The Briefing | Nikhil Kanekal :live Mint:Fri, Feb 24 2012. 12:04 AM IST
Most events are easy to explain with the benefit of hindsight—especially those like the 2G spectrum scandal that has laid low the telecom industry in the world’s fastest growing market for mobile phones. Why did things come to such a pass that the Supreme Court felt compelled to cancel 122 telecom licences and order the public auction of all natural resources that are allocated in the future?
Looking back, three factors played a role: questionable due diligence by foreign investors, phone companies blaming one another during the hearings and the government telling the court it couldn’t defend its telecom policy nor explain why the spectrum it allocated to telecom companies in 2008 hadn’t been auctioned.
The intricacies of the governmental functioning figured in the Supreme Court’s ruling, but few questions have been publicly asked as to what went on in the boardrooms of the companies that decided to pump billions of dollars into the telecom sector of an emerging market without adequately weighing potential risks. Four foreign companies invested a total of about Rs.24,600 crore ($5 billion) into joint ventures with Indian partners.
Corporate lawyers often talk about how painful due diligence can be. That’s because it involves delving into the history of a potential partner to see that it has been compliant with all laws possible—and this includes securing regulatory approvals and licences in a transparent, legitimate fashion.
If due diligence was flawed, who is to blame? Were the advisers on these deals at fault for not warning their clients, or was it a case of bad decisions based on sound advice? “We don’t want to talk about this” was the typical response to calls made to advisers and in-house regulatory officers for answers to those questions.
The answers, presumably, would be embarrassing for either the clients or their advisers. And everyone now needs their lawyers more than ever for the messy tussles that lie ahead.
Blame game
“If there is a war, then everybody gets hit by shrapnel.” – Attorney general Goolam E. Vahanvati, on behalf of the department of telecommunications (DoT) to the Supreme Court on 3 March, 2011.
Was the “every man for himself” legal strategy adopted by counsel before the court the right way to have gone about it? Should the telcos have blamed the Telecom Regulatory Authority of India? The blame game was all played out in front of the same bench that was monitoring the Central Bureau of Investigation’s (CBI) probe into the spectrum scandal—justices G.S. Singhvi and A.K. Ganguly.
Through the arguments, it became clear that telecom licences were handed out through a patently unfair process that smacked of favouritism and malfeasance. The ruling restated this fact. Both public interest petitioners and lawyers for the telecom companies provided ample grounds for the licences to be struck down.
Harish Salve, who appeared for some of the 11 telcos in the case, said the court should cancel all the licences issued in 2007-08. But he said this could only be done on the condition that the court cancels all licences issued after 2001 as well. Salve explained that no licences since 2001 had been auctioned and, therefore, using the same rationale, they should also be cancelled.
The court eventually discarded Salve’s argument, saying it “does not deserve acceptance” because those who got licences between 2001 and 2007 were not parties to the present case and “the legality of the licences granted to them has not been questioned before this court”.
Several other senior advocates who appeared before the bench couldn’t defend their clients’ actions.
Abandoning policy
DoT, represented by attorney general Vahanvati, did not defend its first-come-first-served policy of allocating licences.
“I’m here to tell about the larger policy issues. I’m going to be very careful not to join issue on the decision-making process,” Vahanvati said.
Supreme Court bench: “Who will address the court for the DoT on the decision-making process?”
Vahanvati: “I don’t want to do it. There could be larger implications. If I defend it, then it looks like we are defending what is being investigated (by CBI). If I don’t (defend it), then it appears that what was done was wrong. In these circumstances it is hazardous for me to say anything.”
And with that, the government left the issue in the hands of the court.
Supreme Court bench: “The AG (attorney general) only addressed us on the history of the policy. He did not justify the failure to auction. Failure to auction is per se arbitrary. He did not justify the decision-making process.”
With this as background, can the government really characterize the ruling on auctioning natural resources as judicial overreach?
The judgement pre-empted this question and answered it quite firmly: “When it is clearly demonstrated that the policy framed by the state or its agency/instrumentality and/or its implementation is contrary to public interest or is violative of the constitutional principles, it is the duty of the court to exercise its jurisdiction in larger public interest and reject the stock plea of the state that the scope of judicial review should not be exceeded beyond the recognized parameters.”
