permitted or

agreed to under this agreement. In case

unauthorized diversion in routing comes to

notice, BSNL shall be free to disconnect the

POI in that area, after intimating UASL one

week in advance. Moreover, the resources of

BSNL shall be used for the purpose for which

these have been earmarked and no other

service shall be offered by utilizing such

resources without agreement or the explicit

written consent of BSNL.

2.1.12The interconnection arrangement shall

be in accordance with the National

Fundamental Plan related to Switching,

Routing, Charging and Numbering.

2.1.13 The Fully Mobile, Limited Mobile and

Fixed services network of UASL shall be having

separate POIs with BSNL, which shall be,

treated independently for all purposes,

including setup costs, port charges etc. The

formation of separate POIs and various trunk

groups therein is to be done as prescribed in

relevant tables in Schedule I – Appendix A. The

tables for POIs and trunk groups as prescribed

for CMTS network shall be applicable for fully

Mobile network of UASL.

2.1.15.3 INTERCONNECTIVITY FOR STD/

ISD CALLS

31

2.1.15.3.1 Interconnectivity for STD/ISD

calls shall be between BSNL’s LDCC TAX and

UASL’s LDCC TAX. In case UASL does not

have his own TAX in the LDCC, STD/ISD calls

from UASL’s SDCC Tandem/local exchange in

an SDCA in the LDCA shall be handed over to

BSNL’s LDCC TAX by the UASL.

2.1.15.3.3 For the purpose of Inter circle

and International call, the UASL shall

handover the call to BSNL at the originating

LDCC TAX.

2.1.16 For the purpose of transit calls

originated by UASL's subscriber and meant for

termination in network of any other service

provider, the UASL may transmit such traffic

as per rates given in Schedule I, on separate

trunk groups at SDCC Tandem for local calls

and originating LDCC TAX for intra and inter

circle STD calls. However, BSNL reserves the

right to amend the rates from time to time and

also to selectively withdraw transit facility to

other networks. BSNL will also be at liberty to

transit and offer calls originated from other

networks to UASL network. Either party shall

not suppress the CLI for transit traffic also. If

rates for any transit service are not available in

the Schedule, the same shall be mutually

agreed separately. Detailed technical

arrangements will be agreed separately.

2.4 NUMBERING PLAN

2.4.1 For Basic Services the same

area codes for SDCAs / LDCAs will be used for

both BSNL and UASL network. However,

32

distinguishing exchange codes will be used for

the BSNL and the UASL’s exchanges i.e. linked

numbering scheme will be followed as per the

latest National Fundamental Plan.

2.4.3 All the digits received from

calling party including ‘0’ shall be passed

across the interface (ROD=1). In case of CCS7

signaling, leading ‘0’ will be appropriately

coded in Nature of Address Indicator (NAI).

2.4.5 For Basic services separate

exchange codes or number ranges shall be

allocated to the BSNL and the UASL’s

exchanges by the LICENSOR. Utilization of

unused exchange codes or number ranges out

of those allocated to the BSNL and the UASL’s

exchanges shall be reviewed by LICENSOR

from time to time for optimum utilization.

2.5CALLING LINE PRESENTATIO N

2.5.1 BSNL’s and UASL’s network shall

wherever technically possible, transmit and

receive Calling Line Identification (CLI). The

Calling Line Identification from UASL’s fully

mobile/ CMTS network shall contain mobile

subscriber number including 93 and from its

basic services network the CLI shall contain

Access code, Area code and subscriber

number. The Calling Line Identification from

BSNL shall contain area code and subscriber

number depending on the technical feasibility.

2.5.4 No tampering/ alteration of CLI of

calls handed over at the POI with BSNL shall

be done by UASL. Instructions of Licensor in

this regard shall be followed by UASL failing

33

which the concerned POI of UASL shall be

disconnected under misuse after giving one

week notice in addition to other actions

prescribed in this agreement elsewhere.

2.5.5 The switches of BSNL, which do not

have CLI based call barring capability or are

not having CDR based offline-billing capability,

shall be technically non feasible for provision

of point of Interconnection. However, UASL

undertakes that in the absence of such

capabilities in BSNL’s switches, it shall abide

by all terms and conditions including MCU

based arrangements for the purpose of

measurement and billing of interconnect traffic

as mutually agreed and thus mentioned in this

agreement and that this arrangement will not

be a matter of dispute, then BSNL shall

provide POIs to UASL in such switches, if

otherwise feasible to do so.

It is further agreed that in case of any

regulatory/ judicial intervention on the above

matters, the UASL shall be entitled to and be

extended the same relief/ benefit given to any

other operator to the extent it is applicable to

the UASL under this agreement.

2.9NETWORK INTEGRITY AND

SCREENING

2.9.1 It is the responsibility of the

UASL to prevent the transmission of any

signaling message across the connecting

network, which does not comply with, inter

working specification of TEC No.G/PNI-03/01

Sept. 95 or as modified from time to time.

34

Similarly BSNL shall also ensure the same in

its network.

2.9.2 Efficient arrangement for

screening function shall be established by the

UASL at his Gateway exchange or elsewhere in

his network to detect signals outside the inter-

working specification of TEC No. G/PNI-03/01

Sept. 95 referred above. Similarly BSNL shall

also ensure the same in its network.

