Holding

Clause 6.4.6 is a valid pre‑estimate of reasonable compensation for loss, not a penal provision.

Summary

BSNL alleged that Reliance Communications had routed international calls as local calls, thereby evading higher Interconnect Usage Charges (IUC) and Access Deficit Charges (ADC). BSNL invoked clause 6.4.6 of their inter‑connect agreement to levy a large sum as a "penalty". The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) held the clause penal and set aside the demand. On appeal, the Supreme Court examined whether clause 6.4.6 is a penalty or a pre‑estimate of damages. Relying on contract law principles and the regulatory context, the Court held that the clause is a genuine liquidated‑damages provision, not a penalty, and therefore enforceable under Section 74 of the Contract Act. The impugned TDSAT order was set aside and the matter remitted to TDSAT for a fresh determination. The appeal was allowed.

Issues considered

The nature of clause 6.4.6 of the Inter‑connect Agreement – whether it constitutes a penalty or a pre‑estimate of damages.
Whether the amount levied by BSNL under clause 6.4.6 is enforceable under Section 74 of the Indian Contract Act.
The contractual obligations of a Unified Access Service Licence (UASL) holder regarding call routing, CLI integrity and billing.

Legislation cited

Indian Contract Act, 1872s. Section 74
Indian Telegraph Act, 1885s. Section 4(1)
Telecom Regulatory Authority of India (IUC) Regulationss. Regulation dated 6 January 2005

Subjects

inter‑connect agreementliquidated damagespenalty clausetelecommunications lawcall maskingAccess Deficit ChargeClause 6.4.6Regulatory compliancebreach of contract

Judgment

[2010) 15 (ADDL.) S.C.R. 705

B.S.N.L. A
v.
RELIANCE COMMUNICATION LTD.
'E (Civil Appeal No. 6706 of 2010)

NOVEMBER 29, 2010
B
[S.H. KAPADIA, CJI., K.S. PANICKER
RADHAKRISHNAN AND SWATANTER KUMAR, JJ.]

Telecommunication:
c
Inter-connect agreement - Clause 6. 4. 6 - Interpretation
of - Interconnect agreement between BSNL and Reliance
Company - Wrongly routed calls - Levy of penalty under
Clause 6. 4. 6 - Clause 6. 4. 6, penal or pre-estimate of
damages - Held: Clause 6.4. 6 is not penal but a pre-estimate 0
of reasonable compensation for the loss foreseen at the time
· of entering into the agreement Under the Interconnect
Agreement, the Unified Access Service Licence (UASL)-
Reliance Company is obliged to maintain the integrity of its
exchange/Point Of Interconnection (POI) - Nature of the call, E
be it local or national or international, as indicated by
corresponding Calling Line Identification (CU), is the basis
for the levy of Interconnection Usage Charges {including
Access Deficit Charge (ADC)] - When Gateway Bypass Scam
takes place and international cal/(s) lands on the local POI
which is not forwarded to the specified trunk group/POI, there F
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 - All this results in payment of
Interconnect Usage Charges (/UC) at a lower rate and also
leads to reduced cost for the defaulting UASL - Thus, the G
defaulting UASL resorts to masking - Also, clause 6. 4. 6
restricts the higher /UC rate made applicable for calls only
for last two preceding months and not for last three years or

705 H
706 SUPREME COURT REPORTS (2010] 15 (ADDL.) S.C R

A longer period - Thus, order of the Tribunal that demand of
BSNL under clause 6.4.6, is penal in nature and thus, set
aside the impugned demand, set aside - Matter remitted back
to the Tribunal to decide the matter de novo in accordance
with law.
B Inter-connect agreement - Obligations of Unified Access
Service Licence (UASL)-holders under - Explained.

The respondents.Reliance Company entered into
BSO lnter-r..>nnect Agreement with the Department of
C Telecommunications (now BSNL) for inter-connection of
their networks within their respective circles. The
Agreement dealt with local calls, national long distance
calls and international long distance calls. The calls of
each trunk group are connected through dedicated ports
D and are chargeable at rates different from other trunk
groups. The charges are levied by BSNL on Reliance at
the rate of the existing call charges payable for that
particular period depending on the number of calls
handled by a particular port. The BSO regime was
E replaced and the respondent was granted the Unified
Access Service Licence (UASL). BSNL received several
complaints from its subscribers in Gujarat that they were
receiving International Long Distance Calls (ILD) calls
with local Calling Line Identification (CU) Numbers. BSNL
F raised its bill on Reliance (RIL) levying "penalty" with
interest amounting to Rs. 9,89,68,892/- on the basis that
international calls were delivered on its network as local/
national calls from a particular number (02813041000),
belonging to a particular subscriber of the network of
Reliance and thus, wrongly routed/tampered calls. The
G Tribunal set aside the impugned demand holding 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
H
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 707

to be levied on such calls at the highest applicable IUC; A
that BSNL failed to draw distinction between
unauthorized calls and calls without/modified CLI in the
Impugned demand; that no opportunity of hearing was
given to Reliance; and that the amount of penalty was not
commensurate with actual damage suffered by BSNL. B
Therefore, the appellants filed the instant appeal.

