New Delhi: The Bombay High Court has struck down a government demand that had hung over Bharti Airtel and Vodafone Idea (Vi) for 13 years—a retrospective one-time spectrum charge (OTSC), a lump-sum fee the Department of Telecommunications (DoT) sought to impose in 2012 for spectrum that both companies were using and paying for since the late 1990s.
In a judgment pronounced on 8 June, a Division Bench of Justices Manish Pitale and Shreeram Shirsat ruled that the government had no legal or contractual basis for the demand, and ordered the return of all bank guarantees the companies had deposited. Industry estimates put the combined relief at over Rs 24,000 crore.
The timing matters. For Vodafone Idea, which is already on financial life support, this removes one more weight from a balance sheet that is almost entirely underwater. A parliamentary Standing Committee on Communications and Information Technology, in its Twenty-Third Report on DoT’s budget tabled in the Lok Sabha this March, noted that the government had converted Rs 36,950 crore of Vodafone Idea’s deferred spectrum auction dues into equity during 2025-26—giving the Centre a 49 percent stake in the company.
The OTSC dues, had they been upheld, would have added thousands of crores more into the red of a company the government now partly owns. The court’s ruling is also, in that sense, a form of fiscal relief to the government itself.
The dispute in brief
Spectrum—the range of radio frequencies that can carry mobile signals—is a finite natural resource. The government owns it and licences it to telecom operators in exchange for fees. When private operators like Airtel entered the market in 1994, they paid a fixed annual licence fee and a separate royalty for spectrum use.
In 1999, the government overhauled this system through the National Telecom Policy of 1999 (NTP-99), shifting to a revenue-sharing model: instead of fixed fees, operators would pay a percentage of their adjusted gross revenue (AGR)—their income from telecom operations—to the government each year. Each time an operator received additional spectrum, the AGR percentage it paid went up. Allocation had a price, built into the revenue share rather than charged upfront.
Then, in February 2012, the Supreme Court cancelled 122 telecom licences in what became known as the 2G spectrum case, finding that spectrum had been allocated to new operators in a corrupt and arbitrary manner. In the aftermath, the Union Cabinet decided in November 2012 that existing operators—including Airtel and Vodafone Idea’s predecessors—would now also have to pay a one-time lump-sum charge for spectrum they had been holding beyond 6.2 MHz (megahertz, the unit for measuring spectrum bands), going back to July 2008. The DoT issued demand notices accordingly.
Airtel’s total OTSC liability, as declared in its exchange filings, stood at Rs 15,178 crore; Vodafone Idea’s was around Rs 6,921 crore, including liabilities inherited from the erstwhile Idea Cellular.
Both companies filed writ petitions in the Bombay High Court in January 2013. An interim order stayed any coercive recovery. The petitions sat in the system for 13 years.
What the court found
The government’s case rested on three arguments. First, that Section 4 of the Indian Telegraph Act, 1885 — which gives the Central Government the power to grant telecom licences “on such conditions and in consideration of such payments as it thinks fit”— provided statutory authority for the charge.
Second, that specific clauses in the licence agreements allowing the government to modify terms in the public interest gave it the right to impose the levy. Third, that because spectrum is a scarce natural resource held in public trust, the government had an overriding obligation to ensure it was priced appropriately.
The court rejected all three.
On Section 4, the bench held that while it allows the government to set conditions at the time of granting a licence, it does not allow the government to unilaterally rewrite a concluded contract’s financial terms years after signing. “It appeals to logic,” the court said, “that imposition of conditions and determination of consideration of payments, has to be crystallized at the time of grant of licence.” Certainty of consideration—knowing what you owe—is a fundamental requirement of any binding contract, and the power to set terms when granting a licence cannot be stretched into a power to change those terms indefinitely afterward.
On the modification clauses, the licence agreements from 1994 and 2005 both reserved the government’s right to alter terms in three specific situations: public interest, national security, and proper conduct of telegraphs. The court found that the government had cited none of these when issuing the 2012 demand notices. When pressed during hearings, the Additional Solicitor General (ASG) argued the charge was in the public interest.
The court tested this against the stated objectives of NTP-99 itself—which were centred on affordable universal access, rural connectivity, and efficient spectrum use, not revenue maximisation. The bench was unsparing: “The respondent cannot be permitted to change the contract midway to change the goal post and then claim that it took the decision in “public interest’.”