2.9.3 Screening arrangement shall

include rejection of communications or

discarding information fields, which do not

comply with the specification. It will be the

responsibility of the UASL/BSNL that network

integrity is protected and maintained.

CHAPTER 6

INTERCONNECTION CHARGES

6.2 DETAILED BILLING

6.2.1 For every STD/ISD call originating

from the UASL’s network and accepted by

BSNL, a detailed billing record wherever

possible and/or bulk billing record will be

generated in the LDCC TAX. For this purpose

the UASL shall supply calling subscriber’s

identity for detailed billing purpose.

6.4.Interconnect Usage Charges

6.4.1 Interconnect Usage Charges

(IUC) shall be payable by UASL to BSNL for the

calls originating in UASL network and handed

over to BSNL network. Likewise Interconnect

35

Usage Charges shall be payable by BSNL to

UASL for the calls handed over by BSNL

network and terminating in UASL network.

Interconnect Usage charges include

termination charge, carriage charge, transit

charge and access deficit charge (ADC) as

applicable.

6.4.3 The traffic from / to fully

mobile network delivered on any BSNL’s LDCC

TAX from UASL’s GMSC will be measured on

the incoming / outgoing junctions of the

BSNL’s LDCC TAX.

6.4.6 WRONGLY ROUTED CALLS

(a) Unauthorised calls i.e. calls other than

specified for that trunk group if detected, for

which the applicable IUC is higher than the

IUC applicable for calls prescribed in that

trunk group, then BSNL shall charge the UASL

the highest applicable IUC, as applicable for

such unauthorised calls, for all the calls

recorded on this trunk group from the date of

provisioning of that POI or for the preceding

two months whichever is less.

(b) the CLI based barring facility shall be

activated at the POIs wherever technically

feasible to ensure that the traffic handed over

by BSNL is in the appropriate trunk groups

only. Wherever it is technically not feasible to

activate CLI based barring, periodic monitoring

of the incoming trunk group shall be done by

BSNL to ensure this objective. The calls

received by BSNL without CLI or

modified/tampered CLI from UASL shall be

charged at the highest slab i.e. as for ISD

Calls. In case such calls are received by BSNL

on any trunk group, then all the calls recorded

36

on this trunk group shall be charged at the

rates applicable for IUC of incoming ISD calls

from the date of provisioning of that POI or for

the preceding two months, whichever is less.

(c) When CDR based billing is introduced in

BSNL’s network some of the trunk groups

shall be merged. In such cases also, in case

unauthorised or Incoming International Call,

without CLI call, call with tampered CLI is

handed over to BSNL at the merged trunk

group, then BSNL shall charge the UASL the

highest applicable IUC, as prescribed in

clauses 6.4.6(a) above for unauthorised calls &

6.4.6(b) above for incoming International call,

without CLI call, call with tampered CLI, for all

calls recorded on this merged trunk group

from the date of provisioning of that POI or for

the preceding two months whichever is less.

(d) In addition, BSNL shall also have the right

for taking other legal actions including

disconnection of POIs or temporary suspension

of the interconnection arrangements under

misuse.

6.4.7 All the required information in

monthly certificate of details of traffic (in

minutes) as prescribed in Schedule I shall be

submitted by UASL to BSNL in a timely

manner. This information includes outgoing

STD and ISD traffic from its limited mobile/

fully mobile/ cellular access network handed

over to each of private NLDOs/ ILDOs

separately and incoming STD and ISD traffic to

its network accepted from each of private

NLDOs/ ILDOs separately.

6.5Billing

37

6.5.2 At present CDR based billing

system for POIs is not available in BSNL’s

network at all locations. Wherever BSNL is

having CDR based billing system for POIs,

BSNL shall bill the IUC based on processing of

CDRs. However, wherever CDR based billing

system is not available in BSNL’s network, the

billing of IUC shall be done based on IUC

pulses as described in Schedule I. The per

MCU charge for these IUC pulses being Rs

0.10 for all types of calls except originating ISD

calls and any other call specially specified in

which case per MCU charge shall be Rs 1.20.

BSNL reserves the right to charge Access

Deficit Charge (ADC) based on distance from

originating SDCC to terminating SDCC as and

when necessary technical arrangements are

put in place by BSNL.

8.2Termination

8.2.1 This Agreement shall continue

for the period indicated in Clause 8.1 above

unless any of the following events occur:

(a)Either Party ceases to hold a licence under

Section 4 of the Indian Telegraph Act.

(b)An order is entered by a court of competent

jurisdiction mandating the winding-up or

dissolution of a Party, or appointing a receiver

or liquidator for such Party or having a

comparable effect;

(c)If in the interest of national security or

otherwise, it is ordered by a Competent

Authority such as Licensor/ TRAI, that the

agreement may be terminated.

(d)If there is a breach of any of the technical

and financial obligations as covered in clauses

38

2.1.3, 2.1.5.1, 2.1.8, 2.1.9.1, 2.1.9.2, 2.5, 2.11

and 6.4.6.

In which case this Agreement shall

immediately be terminated, without any

further notice.