Allowing the appeal, the Court

HELD: 1.1 Inter-connection agreement prescribes
terms and conditions under which two licensees or C
service providers inter-connect 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 inter-connection
arrangements including commercial, technical and D
operational. however, the scope and content of each
such contract may vary. Under the said Agreement, Inter-
connect Usage Charges (IUC) payments are divided into
four heads: (i) originating charges; (ii) carriage charges;
(iii) termination charges; and (iv) Access Deficit Charge E
payments. ADC payment, as a concept, is a fee paid by
cellular, Unified Access Services, 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 F
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 G
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 long distance licensee(s) or international long
distance licensee(s) that collects them. BSNL receives H
708 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A 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.
B 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
~chemes ·o a"oid making ADC payments. One such
.;chem£ ::> rn::isking. Call masking takes place when a
c licensee deliberately alters the identity of an incoming
international call before handing it over to another service
provider at an inter-connection point, i.e., POI. The
international calling party's identity is obliterated (i.e.
international Calling Line Identification is wiped out) and
the said international call is made to appear as it were
0
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. A Caller ID (CID) is
E a signal. Most subscribers have a caller ID display unit
at their residence to receive caller ID signals which also
indicates the nature of the call - whether it is local/
national or international. 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
F gateway switch which is called as Gateway Mobile
Switching Centre. It serves as an interconnection
between mobile switching centre and Public Switched
Telephone Nework which is a network. However, it is at
the POI (point of interconnection) that the GMSC of the
G mobile network of Unified Access Service Licence
(UASL) gets interconnected to the GMSC of BSNL by a
facility of the interconnection seeker (which is.Reliance).
There are two types of POI, namely, international and
local POI. Under the Agreement, UASL agrees to ensure
H that its interconnect facilities delivered at each POI
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 709

conforms to the specified standards for interconnection A
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. The instant case,
one side of POI is that of .BSNL and the other side is that
of Reliance. [Para 16] [753-F-H; 754-A-H; 755-A-C] B

1.2 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, C
Trunk Group is a part of POI. The said aspects are not
only technologi~al, 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) D
and Local Telephone Exchange of BSO (Local POI for the
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 E
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. F
Under clause 2.1.15.3.3, ~or the purpose of international
call, the UASL shall han1dover the call to BSNL at the
originating Long Distande Charging Centre (i.e. LDCC
TAX). Under clause 6.4.7, all the required information shall
be submitted in the form of monthly certificate as G
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 H
710 SUPREME COURT REPORTS (2010] 15 (ADDL.) S C.R.

A alia in respect of ISO 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
B 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 POl and in case unauthorized diversion in
c 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 international call at its
exchange, its primary duty would be under the contract
to identify it and to forward it to the appropriate trunk
[l group of BSNL. 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 forward it to the appropriate
trunk group of BSNL. It is also stipulated in clause 2.9.1
E . (which dealr 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 ,
F corollary, clause 6.4.G(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 then the higher IUC rate would
be applicable for such unauthorized calls. In such a case,
G BSNL would be free to charge the UASL the higher IUC
for all calls recorded on the~e POis from the date of
provisioning of that POI [at Vadodara in the instant case]
or for preceding two months, whi~chever is less. Similarly,
under clause 6.4.6(b), if the UASL ,,..a!"l(s or disguises the
H international call as tr-cal call that t.. 1....SL will have .... pay
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 711

the higher IUC rate meant for international calls to BSNL A
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 B
BSNL would be free to invoke clause 6.4.6. [Para 16) (755-
D-H; 756-A-H; 757-A-B]

1.3 Clause 6.4.6 restricts the charge co Ir ~t two
preceding months. The charge uncler clause 6.4.v Is not
dependent upon number of calls and even the period of C
misuse of servicei:. is restricted to last two preceding
months. Thus, when an international call, 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 D
the nature of the call. It is the contractual obligation of the
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 E
authorized route - international gateway exchange of
BSNL, the NLDO trunk exchange of NLDO and the local
telephone exchange of 850. Thus, the defaulting UASL
fails to maintain the billing records (including CDRs at
.. each stage). This results in concealment of details which F
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 G
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 H
712 SUPREME COURT REPORTS [201 OJ 15 (ADDL.) S.C.R.

A 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 profits by cost reduction, he also gets more
business at the· rates below the competitive rates. Same
s is the position in case of masking of international calls
as local calls. 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
c 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.~ provides for
reasonable pre-estimate of damage. It is not possible to
I) 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
E measure is a reasonable pre-estimate of damage. [Para
.. 16) [757-C-H; 758-A-D]

2.1 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
. F estimate it and to overcome the difficulties of proof at the
trial. 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
G which would result from the breach, it is a liquidated
damages clause. The question 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. The fact that a sum of money
H is payable on breach of contract is described by the
I
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 713

contract as 'penalty' or 'liquidated damages' is relevant A
but not decisive as to categorization. [Para 17) [758-G-H;
759-A-B]
Chitty on Contracts 30th Edn., para 26-126; Law of
_Contract by G.H. Treitel 10th edition - referred to. 8
2.2 The Interconnect Agreement should be viewed in
the context of the regulatory regime. Telecom as a service,
is the most important circumstance to be considered as
one of the main surrounding circumstances to the
Interconnect Agreement. Under the Interconnect C
Agreement, the UASL is obliged to maintain the integrity
0
of its exchange/POI. Each service provider, inclu ding
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 D
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
concerned operator gets an undue advantage not only
in the Indian market over other competing operators but E
also in the international market. Billing is one of the most
vital aspects of the instant 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 F
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 G
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. [Para 18) [759-A-H]
2.3 All this results in payment of IUC at a lower rate
as also leads to reduced cost for the defaulting UASL H
I . t
714 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A 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 sense loss
13 is caused to BSNL. Similarly, masking takes place as
international CLI can easily be identified even when an
international call lands on the local POI of the UASL, thus,
the defaulting UASL resorts to masking. Thus, an
international call coming from the masked number alone
C cannot be taken into account. Thus, clauses 6.4.6(a) and
6.4.6(b) provide for pre-estimate of damages. [Para 19]
[760-A-C]

3.4 The clause 6.4.6 (a) and 6.4.6 (b) restricts the
higher IUC rate made applicable for calls only for last two
D 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. The liquidated damages
E 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. While categorizing
F damages as 'penal' or 'liquidated 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
G period have to be seen. Since clause 6.4.6 represents pre-
estimate of reasonable compensation, Section 74 of the
Contract Act is not violated. [Para 19] [760-0-H]

