Legal Briefing

Inroads into party autonomy: arbitration clauses in agreements with telecom service providers

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India | 01 April 2013

Arbitration, because of its nearly unfettered right of party autonomy, has become the agreed mode of dispute resolution between parties involved in commercial transactions. In India, arbitration laws underwent a marked change with the enactment of the Arbitration and Conciliation Act 1996 (the 1996 Act) that strove to bring speed, efficacy, informality and party autonomy into dispute resolution by way of arbitration.


However, recently a shift has been witnessed in various sectors with the introduction of specialist regulators under statute to adjudicate on issues involving the sector. These specialist regulators usually have exclusive jurisdiction to determine disputes, except so far as is otherwise expressly provided or necessarily implied under the statute. However, the right to party autonomy in opting for alternative methods of dispute resolution stands unaffected for matters that are beyond the remit of the specialised regulator, either expressly or impliedly, albeit pertaining to 
or arising out of the particular sector.

In a recent decision by a three-judge bench, HDFC Bank v Satpal Singh Bakshi [2012], the Delhi High Court laid out significant guidelines on what is arbitrable. The 
Delhi High Court held that,inter alia, all disputes pertaining to ‘right in personam’ are arbitrable and parties have the option 
to choose arbitration as an alternative forum, while disputes relating to ‘right in rem’, having inherent public interest, are 
not arbitrable and the parties’ choice of 
the forum of arbitration is ousted.

While the above principles are useful in determining the extent of the right of party autonomy, the guidelines have shown a tendency to get blurred in sectors with a specialist regulator.

TELECOM SECTOR: IS RIGHT TO 
PARTY AUTONOMY AVAILABLE 
IN CASE OF CONTRACTS WITH 
TELECOM SERVICE PROVIDERS?

A recent decision of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), the specialist regulator for the telecom sector, in Reliance Infratel Ltd v Etisalat DB Telecom Pvt Ltd [2012] has created confusion in respect of the parties’ right to party autonomy in matters involving the telecom sector. The TDSAT in Etisalat has interpreted s14 of The Telecom Regulatory Authority of India Act 1997 (the TRAI Act) in a manner so as to confer wider powers of jurisdiction in the tribunal over and above what has been specifically provided for under the TRAI Act. By placing reliance on the issues of public interest that get triggered in cases of disputes involving the telecom sector, the TDSAT has attributed a purposive and liberal interpretation to the provisions of the TRAI Act to confer exclusive jurisdiction on the tribunal in relation to any disputes pertaining to the sector. The TDSAT has held as above, regardless of whether it has been specifically provided with such powers under the TRAI Act and/or if the parties have opted for arbitration as the agreed mode of dispute resolution.

Prior to Etisalat, Indian courts had upheld the validity of an arbitration agreement in contracts with telecom providers if the dispute referred for arbitration was outside the exclusive jurisdiction of the TDSAT as specified under s14 of the TRAI Act. The TDSAT’s jurisdiction was restricted to disputes in respect of direct activities in the telecom sector, ie those relating to telecom services and/or disputes that would affect public interest, as specified under s14. The policy that was followed was that in cases where public interest is not affected or the dispute is between two private parties, and thus beyond s14 of the TRAI Act, the parties have the freedom to resolve it through alternative dispute resolution. This would include, for instance, disputes that, albeit between two service providers, are in the nature of disputes between a landlord and tenant, or disputes that involve purely a question of breach of contract and do not relate to telecom services (see Aircel Digilink India Ltd v Union of India & anor [2005] and CH Entertainment Pvt Ltd v Connect Broadband Services Ltd [2007]).

ETISALAT: CREATING INROADS 
INTO PARTY AUTONOMY

Etisalat has created sharp inroads into the availability of the right of party autonomy to parties engaged in a commercial transaction/contract involving a telecom provider. The case had been brought before the TDSAT by Reliance Infratel, which was seeking recovery of its dues from Etisalat DB Telecom Pvt Ltd pursuant to or in terms of the agreement executed between the parties for the provision of passive infrastructure services by the former to the latter.

Etisalat raised, inter alia, the following issues:

  1. Whether the TDSAT has jurisdiction to adjudicate on disputes between parties where one of the parties is not a licensee within the meaning of the proviso appended to s4 of the Indian Telegraph Act 1885 (the 1885 Act) as it does not render any ‘telecommunication services’ as envisaged under s2(k) of the TRAI Act; and
  2. Whether the jurisdiction of the TDSAT stood ousted, since the agreement that is the subject matter of the dispute contained an arbitration clause.

The TDSAT held that if any dispute between the licensor and the service provider is a dispute within the meaning of the provisions of s14 of the TRAI Act, then there is absolutely no reason why the dispute between a licensee and a person who has been granted a licence, but not under s4 of the 1885 Act (ISP-I Registrant), and who provides services to a licensee, which is to the ultimate benefit of the customer, would not come within the remit of TDSAT. In other words, even parties who are not ‘service providers’ as defined under the TRAI Act (having not procured a licence under s4 of the 1885 Act) are amenable to the exclusive jurisdiction of the TDSAT.

Etisalat is significant for two reasons, namely:

  1. The expansive interpretation given by TDSAT to the meaning of the term ‘service providers’ and ‘telecommunication services’ under 
the TRAI Act; and
  2. The extension of the range of powers conferred on the TDSAT for adjudication of disputes under s14 of the TRAI Act.

Thus, as a consequence, the presence of arbitration clauses in telecom contracts may be rendered ineffective.

RESPONSE OF INDIAN COURTS

While it may be too early to gauge the impact of Etisalat and its implementation by courts, the approach adopted by the Delhi High Court in respect of the provision of interim relief sought under s9 of the 1996 Act in cases involving disputes with a telecom service provider is indicative of the mindset of the courts. Following Etisalat, concern arose in respect of the availability or lack of interim relief to parties who are not ‘service providers’ within the meaning of the term under the TRAI Act.

In the cases of Viom Networks Ltd v Unitech Wireless (Tamil Nadu) Pvt Ltd & anor [2012] and Indus Towers Ltd v Unitech Wireless (Tamil Nadu) Pvt Ltd & anor [2013], the Delhi High Court was confronted with this specific issue. In these cases, Viom Networks Ltd and Indus Towers Ltd sought an injunction in aid of arbitration against Unitech Wireless seeking to restrain Unitech from alienating its active infrastructure from the passive infrastructure sites of Viom and Indus, respectively. The grant of interim relief was challenged on the fact that such petitions were not maintainable as, since Etisalat, courts were ousted from even considering – much less granting – interim relief in disputes under the telecom sector. The Delhi High Court, however, for the duration of the issue regarding maintainability of the petitions, granted interim relief.

WHERE TO GO FROM HERE: 
IMPLICATIONS AND OBSERVATIONS

Following Etisalat, in many telecom contracts the presence of arbitration clauses may become worthless. Increasing challenges to ongoing arbitrations and initiation of new arbitrations have been witnessed since the passage of Etisalat. Undoubtedly, confusion has been created with respect to the right to party autonomy in cases not covered by s14 of the TRAI 
Act. As evident from the Delhi High Court orders in Viom and Indus, courts have indicated that they will exercise jurisdiction by way of the grant of interim relief, if required, in cases where the jurisdiction of the TDSAT is in dispute. This exists until the jurisdiction issue is decided by the High Court. Further, Etisalat is currently pending in appeal before the Supreme Court of 
India. Therefore, finality on the issue has not been achieved and will have to await the decision of the appeal by the Supreme Court against Etisalat.