8.2.2 This Agreement also may be

terminated by either Party giving 30 days

notice to the other in the event that either

Party.

(a)breaches any provision of this Agreement;

provided, however, that the breaching Party

has been notified in writing of its failure by the

non-breaching Party and the breaching Party

has not remedied its failure within twenty (20)

Working Days; and the approval of Licensor or

TRAI, as the case may be, has been obtained

for such termination. In the event, the

approval is accorded with conditions, regard

being had to the general interest of the

customers, the same will be fully complied

with before the final act of disconnection of

interconnection arrangements becomes

effective. Provided, however, in the event no

intervention is made by the Regulator/

Licensor during the notice period, the approval

shall be deemed to have been accorded.

(b)ceases to carry on business.

(c)Either Party is unable to discharge its

obligation under this agreement. However, in

case of Force Majeure procedure as indicated

below shall be followed:

FORCE MAJEURE

Neither party shall be liable for any breach of

this Agreement (other than a breach for non

payment) caused by an act of God,

insurrection or civil disorder, war or military

operations, national emergency, fire, flood,

lightning, explosion, subsidence, industrial

39

dispute of any kind. The Party affected by

such force majeure shall promptly notify the

other Party of the conditions and the details

thereof. If as a result of force majeure, the

performance by affected Party of its obligation

under this agreement is only partially affected,

such Party shall nevertheless remain liable for

the performance of those obligations not

affected by such force majeure. If the force

majeure lasts for more than the continuous

period of 90 calendar days from the date of the

notification, and continues to prevent the

affected Party from performing its obligation in

a whole or in material part, the either party

shall be entitled to, terminate this agreement

by giving not less than 30 calendar days

written notice to the other Party.

8.3 Withdrawal of Interconnection

(a)For Non-payment: In case of default

in payment, BSNL reserve the right for

withdrawal/ suspension of services at the POI.

This will be in addition to other remedies

available under the agreement.

(b)Under misuse or instructions for the

Licensor. Either Party may suspend or

withdraw the services if the other party

misuses or indulges in any act which will

constitute misuse of POI or will result in

violation of instructions issued by Licensor/

Regulator.

The notice period for (a) and (b) above, if any,

shall be as specified in the respective clause of

the agreement.

SCHEDULE I

40

Interconnection Usage Charge (IUC)

3. Due to non-availability of CDR based

billing plateform, IUC applicable for the calls

handed-over to BSNL at the PoI (Point of

Interconnect) have been converted into

different pulse rates as per Appendix B. The

pulse rates have been calculated at a per MCU

(Metered Call Unit) rate of Rs 0.10 for all calls

except outgoing ISD calls which shall be

measured at a rate of Rs 1.20 per MCU. The

bills for IUC shall be raised by BSNL to the

interconnecting operator based on the bulk

billing of MCUs on the incoming trunk groups.

The pulse duration with an accuracy of 10

milli seconds shall be applied at the POIs of all

UASL with BSNL as prescribed in Appendix B

(in brackets) wherever technically feasible in

BSNL switches. At present the implementation

of 10 milli seconds accuracy in pulse duration

is possible in new technology switches of BSNL

i.e. EWSD, AXE-10, OCB-283 and 5ESS.

5.The bills for IUC raised by access

providers to BSNL shall accompany with a

certificate that they have submitted a signed

certificate to circle office BSNL regarding the

volume of intra circle, NLD and ILD traffic as

per the Appendix-C. Further processing of

these bills, for payment to access providers for

the traffic terminated in their network, shall be

done only on receipt of this certificate from

them. In case called upon, the complete

record of traffic will be produced by access

providers for verification by the technical audit

team constituted by BSNL. The procedure for

billing and recovery of ADC in respect of inter-

circle STD calls from cellular / WLL (M) and

outgoing / incoming ISD calls routed through

41

a NLDO or ILDO other than BSNL and intra-

circle traffic from cellular/ WLL(M) to fixed

networks are enclosed in Appendix-D.

11.The CLI based barring facility has been

activated by BSNL at the PoIs wherever

technically feasible to ensure that the traffic

handed over to BSNL is in the appropriate

trunk groups only. Wherever it is technically

not feasible to activate CLI based barring,

periodic monitoring of the incoming trunk

groups shall be done by BSNL to ensure this

objective. In case of wrongly routed calls IUC

shall be charged as below:

(a)Unauthorised calls i.e. calls other than

specified for that trunk group if detected, for

which the applicable IUC (including ADC) is

higher than the IUC (including ADC) applicable

for calls prescribed in that trunk group, then

BSNL shall charge the concerned private

operator the highest applicable IUC (including

ADC), as applicable for such unauthorized

calls, for all the calls recorded on this trunk

group from the date of provisioning of that POI

or for the preceding two months whichever is

less.

(b)Wherever it is technically not feasible to

activate CLI based barring, the calls received

by BSNL without CLI or modified/ tampered

CLI from concerned private operator, shall be

charged the IUC applicable for the highest slab

(i.e. as for ISD Calls including ADC applicable

for ISD calls) for all the calls recorded on this

trunk group from the date of provisioning of

that POI or for the preceding two months,

whichever is less.