Communications Law in India by Vikram Raghavan p
639 - referred to.
H
8.$.N.L. v. RELIANCE COMMUNICATION LTD. 715

3.4 It is clarified that the judgment is restricted only A
to the interpretation of clause 6.4.6 of the Interconnect
Agreement read with the Addenda. The clause 6.4.6
represents pre-estimate of reasonable compensation for
the loss suffered by BSNL. Thus, the impugned judgment
is set aside and the matter is remitted to TDSAT to decide B
the rriatter de novo in accordance with the law laid down.
However, it is highlighted that in the letter dated 13th
October, 2004 addressed by BSNL to Reliance 1 it has
been alleged that the calls have landed at the POis of M/
s. Reliance lnfocomm. Ltd. at Karellbaug, Panigate, c
Alkapuri, Makarpura, Padra, Dabhoi and Miyagam
exchanges in Vadodara SSA. Also, 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. [Para 20] [761-A-D]
D
Fateh Chand v. Balkishan Das (1964) 1 SCR 515;
Bharat Sanchar Nigam Limited v. Motorola India Private
Limited (2009) 2 SCC 337; Mau/a Bux v. Union of India
(1969) 2 SCC 554; Union of India v. Raman Iron Foundry
(1974) 2 sec 231 - referred to. E

Case Law Reference:
(1964) 1 SCR 515 Referred to Para 10
(2009) 2 sec 337 Referred to: Para 10 F
(1969) 2 sec 554 Referred to. Para 10
(1974) 2 sec 231 Referred to. Para 10

CIVIL APPELLATE JURISDICTION : Civil Appeal No. G
6706 of 201 o.

From the Judgment & Order dated 24.05.2010 of the
learned Telecom Disputes Settlement and Appellate Tribunal
at New Delhi.
716 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A Gopal Subramaniam, SG, C.S. Vaidyanathan, Ramji
Srinivasan, Pratibha M. Singh, Tejveer Singh Bhati, Gaurav
Sharma, Abhinav Mukerji, Surbhi Mehta, Tanmay Mehta, Akhil
Sibal, Manali Singhal, Santosh Sachin, Aakarsh Kamra, Abhijat
P. Medh, Mansoor Ali Shokat, Apoorva Mishra, Ramesh Kumar
s Pukharbham, S. Ganesh, Navin Chawla, Ruby Ahuja, Manu
Agarwal, Jatin Mongia, Raunak Dhillon, Manik Karanjawala (for
M. Karajawala and Co.) appearing parties.

The Judgment of the Court was delivered by

C S.H. KAPADIA, CJI 1. Whether clause 6.4.6 of the
Interconnect Agreement between Bharat Sanchar Nigam
Limited (BSNL) and M/s. Reliance lnfocomm Limited is penal
or a pre-estimate of damages is the question which arises for
determination in this civil appeal?
D
Facts

2. bn 18th March, 1&97, Reliance had entered into BSO -
Interconnect Agreement with Department of
Telecommunications (DoT) for interconnection of their networks
E 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
F 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 Li.cence on 21st
September, 2004 with effect from 14th November, 2003. By an
G addenda dated 28th February, 2006, the agreement was
formally amended with retrospective effect from 14th
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
H dedicated ports and are chargeable at rates different from other .
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 717
[S.H. KAPADIA, CJI.]
trunk groups. Hence, depending on the number of calls handled A
by a particular port, charges are levied by BSNL on Reliance,
at the rate o(the existing call charges payable for that particular
trunk group.

3. On ,24th June, 2003, the DoT issued a circular 8
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 28th January, 2004, the above
circular of DoT coupled with IUC Regulations dated 29th C
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 D
made its own enquiries by calling the local CLI number, i.e.,
0281-3041000. This was on 5th October, 2004, 6th October,
2004 and 7th October, 2004. Each time the number was called
the response from the other end was that the number did not
exist. Therefore, on 8th October, 2004, BSNL reported the E
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., Mis. Raj Enterprises (who was given
60 calls circuits). The series of numbers allotted to Raj
1

1
F
Enterpri~es was from 2813041000 - 2813041199, i.e., 200
numbersr

5. dn 13th October, 2004, BSNL gave notice to Reliance
saying tfrlat Reliance is having POis at various Exchanges in
Vadodra; that on monitoring incoming traffic to BSNL as G
indicated in CDRs at the above POis, it was found that there
were numerous calls with CU as 281 3041000; that, such calls
have been received from 4th 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. H
(
718 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A 5.65 per minute is the rate of incoming ISO calls at TAX POI of
Reliance (the word 'TAX' stands for Trunk Automatic Exchange).

6. On 25th October, 2004, BSNL issues its circular to all
its officers by which continuation of unauthorized diversion in
8 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. 16th September, 2004, it is found that.
international calls have been delivered on the local POI of
C 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 21st March, 2005, BSNL raised its bill on Reliance
D (RIL) levying "penalty" of Rs. 9,17,27,746 with interest from 15th
October, 2004 to 15th 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 21st March, 2005
superseded the provisional bill dated 15th October, 2004
E raised by the Vadodra Unit of BSNL for Rs. 6.89 er. 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
F 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 Clls were
tampered. Ultimately, after detailed correspondence between
BSNL and Reliance, petition No. 275 of 2009 was filed by
G 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
H in case of such detection charges were to be levied on such
I

£:45.N.L. v. RELIANCE COMMUNICATION LTD. 719
[S.H. KAPADIA, CJI.]
calls at the ~ighest applicable IUC; that BSNL was under an A
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. B
Accordingly, the impugned demand was set aside. Aggrieved
by the impugned judgment of TDSAT dated 24th May, 2010,
BSNL has come to this Court by this civil appeal.

Submissions
c
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 D
liquidated damages would not apply because such distinction
applies only to sums payable on breach of the contract and not
whe11 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 E
telecommunication seNices which is capital intensive venture
and which requires seamless and uninterrupted seNice. A
disruption in such seNices 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 F
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 decipher which call is genuine and G
which call is without CLl/tampered CLI. Thus, clause 6.4.6
should be interpreted against the background knowledge·
referred to above and, tf 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
H
'720 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A 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
B 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.
c 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 contract. Lastly,
according to the learned counsel where a contract prescribes
D 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
E 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.

F 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 n~ dispute :
between the parties regarding the existence of the grey market
G 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 submitted
by BSNL. Learned counsel also placed reliance on the
, H statistical data in support of his above contention. The learned -
•
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 721
[S.H. KAPADIA, CJI.]
counsel has also relied upon directions dated 25.10.2004 A
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 ther .said clause is attracted in cases of B
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
··pnscrupulous subscriber and not to Reliance, clause 6.4.6
'cannot be invoked. In other words, according to the learned c
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 9perator. Learned senior
counsel further submitted that the contention of BSNL regarding 0
"strict civil liability" is entirely misplaced as BSNL does not
possess any statutory power to impose such liability. 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 E
licen~e; 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 F
provision insisted upon by BSNL. That, what BSNL can recover
is either consideration for services rendered by their
interconnection pr compensatory damages in case -of breach
of any of the clauses of the said Agreement. This is because
the Contract Ad does not contemplate any other amount being G
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 H
I
722 SUPREME COURT REPORTS [2010) 15 (ADDL.) S.C.R.

A in case of breach of the interconnection 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
B learned counsel clausL 6.4.6 in the Interconnect Agreement
confers only a contractual right. BSNL, according to the learned
counsel, is '1either the sovereign exercising legislative or
execuhe 0· police powi:rs nor is BSNL a regulator. It is not
vested with any powers to impose any penalty for breach of
c 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
0
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 recognized and enforced by courts
E 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.
F 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
G 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
·H remedy for breach, in addition to the rights that BSNL has for
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 723
[S.H. KAPADIA, CJI.]
disconnection of POI or temporary suspension of Interconnect A
Agreement for misuse. Thus, sub-clauses (a) and (b) and (d)
can be invoked only in case of a breach of the term requiring
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 B
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 c
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
0
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 E
counsel, will be ex facie 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 F
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. G
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 H
724 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R..

A 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
B c;lamage, 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 te"ms of sectioH 74 when a contract is breached,
if a sum is named in the contract as the amount to be paid in
c 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
0
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 _
E 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
connection learned senior counsel has placed reliance on the
F judgments, Fateh Chand v. Balkishan Das [(1964) 1 SCR 515];
Bharat Sanchar Nigam Limited v. Motorola India Private
Limited [(2009) 2 SCC 337]; Mau/a Bux v. Union of India
[(1969) 2 SCC 554] and Union of India v. Raman Iron Foundry
[(1974) 2 sec 231]. According to the learned counsel clause
G 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
H a particular number (02813041000), belonging to a particular
. B.~.N.L. v. RELIANCE COMMUNICATION LTD. 725
. [S.H. KAPADIA, CJI.]
subscriber (Raj Enterprises), of the network of Reliance and are A
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 . B
seeks to charge for not only all calls delivered from said number
at the highest possible IUC rates, but, additionally seeks to
charge at the highest ra!~- 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 c
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
0
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 E
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 by clause 6.4.6 for all calls F
receiv~d 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 G
October 2004. However, the total number of calls oh 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
'
H
726 SUPREME COURT REPORTS (2010] 15 (ADDL.) S.C.R.

A 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
B 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 tampering of CLI would amount
c 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
0
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
E 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
F 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 arrangements made between the parties during
the intervening period which included ICU charges. That, the
G 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
I . I'

H
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 727
[S.H. KAPADIA, CJI.]
did not however contemplate charges for local/national call at A
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 B
excluded from retrospective operation". Learned counsel
submitted that in any event such purported retrospective
application of a penal provi1'.ion such as clause 6.4.6 violates
Article 20(1) of the Constitution. It is submitted that BSNL could
not have v.alidated the bills issued illegally in 2004 on the basis c
of the provisions introduced in the lnterconnecfAgreement
subsequently in 2006 when clause 6.4.6 was not 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 D.
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 oot hav~ 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 E
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 F
(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 G
the provisions of the Interconnect Agreement between the
parties. For the afore-stated reasons, learned counsel
submitted that there was no merit in the civil appeal filed by
BJ)NL 'and the same needs to be dismissed.
H
728 SUPREM.E COURT REPORTS [2010] 15 (ADDL) S.C.R

A Relevant provisions of:

11.(i) Interconnect Agreement dated 18th March, 1997

2.4 Numbering Plan

B 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
c 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
D 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
E
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
F
Interconnection Charges
6.1 Interconnectivity to DOT Network

6.1.1 Provision of links to interconnect LICENSEE's
G 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/ ISO call originating· from the
H
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 729
[S.H. KAPADIA, CJI.]

LICENSEE's network and accepte d by DoT, a detailed A
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.
B
6.4 Ac,cess 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 C
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 D
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 E
bill the LICENSEE on monthly basis as ISO Access charge
at a rate 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. F

(ii) Addenda to interconnect agreement after migration
dated 28th February, 2006

Whereas M/s Reliance lnfocomm Limited (previously G
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
H
730 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A network with the network of BSNL in Gujarat Circle
Service Area.

Whereas the President of India granted to M/s. Reliance
lnfocomm Limited [hereinafter called the UASL (previously
called as LICENSEE)] a License No. 17-6/95-BS-ll/
8
GUJARAT on 18th 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.
c AND whereas the UASL has, upon permission of Licensor,
migrated to Unified Access Service License regime on
14th November 2003 for above stated Service Area,
whereupon the said license agreement was amended and
revised on 21st September 2004 with effect from 14th
D November 2003 on the terms and conditions specified in
such amended License No.10-05/2004-BS-ll/RIL/
GUJARAT and therefore the said Interconnect agreement
is required to be amended and revised as described in
Chapters, Annexures and Schedules appended hereto with
E effect from 14th November 2003.