42

(c)When CDR based billing is introduced in

BSNL’s network some of the trunk groups

shall be merged. If unauthorized or Incoming

International call or without CLI call or call

with tampered CLI is handed over to BSNL at

the merged trunk group, then BSNL shall

charge the concerned private operator the

highest applicable IUC (including ADC), as

prescribed in clauses 11(a) above for

unauthorized calls & 11(b) above for Incoming

International call, without CLI call, call with

tempered CLI, for all calls recorded on this

merged trunk group from the date of

provisioning of that POI or for the preceding

two months whichever is less.

(d)In addition, BSNL shall also have the

right for taking other legal actions including

disconnection of POIs or temporary suspension

of the Interconnection arrangements under

misuse.

Appendix - C

CERTIFICATE OF TRAFFIC ROUTED VIA OTHER NLD / ILD

OEPRATORS AND INTRA CIRCLE TRAFFIC

{to be given by cellular operators and basic operators}

For the Month of ....................., 200

Licensed Service Area .........................

Name of Operator.................................

Type of Service (Cellular / WLL-M/Fixed)....

Period: From .......................to .....................

Dated ................... at ...........................

This is to certify that the details of traffic routed other than

through BSNL as NLDO/ ILDO/ transit operator in respect of:

43

(a)inter circle calls (both originating and terminating) except

those originated from fixed networks but including calls

terminating in own network in other circles;

(b)international long distance calls (both incoming and

outgoing) except those originated from fixed networks; and

(c)intra circle calls (both originating and terminating) from

cellular/ WLL (M) to fixed networks and including calls

terminating in own network

during the above period are as under:

*** *** ***

B. Details of Traffic (in Minutes) through M/s Reliance

Infocomm Ltd NLDO & ILDO)

Call Type ...........

Circle

...........

Circle

..........

Circle

............

Circle

IInter

circle

outgoing

calls

IIInter

circle

incomin

g calls

IIIOutgoing

ILD calls

IVIncoming

ILD calls

*** *** ***

Appendix - D

Procedure for billing and recovery of ADC in respect of inter

circle cellular / WLL (M) originated calls, ISD calls (incoming

and outgoing both) and intra circle cellular (WLL(M) to fixed

networks routed other than other than through BSNL as

NLDO/ ILDO/ transit operator.

44

1.As per TRAI's IUC Regulation dated 6

th

January, 2005 for

such inter and intra circle calls that are routed through

the BSNL as either NLDO or transit operator, the ADC

amount is received directly by BSNL from the call

originating operator. For ILD calls routed through BSNL

as NLDO, it receives ADC from call originating operator in

case of outgoing calls and the ILD operator for the

incoming calls. However, BSNL has also to receive ADC

from cellular/ WLL(M) originating inter circle calls, the

originating ILD calls in cellular/ WLL (M) networks and

terminating ILD calls carried by other NLDO/ ILDO, or a

combination thereof for the ILD calls. In addition to

above BSNL has also to receive ADC from cellular/ WLL

(M) originating intra circle calls to fixed networks not

routed through BSNL…

(iii)NLD Interconnect Agreement between BSNL and

Reliance dated 1

st

November, 2002

Chapter – 1

Definitions

In this Agreement, words and expressions

will have the following meanings as are

respectively assigned to them unless the

contrary intention appears from the context:

“SHORT DISTANCE CHARGING AREA

(SDCA)”: means one of the several areas into

which a Long Distance Charging Area is

divided and declared as such for the purpose

of charging for long distance calls and within

which the local call charges and local

numbering scheme is applicable. SDCAs, with

a few exceptions, coincide with revenue tehsil

/ taluk.

45

Chapter 2

Technical Issues Pertaining to

Interconnection

2.1 Interconnectivity to BSNL Network

2.1.5 RIL shall terminate its traffic on to

the network of BSNL as mandated by TRAI

from time to time. RIL and BSNL shall deliver

all calls on each other’s network with CLI in

the terminating SDCA. Both parties reserve

the right to reject calls without CLI.

2.4 Numbering Plan

2.4.1 RIL shall be allocated carrier

selection code by the LICENSOR for dynamic

selection of carrier for long distance calls. All

calls for which dynamic carrier selection code

has been dialed shall be routed accordingly

subject to technical feasibility.

Chapter 6

Interconnection Charges

6.1 Interconnectivity to BSNL Network

6.1.1 Provision of links to interconnect

RIL’s network with BSNL’s network at the

technically feasible SDCC Tandem exchange

will be the responsibility of the RIL as provided

under Clause 2.1.2 and 2.1.3.

6.4 Access Charges

6.4.6 If BSNL detects that Incoming

International calls are being handed over or

46

have been made over to BSNL at any other

port which is not meant for carrying such

calls, BSNL shall be free to charge RIL

minimum access charge for Incoming

International calls as at clause 6.4.2 above for

all the calls recorded on these ports from the

date of provisioning of that POI or for the

preceding two months whichever is less apart

from taking other legal actions including

disconnection of POIs or temporary suspension

of the Interconnection Agreements. No

terminating calls other than International calls

shall be accepted from RIL without CLI. In

case of calls without CLI, termination charge

as per clause 6.4.2 above shall be charged

from RIL.