AND whereas Interconnect Usage Charges (IUC)
Regulation become effective from 1st May 2003 which
was amended on 29th October 2003 to become effective
from 1st February 2004 and further amended on 6th
F January 2005 to become effective from 1st February
2005.

IT IS NOW FURTHER AGREED AS FOLLOWS:

G 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
H
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 731
[S.H. KAPADIA, CJI.]
Usage Charges (IUC) including ADC, Interconnection A
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
8
hereby agree to:

(a) 'Interconnect its Network to the Network facilities of the
other' party; and

(b) Make available to the other pa~y the services, facilities c
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 operational quality that is equivalent to that D
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 E
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, F
. 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 G
BSNL to levy damages on the LlASL. Quantum of
damages assessed and levied by BSNL shall be final and
not challengeable by the UASL.

H
732 SUPREME COURT REPORTS (2010] 15 (ADDL.) S.C.R.

A Chapter - 1

Definitions

In this Agreement, words and expressions will have
the following meanings as are respectively assigned to
B 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.
c CLI or "CALLING LINE IDENTIFICATION": means the
information generated by the Network capability which
identifies and forwards the calling number through the
interconnected BSNL's I UASL's Network.

D "FUNDAMENTAL PLAN": means Numbering Plan,
Traffic Routing and Switching Plan and transmission Plan
issued by Department of Telecom as amended from time
to time.

E "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
F 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
G environment and Security monitoring functions.

"NATIONAL LONG DISTANCE SERVICE OPERATOR
(NLDO)": means the telecom operator providing the
required digital capacity to carry long distance
H telecommunication service within the scope of LICENSE -
. . '

B.S.N.J,., v. RELIANCE COMMUNICATION LTD. 733
[S.H. KAP-A.DIA, CJI.]
'\
for National Long Oitanc.e Service . which may include A
various types of tele services defined by ITU, such as
voice, data, fax, text, id,eo, and multi media etc. ·
' ' 'I,
"POINT OF INTERCONECTION (POI)" is a point at
which the GMSC of Fully Mobile network of UASL and 8
Gateway Switch of BSNL or local I tandem I TAX
exchange of the basic service network of UASL and local
,, /,Tandem I TAX of BSNL are interconnected by the facility
·of ihterconnection seeker and where the specified
, Network-Network Interface S!ar:'dards are applicable. C

"PSTNt 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 D
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 E
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 I
or non-voice, F
however, Cell Broadcast is permitted only to the
subscribers of the service. The subscritier (all types, pre-
paid as well as post-paid) has to be registered and
authenticated at the network poin_t of registration and
approved numbering plan shall be applicable. G

The following abbreviations shall bear the full expression
as mentioned below:

UASP: UNIFIED ACCESS SERVICE PROVIDER"
H
1
734 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R

A Chapter - 2

Technical Issues pertaining to Interconnection

2.1 Interconnectivity to BSNL Network

B 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
c 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
D
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
E TAXs of BSNL or of any other operator duly licensed for
the purpose.

2.1.5.2 Calls from fully mobile subscribers of other telecom
service providers of different service area (National
Roaming) or other country (International Roaming),
F
roaming in the network of UASL shall be treated
separately for the purpose of charging and routing.

2.1.9.1 Any facility obtained by the UASL from BSNL shall
not be resold or leased in any manner to a third party.
G
2.1.9.2 No 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
H shall be free to disconnect the POI in that area, after
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 735
[S.H. KAPADIA, CJI.]
intimating UASL one week in advance. Moreover, the A
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.
B
2.1.12 The 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 CI
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 D
groups as prescribed for CMTS network shall be
applicable for fully Mobile network of UASL.
2.1.15.3 INTERCONNECTIVITY FOR STD/ ISO CALLS

2.1.15.3.1 Interconnectivity for STD/ISO calls shall be E
between BSNL's LDCC TAX and UASL's LDCC TAX. In
case UASL does not have his own TAX in the LDCC, STD/
· ISO 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. F

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 G
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
H
736 SUPREME COURT REPORTS [2010] 15 (ADDL) S.C:R.

A LDCC TAX for intra and ipter 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.
B Either party shall not suppress the CU 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
c
2.4.1 For Basic Services the same area codes for SDCAs
I LDCAs will be used for both BSNL and. UASL network.
However, distinguishing exchange codes will be used for
the BSNL and the UASL's exchanges i.e. linked numbering
D scheme will be followed as per the latest National
Fundamental Plan.

2.4.3 All the digits received from calling party including 'O'
shall be passed across the interface (ROD=1). In case of
CCS7 signaling, leading 'O' will be appropriately coded in
E
Nature of Address Indicator (NAI).

2.4.5 For Basic services separate exchange codes o~:
number ranges shall be allocated to the BSNL and ·the ·
UASL's exchanges by the LICENSOR. Utilization of unused
F exchange codes or number ranges out of those allocated
to the BSNL and the UASL's exchanges shall be reviewed
by UCENSOR from time to time for optimum utilization.
2.5 CALLING LINE PRESENTATION
G 2.5.1 BSNL's and UASL's network shall wherever
technically possible, transmit and receive Calling Line
Identification (CU). The Calling Line Identification from
UASL's fully mobile/ CMTS network shall contain mobile
subscriber number including 93 and from its basic services
H
l
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 737
[S.H. KAPADIA, CJI.]
network the CU shall contain Acces·s code, Area code A
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 CU of calls handed over 8
·at the POI with BSNL shall be done by UASL. Instructions
of Licensor in this regard shall be followed by UASL failing
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.
c
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 D
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 .
agrll!ed and thus mentioned in this agreement and that this
arrangement will not be a matter of dispute, then BSNL E
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 F
to any other operator to the extent it is applicable to the .
UASL under this agreement. ·

' 2:9 NETWORK INTEGRITY AND SCREENING
G
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/PNl-03/01 Sept. 95 or
H
738 SUPREME COURT REPORTS (2010) 15 (ADDL.) S.C.R.

A as modified from time to time. 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
B
inter-working specification of TEC No. G/PNl-03/01 Sept.
95 referred above. Similarly BSNL shall also ensure the
same in its network.

2.9.;j Screening arrangement shall include rejection of
c communications or discarding information fields, which do
not comply with the specification. It will be the responsibility
of the UASUBSNL that network integrity is protected and
maintained.

D CHAPTER 6
INTERCONNECTION CHARGES

6.2 DETAILED BILLING

E 6.2.1 For every STD/ISO 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.
F
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
G and handed over to BSNL network. Likewise Interconnect
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
H access deficit charge (ADC) as applicable. ·
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 739
[S.H. KAPADIA, CJI.]
6.4.3 The traffic from I to fully mobile network delivered on A
any BSNL's LDCC TAX from UASL's GMSC will be
measured.pn the incoming I outgoing junctions of the
BSNL's LDCC TAX.

6.4.6 WRONGLY ROUTED CALLS
B
(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, C
for all the calls recorded on this trunk group from the date
1
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 DI
. 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 ·1
. E
calls received by BSNL without CLI or modi fi1ed/tampered
CLI from UASL shall be charged at the highest slab i.e.
; as for ISO Calls. In case such calls are received by BSNL
on any trunk group, then all the calls recorded on this trunk
group shall be charged at the rates applicable for IUC of
incoming ISO calls from the date of provisioning of that POI F
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 Gi
Call, without CU call, call with tampered CU 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 CU HI
740 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A call, call with tampered CU, for all calls recorded on tllis
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
B 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
c 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
D from each of private NLDOs/ ILDOs separately.

6.5 Billing

6.5.2 At present CDR based billing system for POis is not
available in BSNL's network at all locations. Wherever
E 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 ·
.F 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
G SDCC to terminating SDCC as and when necessary
technical arrangements are put in place by BSNL.

8.2 Termination

8.2.1 This Agreement shall continue for the period
H
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 741
[S.H. KAPADIA, CJI.]
indicated in Clause 8.1 above unless any of the following A
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 8
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 C
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 2.1.3, 2.1.5.1, 2.1.8, D
2.1.9.1, 2.1.9.2, 2.5, 2.11 an.d 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 · E
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 nqp-breaching Party and the F
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 G
customers, the same will be fully complied with before the
final act of disconnection of interconnection arrangements
betomes effective. Provided, however, in the event no
intervention is made by the Regulator/ Licensor during the
H
742 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A 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
8 this agreement. However, in case of Force Majeure
procedure as indicated below shall be followed:

FORCE MAJEURE
Neither party shall be liablt1 for any breach of this
c 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 dispute of any
kind. The Party affected by such force majeure shall
fl
promptly notify the other Party of the conditions and the
details thereof. If as a result of force majeure, the
perfonnance by affected Party of its obligation under this
~greem'"lnt is only partiali/ affected, such Party shall
never ' fess remain liable for the performance of those
E cblig? ,.ins 'lot affected by s:.ich force majeure. If the force
majeltre lasts for more than t11e continuous period of 90
calendar days from the date of the notification, and
continues to prevent the affected Party from ~erforming its
obligation in a whole or in material part, the either party
F 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,
G 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 instrtictions for the Licensor.
H Either Party may r •spend or withdraw the service> If the
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 743
[S.H. KAPADIA, CJI.]
other party misuses or indulges in any act which will A
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.
B
SCHEDULE I

Interconnection Usage Charge (IUC)

3. Due to non-availability of CDR based billing plP~eform, C
IUC applicable for the calls handed-over to BSNL at the
Pol (Point of Interconnect) i;ave been converted into
different pulse rates as per Appendix B. The pulse rates
have be~n calculated at a per MCU (Metered Call Unit)
rate of Rs 0.10 for all calls except outgoing ISO calls which
shall be measured at a rate of Rs 1.20 per MCU. The bills D,
for IUC shall be raised by BSNL to the interconnecting I
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) E
wherever technically feasible in l3::iNL switch.;b: At present
the imple;mentation of 10 milli seconds accuracy in pulsr
duration 1s possible in new technology switches of BSNL
i.e. EWSD, AXE-10, OCB-283 and 5ESS.
F
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 G
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 H
744 SUPREME COURT REPORTS (2010) 15 (ADDL.) S.C.R.

A procedure for billing and recovery of ADC in respect of
inter-circle STD calls from cellular I WLL (M) and outgoing
I incoming ISO calls routed through a NLDO or ILDO other
than BSNL and intra-circle traffic from cellular/ WLL(M) to
fixed networks are enclosed in Appendix-D.
B 11. The CU based barring facility has been activated by
BSNL at the Pols 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 CU based barring, periodic monitoring of the
c 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
E
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,,CU
based barring, the calls received by BSNL without e'u or
F modified/ tampered CU from concerned private operator,
shall be charged the IUC applicable for the highest slab
(i.e. as for ISO Calls including ADC applicable for ISO
calls) for all the calls recorded on this trunk group from the
date of provisioning of that POI or for the preceding two
G months, whichever is less.

(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 CU
-H call or call with tampered CU is handed over to BSNL at
·' B.S:N.L. v. Rf:LIANCE COMMUNICATION LTD: 745
[S.H. KAPADIA, CJI.]
the merged trunk group, then BSNL shall charge the A
concerned private operator the highest applicable IUC
(including ADC), as prescribed in clauses 11 (a) above for
unauthorized calls &,1-1(b) above for Incoming International I
I
call, without CLI call, call with tempered CU, for all calls
recorded on this merged trunk group from the date of B
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 C
under misuse.