6.6.1 Access charges shall be billed by

BSNL based on bulk billing of traffic recorded

by BSNL at the point of interconnection. For

every STD/ ISD call carried by RIL and

accepted by BSNL at POI, a detailed billing

record wherever possible or bulk billing record

will be generated in the SDCC Tandem. The

RIL shall supply calling subscriber’s identity

for detailed billing purpose.

47

Findings

(i)Introduction

12. Telecommunication is all about transferring information

from one location to another. This includes telephone

conversations, television signals, computer files and other

types of data. To transfer the information, you need a channel

between the two locations. This may be a wire pair, radio

signal, optical fiber, etc. Telecommunication companies

receive payment for transferring their customer’s information,

while they themselves pay to establish and maintain the

channel.

(ii)Relevant technical terms used in the Interconnect

Agreement r/w the addenda

(a)Gateway Mobile Switching Centre (GMSC): It is a

special kind of MSC that is used to route calls outside

the mobile network. Whenever a call for a mobile

subscriber comes from outside the mobile network or

the subscriber wants to make a call to somebody

outside the mobile network, the call is routed through

48

GMSC. In short, it serves as an interconnection

between MSC and PSTN (network).

(b)PSTN: It means Public Switched Telephone Network.

The term ‘PSTN’ refers to inter-connection of switching

systems in the PSTN (Exchange). Switching network

refers to the component inside a switching system that

switches one circuit to another circuit.

(c)Point Of Interconnection (POI): It is a point at which

the GMSC of a mobile network of UASL and the

Gateway Switch of BSNL are inter-connected by a

facility of inter-connection seeker (Reliance in this case).

(d)Trunk Group: It consists of several trunks (lines)

provided as a group by the local telephone company or

any other carrier. Trunk group is a part of POI (see

clause 2.1.13).

(e)Unified Access Services: It means a

telecommunication service provided by a

telecommunication system for conveyance of messages

through wired or wireless telegraphy. The Unified

Access Services refer to transmission of voice or non-

49

voice messages over the network of the licensee

(Reliance in this case). It, however, does not cover

broadcasting of messages. However, the subscriber has

to be registered and authenticated at the network point

of registration and approved numbering plan shall be

applicable. Thus, UASP is the abbreviated term for the

expression “Unified Access Service Provider”.

(f)International Gateway: A Gateway is a network point

that acts as an entrance to another network.

Conceptually, it is the point of inter-connection (POI),

i.e., the point of entry for the international calls to the

telecom network of India. A POI is a mutually agreed

upon point of demarcation where the Exchange of traffic

between the two telecom networks takes place. In the

case of international calls traffic, i.e., inter-country

telecommunications, the POI is the International

Gateway. In this case, we are concerned with the

international gateway of BSNL. However, for intra-

country calls traffic, every local telecom network

provider (Reliance in this case) is supposed to set up a

50

local POI which acts as the entry point for all incoming

telecom traffic. The local POI has got to be under the

care and control of the local telecom provider for whose

network the local POI acts as an entry point. This local

POI is the location where details of all incoming landing

telecom traffic, namely, the CLI number, their

destination number, their time-stamp details, their

duration, etc. have to be logged for future accounting

and tracing requirements. Thus, we have two kinds of

POIs, namely, international POIs and local POIs.

Similarly, we also have two kinds of CLIs, namely, local

and international CLIs.

(g)Calling Line Identification (CLI): CLI means

information generated by the Network capability which

identifies and forwards the calling number through the

interconnected BSNL’s/ UASL’s network.

(h)Gateway Switch: It is a switch which has the capability

to perform Gateway functions like sending and

receiving signals, sending and receiving various types of

information to the other operators’ network in a multi-

51

operator environment such as operators’ identity,

charging area information, etc. as well as transportation

of CLI, generating call data records (CDRs) for an off

line billing system giving all necessary details of the call

for proper settlement of accounts in a multi-operator

environment and security monitoring functions.

(i)National Long Distance Service Operator (NLDO):

means the telecom operator who provides the required

digital capacity to carry long distance

telecommunication service within the scope of license

which may include various types of services such as

voice, data, fax, text, video and multimedia, etc.

(j)Short Distance Charging Centre (SDCC): It is an

Exchange in a Short Distance Charging Area declared

as such for the purpose of charging long distance trunk

calls as defined in the National Fundamental Plan.

(k)Long Distance Charging Centre (LDCC): It means a

Trunk Exchange in the Long Distance Charging Area

declared as such for the purposes of charging long

distance calls.

52

(l)TAX: It means Trunk Automatic Exchange.

(m)Billing: It is defined in Clause 6.2.1 of the

Interconnect Agreement. For every STD/ISD calls

originating from the network of the licensee (Reliance)

and accepted by BSNL, a detailed billing record is

generated in the LDCC Exchange. For this purpose the

subscriber’s identity shall be supplied by the licensee

(Reliance) for detailed billing purpose.

(n)Inter-connect Usage Charges (IUC): IUC is payable by

UASL (Reliance) to BSNL under the Interconnect

Agreement for the calls originating in the network of

UASL and which calls are in turn handed over to the

network of BSNL. IUC includes termination charge,

carriage charge, transit charge and access deficit charge

(ADC) as applicable.