Appendix - C

CERTIFICATE OF TRAFFIC ROUTED VIA OTHER D
NLD/ILD OEPRATORS AND INTRA CIRCLE TRAFFIC
{to be given by cellular operators and basic operators}

For the Month of ...................... 200
Licensed Service Area ........................ . E
Name of Operator................................ .
Type of Service (Cellular I WLL-M/Fixed) ... .
Period: From .......................to .................... .
Dated ................... at .......................... .
F
This is to certify that the details of traffic routed other than
through BSNL as NLDO/ ILDO/ transit operator in respect
of:

(a) inter circle calls (both originating and terminating)
except those originated from fixed networks but including G
calls terminating in own network in other circles;

(b) international long distance calls (both incoming and
outgoing) except those originated from fixed networks; and
•
H
746 SUPREME COURT REPORTS [2010) 15 (ADDL.) s.c.13
A (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 *** ***

B. Details of Traffic (in Minutes) through M/s Reliance
lnfocomm Ltd NLDO & ILDO)
Call Type ........... ........... .......... ············
c Circle Circle Circle Circle
I Inter
circle
outgoing
calls
D II Inter
circle
incoming
calls
Ill Outgoing
E
ILD calls
IV Incoming
ILD calls

F *** *** ***

Appendix - D
Procedure for billing and recovery of ADC in respect of intar
circle cellular I WLL (M) originated calls, ISO calls (incoming
G and outgoing both) and intra circle cellular (WLL(M) to fixed
networks routed other than other than through BSNL as NLDO/
ILDO/ transit operator.
1. As per TRAl's IUC Regulation dated 6th January,
2005 for such inter and intra circle calls that are
H routed through the BSNL as either NLDO or transit
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 747
[S.H. KAPADIA, CJI.]
operator, the ADC amount is received directly by . A
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 rece.ive ADC B
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 c
ADC from cellular/ WLL (M) originating i11tra circle
calls to fixed networks not routed through BSNL ...

(iii) NLD Interconnect Agreement between BSNL
and Reliance dated 1st November, 2002
D
Chapte' - 1

Definitions

· In this Agreement, words and expressions will have
the following meanings as are respectively assigned to E
them unless the contrary intention appears from the
context:

"SHORT DISTANCE CHARGING AREA
(SDCA)": means one of the several areas into which a F
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,
coincidt! with revenue tehsil I taluk. G

Chapter 2

Technical Issues Pertaining to Interconnection

2.1 Interconnectivity to BSNL Network H
\\
•.

748 SUPRE~E COURT REPORTS [2010) 15 (ADDL.(s.6.R.:
I
,
A 2.1.5 'RIL shall terminate its traffic on to the netwqrk,'of
BSNL as mandated by TRAI from time to time. RILand
BSNL shatt deliver .all calls on each other's network with
CLI in the terminating SDCA. Both parties reserve the right
to reject calls without CU.
B
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
·c code has been dialed shall be routed accordingly subject
to technical feasibility.

Chapter 6

Interconnection Charges
D
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
E 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
F being handed over or have been made over to BSNL at
any other port which is not meant for carrying such calls,
· BSNL shall be free to charge ~IL 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
G 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
H without CU. In case of calls without CU, tennination charge
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 749
[S.H. KAPADIA, CJI.]
as per clause 6.4.2 above shall be charged from RIL. A

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/ ISO call carried by RIL and
accepted by BSNL at POI, a detailed billing record 8
wherever possible or bulk billing record will be generated
I in the SDCC Tandem. The RIL shall supply calling
I subscriber's identity for detailed billing purpose.

Findings
c
(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 _
0
of data. To transfer the information, you need a channel
between the two locations. This may be a wire pair, radio
signal, optical fiber, et.c. Telecommunication companies
receive payment for transferring their customer's information,
while they themselves pay to establish and maintain the channel.
E
(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 F
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 GMSC. In short, it serves as an G
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).~-
750 SUPREME COURT REPORTS (2010] 15 (ADDL.) S.C.R.

A 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
B
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)
c 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
D 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-voice messages over the network
of the licensee (Reliance in this case). It, however,
E
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
F 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
G (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
H calls traffic, i.e., inter-country telecommunications,
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 751
[S.H. KAPADIA, CJI.]
the POI is the International Gateway. In this case, A
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 local POI which acts
as the entry point for all incoming t.elecom traffic. B
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. "T'his
local POI is the location where details of all
incoming landing telecom traffic, namely, the CL,.I c
number, their destination number, their time-stamp
details, their duration, etc. have to be logged for
future accounting and tracing requirements. Thus,
we have f"v•o kinds ot POis, namely, international
POis and local POis. Similarly, we also have two
kinds of Clls, namely, local and international Clls. D!

(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 E
network.

(h) Gateway Switch: It is a switch which has the
capability to perform Gateway functions like
sending and receiving signals, sending and F
receiving various types of information to the other
operators' network in a multi-operator environment
such as operators' identity, charging area
information, etc. as well as transportation of CU,
generating call data records (CDRs) for an off line
G
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 H
752 SUPREME COURT REPORTS [2010] 15 (ADDL.) S.C.R.

A 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.
B
0) 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.
c
(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.
D
(I) TAX: It means Trunk Automatic Exchange.

(m) Billing:lt is defined in Clause 6.2.1 of the
Interconnect Agreement. For every STD/ISO calls
originating from the network of the licensee
E (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.
F
(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
G 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
H
B.S:N.L. v. RELIANCE COMMUNICATION LTD. 753
[S.H. KAPADIA, CJI.]
compensate for the difference between the actual A
cost of providing a particular service and the
mandated lower tariff for providing the service to a
class of subscribers, usually rural. ADC is
compensatory in the sense that ADC is meant to
subsidize the rural infrastructural projects of BSNL B
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 C
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. D

14. The basic underlying principle of clause 6.4.6 is tllat
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 E'
obligations of the UASL (Reliance in this case) under
I
the
Agreement as modified by the addenda dated 28th February,
2006.
16. Interconnection agreement prescribes terms and F
conditions under which two licensees or service providers
intercohnect 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, G
technical and operational. However, the scope arid 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 H
754 SUPREME COURT REPORTS (2010] 15 (ADDL.) S.C.R.

A 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
B adjusted gross revenues. These payments are later on
transferred to BSNL. An IUC charge is, thus, a payment by one
service orovider to another for the use of network elements to
origu. ~·;,. transit or terminate calls. BSNL receives ADC
payrr..mts ror international calls made to fixed numbers. These
c payments are made by either national 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
D 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
E 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 , . :: ..,
F made to appear as it were from a domestic/ national numbe1.
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 that
a Caller ID (CID) is a signal. Most subscribers have a caller ID
G 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
H which is called as GMSC. It serves as an interconnection
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 755
[S.H. KAPADIA, CJI.]
between mobile switching centre and PSTN, which is a 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. B
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. c
Eg. in our case, one side of POI is that of BSNL and the other
side is that of 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 D
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 E
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 F
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 UASL shall G
handover the .call to BSNL at the originating Long Di,stance
Charging Centre (i.e. LDCC TAX). Lastly, under clause 6.4.7,
all the requ!ri:;id information shall be submitted in the rorm of
monthly r:;emficate as prescribed in Schedule I s'all be
submitted to BSNL by UASL. It will indicate details of thr traffic H
756 SUPREME COURT REPORTS (2010] 15 (ADDL.) S.C.R.

A 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 ISO calls (both incoming and outgoing). This
is relevant also because under clause 2.1.5.2 calls from fully
s 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
C 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 international call
at its ~xchange, its primary duty will be under the contract to
0
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
E 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
F 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 applicabte is higher (for example, for
G 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 the higher IUC for all calls
recorded on these POis from the date of provisioning of that
~ H POI (at Vadodara in this case] or for preceding two months,
B.S.N.L. v. RELIANCE COMMUNICATION LTD. \757
[S.H. KAPADIA, CJI.]
whichever is less. Similarly, under clause 6.4.6(b), if the UASL · A
masks or disguises the international call as local call that UASL
1
· will have t6 pay the higher IUC rate meant for international calls
' to BSNL from the date of provisionirrg 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 B
telephone of UASL, then it would be the primary duty of that
1

LJASL 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 c
calls and even the period of misuse of services is restricted to
last tWo preceding mqnths. Thus, when an international call, as
in this case, lands oril the local POI of the UASL it knows the
nature of the call. There is a differ~nce between an international
CU and the local/national CU. The billing record of that POI D
indicates the nature of the call. It is the contractual obligation
of the 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 E '
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 F
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 G
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 profits by cost reduction, H
\
,7($8»( )SUPREME COURT REPORT~ (~010] 15 (ADDL.) S.C.R
A 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
B 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
c 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,
0 a "rough and ready measure" is provided in clause 6.4.6 which
measure is a reasonable pre-estimate of damage.

(iv) Whether clause 6.4.6 represents penalty or
pre-estimate of reasonable compensation for
the loss?
E
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
F 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, 30th edition) The fact that damage is difficult to
G 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 (10th edition),
a clause is penal if it provides for "a payment stipulated as in
H terrorem of the offending party to force him to perform the
B.S.N.L. v. RELIANCE COMMUNICATION LTD. 759
[S.H. KAPADIA, CJI.]
contract. If, on the other hand, the clause is an attempt to A
estimate in advance the loss which ~ill result from the breach;-
it is a liquidated damages clause. The question 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 B
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 view,ed · C
in the context of the regulatqry regime. In this case •. we are
concerned with telecom as ~ service. This is the most important
circumstance to be considered as one of the main surrounding
circumstances to the lntercqnnect Aqreement. Under the
Interconnect Agreement, the lJASL is obliged to maintain the D
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 internation~I. as
indicated by corresponding CLI, is the basis for the lev{of IUC E
(including ADC). If by wrong routing of calls or by masking the
cost of providing services is reduced, the concerned operc'!tor
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 F
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 CU. Similarly, when the G
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 evasiqn of duty to
maintain billing records in detail at ea~h POis. H
760 SUPREME COURT REPORTS (201oj c15 (ADDL.) S.C.R.

A 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 defaultlng UASL can easily price
B its product in the international market at a lower rate and in that
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.
c 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 al~o for one more reason. The clause, as stated above,
restric¢ the higher IUC rate made applicable for ca111 only for
last tv,t,0 preceding months and not for last three years or the
0
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
E 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 damages", one must keep
F 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
G 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.

H
,,B.S.N.L. v. RELIANCE COMMUNICATION LTD. 761'
[S.H. KAPADIA, CJI.]
Conclusion A

20. We need to clarify that in this case our judgment is
restricted only to the interpretation of cl?use 6.4.6 of the
Interconnect Agreement read with the Addenda. As st_ated
above, we have held that clause 6.4.6 represents pre-estimate 8
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 highlight one
aspect. In the letter dated 13th October, 2004 addressed by
BSNL to Reliance, it has been alleged that the calls have .C
landed at the POis of M/s. Reliance lnfocomm. l:ttL at
Karellbaug, Panigate, Alkapuri, Makarpura, Padra, Dab~oi and
Miyagam exchanges in Vadodara SSA. The .said· letter
highlights one more important aspect. It is allegecf4h·at the
number 2813041000 was an unallocated number with Reliance D
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.

N.J. Appeal allowed.

1