(o)Access Deficit Charge (ADC): The Access Deficit

Charge is an amount given to an operator to

compensate for the difference between the actual cost of

providing a particular service and the mandated lower

tariff for providing the service to a class of subscribers,

53

usually rural. ADC is compensatory in the sense that

ADC is meant to subsidize the rural infrastructural

projects of BSNL by the private service providers who at

the relevant time did not cater to the rural areas. IUC

consisted of carriage, termination and access deficit

charges (see clause 6.4.1).

(iii)Obligations of the UASL Licensees under the

Agreement

13. For the sake of easy understanding, we need to discuss

the above terms in the Agreement in the light of international

call(s) coming to India and not vice-versa.

14. The basic underlying principle of clause 6.4.6 is that an

international call shall remain international right from the

point of origination to the point of termination.

15. At the outset one needs to ascertain the contractual

obligations of the UASL (Reliance in this case) under the

Agreement as modified by the addenda dated 28

th

February,

2006.

16. Interconnection agreement prescribes terms and

conditions under which two licensees or service providers

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interconnect their networks to allow their respective

subscribers to have seamless access to each other’s networks.

It is a binding contract that binds each contracting party with

respect to interconnection arrangements including

commercial, technical and operational. However, the scope

and content of each such contract may vary. Under the said

Agreement, IUC payments are divided into four heads: (i)

originating charges; (ii) carriage charges; (iii) termination

charges; and (iv) ADC payments. ADC payment, as a concept,

is a fee paid by cellular, UAS, national long distance and

international long distance subscribers. This payment is in

the nature of tax as no service is rendered in return. ADC

payments are to cross subsidize BSNL for developing its fixed

network in non-lucrative areas. The licensee(s) makes ADC

payments based on their adjusted gross revenues. These

payments are later on transferred to BSNL. An IUC charge is,

thus, a payment by one service provider to another for the use

of network elements to originate, transit or terminate calls.

BSNL receives ADC payments for international calls made to

fixed numbers. These payments are made by either national

55

long distance licensee(s) or international long distance

licensee(s) that collects them. BSNL receives ADC payments

for all international calls from cellular and limited mobility

numbers. These payments are collected by ILDOs and given to

BSNL. Similarly, ADC payments on calls from international

roaming subscribers are collected by host service providers

and paid to BSNL. ADC payments for international calls are

higher than similar payments for national long distance or

local calls. This has tempted some licensees to engage in

ingenious schemes to avoid making ADC payments. One such

scheme is masking. Call masking takes place when a licensee

deliberately alters the identity of an incoming international call

before handing it over to another service provider at an

interconnection point, i.e., POI. The international calling

party’s identity is obliterated (i.e. international CLI is wiped

out) and the said international call is made to appear as it

were from a domestic/ national number. This technique

enables evasion of ADC payments at enhanced rates for

international calls. Today, all private automated branch

exchanges (PBX) are computerized. It is important to note

56

that a Caller ID (CID) is a signal. Most subscribers have a

caller ID display unit at their residence to receiver caller ID

signals which also indicates the nature of the call – whether it

is local/ national or international. As stated, whenever a call

for a mobile subscriber comes from outside the mobile

network or vice-versa, the call is routed through a special kind

of gateway switch which is called as GMSC. It serves as an

interconnection between mobile switching centre and PSTN,

which is a network. However, it is at the POI (point of

interconnection) that the GMSC of the mobile network of UASL

gets interconnected to the GMSC of BSNL by a facility of the

interconnection seeker (which in this case happens to be

Reliance). Broadly speaking, we have two types of POI,

namely, international and local POI. Under the Agreement,

UASL agrees to ensure that its interconnect facilities delivered

at each POI conforms to the specified standards for

interconnection and that UASL shall be responsible to provide,

install, test, etc. all such interconnection facilities on its side

of POI. Therefore, every POI has two sides. Eg. in our case,

one side of POI is that of BSNL and the other side is that of

57

Reliance. The Calling Line Identification (CLI) means

information generated by the network capability which

identifies and forwards the calling number through the

interconnected BSNL’s network. Under clause 2.1.13, Trunk

Group is a part of POI. One must keep in mind that the above

aspects are not only technological, they are maintained for

billing and accounting purposes. They generate data(s) in the

form of CDRs and billing records in detail at the International

Gateway Exchange of ILDO (International POI), at the NLDO

Trunk Automatic Exchange of NLDO (National POI) and Local

Telephone Exchange of BSO (Local POI for our understanding).

At each stage, the billing record is generated so that if an

UASL is riding on the network of BSNL, the former has to pay

for the incoming international call in terms of duration, etc.

and even in the case of local calls or national calls which

includes the distance parameter. Under clause 2.1.13, the

fully mobile, limited mobile and fixed services network of UASL

shall be having separate POIs with BSNL, which shall be

treated separately for set up costs, port charges, etc. Under

clause 2.1.15.3.3, for the purpose of international call the

58

UASL shall handover the call to BSNL at the originating Long

Distance Charging Centre (i.e. LDCC TAX). Lastly, under

clause 6.4.7, all the required information shall be submitted in

the form of monthly certificate as prescribed in Schedule I

shall be submitted to BSNL by UASL. It will indicate details of

the traffic routed other than through BSNL as NLDO/ILDO in

respect of international long distance calls (both incoming and

outgoing). It also indicates procedure for billing and recovery

of ADC inter alia in respect of ISD calls (both incoming and

outgoing). This is relevant also because under clause 2.1.5.2

calls from fully mobile subscribers of other Telecom Service

Providers of the different service area (national roaming) or

Other Country (international roaming) have got to be handed

over by UASL to BSNL on separate trunk groups at the

Gateway TAX of BSNL of that service area. Under clause

2.1.9.2, no by pass of traffic shall be resorted to by any party

by delivering the traffic at any POI other than the specified POI

and in case unauthorized diversion in routing comes to notice,

BSNL shall be free to disconnect that POI in that area. Thus,

under the Agreement if UASL like Reliance receives an

59

international call at its exchange, its primary duty will be

under the contract to identify it and to forward it to the

appropriate trunk group of BSNL. Now, as alleged if the

international call(s) falls on the local POI of Reliance, the latter

is obliged under the contract to identify the call, whether it is

local or national or international, and accordingly forwards it

to the appropriate trunk group of BSNL. For the above

reasons, it is also stipulated in clause 2.9.1 (which deals with

network integrity and screening) that it shall be the duty of the

UASL to prevent wrong transmission. In fact, under clauses

2.9.2 and 2.9.3 the establishment of proper screening function

at its Gateway shall be the obligation of the UASL so as to

detect signals outside the inter-working specification of TEC.

As a corollary, clause 6.4.6(a) inter alia provides that calls on

non-specified trunk groups (like international calls landing on

the local POIs), if detected, for which the IUC rate applicable is

higher (for example, for international calls the IUC rate is

much higher than IUC rates for local/national calls), then the

higher IUC rate would be applicable for such unauthorized

calls. In such a case, BSNL would be free to charge the UASL

60

the higher IUC for all calls recorded on these POIs from the

date of provisioning of that POI [at Vadodara in this case] or

for preceding two months, whichever is less. Similarly, under

clause 6.4.6(b), if the UASL masks or disguises the

international call as local call that UASL will have to pay the

higher IUC rate meant for international calls to BSNL from the

date of provisioning of that POI or for preceding two months,

whichever is less. Thus, if there is masking of CLI for the calls

generated and forwarded from the telephone of UASL, then it

would be the primary duty of that UASL to prevent such

misuse and failing which BSNL would be free to invoke clause

6.4.6. It is important to note that clause 6.4.6 restricts the

charge to last two preceding months. The charge under clause

6.4.6 is not dependent upon number of calls and even the

period of misuse of services is restricted to last two preceding

months. Thus, when an international call, as in this case,

lands on the local POI of the UASL it knows the nature of the

call. There is a difference between an international CLI and

the local/national CLI. The billing record of that POI indicates

the nature of the call. It is the contractual obligation of the

61

UASL to maintain the billing records in detail (including the

CDR and the monthly certificate in the prescribed form).

Further, when the international call(s) lands at the local POI of

the UASL, the incoming traffic bypasses the authorized route –

international gateway exchange of BSNL, the NLDO trunk

exchange of NLDO and the local telephone exchange of BSO.

Thus, the defaulting UASL fails to maintain the billing records

(including CDRs at each stage). This results in concealment of

details which results in reduced payment of IUC charges by

the defaulting UASL, thus, giving him the unauthorized benefit

of paying less ADC which was the major component of IUC at

the relevant time and which reduces the cost of providing

services which in turn results in destroying the “principle of

level playing” which is so important in the regulatory regime

because pricing of the services in the international market

plays an important role. The above modus operandi enables

the defaulting UASL to sell his product (services) abroad at a

rate which may be less as compared to the rates charged by

BSNL (who is also a Competitor Service Provider). The

unauthorized call(s) gets for the defaulting UASL not only more

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profits by cost reduction, he also gets more business at the

rates below the competitive rates. Same is the position in case

of masking of international calls as local calls. In this

connection, it is important to note that when an international

call(s) lands on the local POI of the UASL, the latter knows

from the display mechanism at his end (like the subscriber at

his end) that call bears the international CLI and that is the

reason for masking. Otherwise one needs no masking of the

CLI. In both the cases i.e. under clauses 6.4.6(a) and 6.4.6(b)

the same economic and financial consequences flows and that

is the reason why clause 6.4.6 provides for reasonable pre-

estimate of damage. There is one more reason. It is not

possible to trace each such unauthorized call, particularly its

nature, as to from which place it originated and if it was

possible the cost of tracing such call(s) may be much more

than actual damage, if ascertainable, and therefore, a “rough

and ready measure” is provided in clause 6.4.6 which measure

is a reasonable pre-estimate of damage.

63

(iv)Whether clause 6.4.6 represents penalty or pre-

estimate of reasonable compensation for the loss?

17.According to Chitty on Contracts “whether a provision is

to be treated as a penalty is a matter of construction to be

resolved by asking whether at the time the contract was

entered into the predominant contractual function of the

provision was to deter a party from breaking the contract or to

compensate the innocent party for breach. The question to be

always asked is whether the alleged penalty clause can pass

muster as a genuine pre-estimate of loss”. (See para 26-126 of

Chitty on Contracts, 30

th

edition) The fact that damage is

difficult to assess with precision strengthens the presumption

that a sum agreed between the parties represents a genuine

attempt to estimate it and to overcome the difficulties of proof

at the trial. According to the Law of Contract by G.H. Treitel

(10

th

edition), a clause is penal if it provides for “a payment

stipulated as in terrorem of the offending party to force him to

perform the contract. If, on the other hand, the clause is an

attempt to estimate in advance the loss which will result from

the breach, it is a liquidated damages clause. The question

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whether a clause is penal or pre-estimate of damages depends

on its construction and on the surrounding circumstances at

the time of entering into the contract”. Lastly, the fact that a

sum of money is payable on breach of contract is described by

the contract as “penalty” or “liquidated damages” is relevant

but not decisive as to categorization.

18. Applying the above tests to facts of this case, we find that

the Interconnect Agreement in question should be viewed in

the context of the regulatory regime. In this case, we are

concerned with telecom as a service. This is the most

important circumstance to be considered as one of the main

surrounding circumstances to the Interconnect Agreement.

Under the Interconnect Agreement, the UASL is obliged to

maintain the integrity of its exchange/POI. It is important to

note that each service provider, including BSNL, is a market

player/stakeholder. Each UASL is entitled to a level playing

field. The nature of the call, be it local or national or

international, as indicated by corresponding CLI, is the basis

for the levy of IUC (including ADC). If by wrong routing of calls

or by masking the cost of providing services is reduced, the

65

concerned operator gets an undue advantage not only in the

Indian market over other competing operators but also in the

international market. Billing is one of the most vital aspects of

this case. With technology, an international call could fall on

the local POI but then the concerned operator is responsible

for the identity of the call. In the case of calls which are

correctly routed, the display screen with the subscriber clearly

indicates whether the call bears international or local/national

CLI. Similarly, when the Gateway Bypass Scam takes place

and the international call(s) lands on the local POI which is

not forwarded to the specified trunk group/POI, there is not

only bypassing of International Gateway/ POI and National

POI but also evasion of duty to maintain billing records in

detail at each POIs.

19.All this results in payment of IUC at a lower rate. All this

leads to reduced cost for the defaulting UASL which provides

not only increase in its profit but also gives it an advantage in

international market vis-a-vis other competitors (including

BSNL) because the defaulting UASL can easily price its

product in the international market at a lower rate and in that

66

sense loss is caused to BSNL. Similarly, as stated above,

masking takes place as international CLI can easily be

identified even when an international call lands on the local

POI of the UASL, hence, the defaulting UASL resorts to

masking. Hence, an international call coming from the

masked number alone cannot be taken into account. Thus, in

our view, clauses 6.4.6(a) and 6.4.6(b) provide for pre-estimate

of damages. It is so also for one more reason. The clause, as

stated above, restricts the higher IUC rate made applicable for

calls only for last two preceding months and not for last three

years or the longer period. These time lines is an indicia

showing that clause 6.4.6 is not penal but a pre-estimate of

reasonable compensation for the loss foreseen at the time of

entering into the agreement. Lastly, it may be noted that

liquidated damages serve the useful purpose of avoiding

litigation and promoting commercial certainty and, therefore,

the court should not be astute to categorize as penalties the

clauses described as liquidated damages. This principle is

relevant to regulatory regimes. It is important to bear in mind

that while categorizing damages as “penal” or “liquidated

67

damages”, one must keep in mind the concept of pricing of

these contracts and the level playing field provided to the

operators because it is on costing and pricing that the loss to

BSNL is measured and, therefore, all calls during the relevant

period have to be seen. [See Communications Law in India by

Vikram Raghavan at page 639]. Since clause 6.4.6 represents

pre-estimate of reasonable compensation, Section 74 of the

Contract Act is not violated. Thus, it is not necessary to

discuss various judgments of this Court under Section 74 of

the Contract Act.

Conclusion

20. We need to clarify that in this case our judgment is

restricted only to the interpretation of clause 6.4.6 of the

Interconnect Agreement read with the Addenda. As stated

above, we have held that clause 6.4.6 represents pre-estimate

of reasonable compensation for the loss suffered by BSNL.

Thus, we set aside the impugned judgment and remit the

matter to TDSAT to decide the matter de novo in accordance

with the law laid down hereinabove. However, we need to

68

highlight one aspect. In the letter dated 13

th

October, 2004

addressed by BSNL to Reliance, it has been alleged that the

calls have landed at the POIs of M/s. Reliance Infocomm. Ltd.

at Karellbaug, Panigate, Alkapuri, Makarpura, Padra, Dabhoi

and Miyagam exchanges in Vadodara SSA. The said letter

highlights one more important aspect. It is alleged that the

number 2813041000 was an unallocated number with

Reliance during the relevant period. This aspect needs to be

examined by TDSAT on facts.

21. Accordingly, the civil appeal is allowed with no order as

to costs.

…….…..……………………… .CJI

(S. H. Kapadia)

………………………..…………. .J.

(K.S. Panicker Radhakrishnan)

……..……………………………. .J.

(Swatanter Kumar)

New Delhi;

November 29, 2010

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