On spectrum as a public trust, the court agreed with the legal position that the government holds spectrum in trust for the people—but drew the opposite conclusion from the one the government wanted. Precisely because spectrum is a public resource, the government as trustee is obliged to set clear, predictable terms when allocating it.
“It cannot be contended,” the court held, ”that since spectrum is recognised as a scarce and finite natural resource, the respondent Union of India would be entitled to resile from the terms of the contract, or act in any manner unilaterally and then justify the same by taking shelter of the concepts of ‘common good’, ‘public good’, ‘public interest’.”
The court also dismantled the factual premise of the government’s case. The government had argued that operators received spectrum beyond 4.4 MHz “virtually free of charge”. The bench went through the DoT’s own orders and communications from 2001 to 2005 and showed that each increase in spectrum allocation had been accompanied by a corresponding increase in the AGR revenue share percentage. Allocation was never free — it was priced through the revenue-share mechanism all along, and the court found that the government’s own documents “do not support the stand taken on its behalf in these petitions”.
The 10 MHz problem
There was a further, narrower issue that made the demand particularly difficult to justify. The Telecom Regulatory Authority of India’s (TRAI) own 2007 recommendations had explicitly said that a one-time charge, if applicable at all, should only apply to spectrum beyond 10 MHz. For spectrum allocated up to that threshold, TRAI had said imposition of an acquisition fee was “not legally feasible” given that enhanced usage charges were already being collected. Both Airtel and Vodafone Idea’s allocations stayed below 10 MHz when the demands were issued. The government was, as the court put it, charging for spectrum in a range that “no such one-time spectrum charge was even recommended for”.
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Disagreeing with Madras HC
The government’s strongest card was a 2016 Madras High Court ruling in a case brought by Aircel — a now-defunct operator — which had upheld an identical OTSC demand and found the “public interest” condition satisfied, reasoning that revenue generation is inherently in public interest. The Bombay High Court declined to follow it. The Madras ruling had placed heavy emphasis on the meaning of the word ‘modify’ in the licence clauses and treated revenue maximisation as automatically constituting public interest. The Bombay bench called this “unacceptable”, noting that “as to what can be said to be the public interest would depend on the facts and circumstances of each case.” It also noted that several arguments raised before it had not been canvassed before the Madras High Court at all. The Aircel judgment is separately under challenge in the Supreme Court.
Legitimate expectation and the sanctity of contracts
Beyond the specific contractual arguments, the court also addressed how the state must conduct itself when it is a party to commercial agreements. Citing a 2024 Supreme Court ruling on the doctrine of legitimate expectation, the bench held that when public authorities enter contracts, they create an obligation to honour those terms — and that arbitrary departures from that obligation are themselves subject to judicial review under Article 14 of the Constitution.
“The least that private parties like the petitioners expect from the respondent i.e. the Union of India when such contracts/licence agreements are executed,” the court said, “is that the State as the contracting party would act within the terms and conditions of the contract and that there would be consistency in decision making, demonstrating good administration.” The judgment was unambiguous in its conclusion: “The respondent has not been able to identify any source of power to issue the impugned decisions and the consequent demand notices.”
What now
The judgment removes the legal basis for the OTSC demands against both companies and requires the government to return all bank guarantees deposited. All consequential actions taken in pursuance of those demands also stand cancelled.
The government is expected to study the ruling before deciding whether to appeal to the Supreme Court — where, separately, the DoT had already appealed against a 2019 ruling by the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) that had also found the OTSC demand largely unsustainable. That appeal had been adjourned since 2021. The Bombay ruling gives both operators considerably stronger ground in that forum as well.
For Vodafone Idea, the ruling removes contingent liabilities at a moment when its financial position is being reassessed — the government has already frozen Rs 87,695 crore in AGR dues until FY32 and constituted a committee to reassess the total liability. For Airtel, which had provisioned Rs 8,500 crore of the OTSC liability in its books and classified a further Rs 6,600 crore as contingent, the ruling means those provisions can now be reversed.
The court’s parting observation was as much a verdict on thirteen years of regulatory conduct as on the specific demand: the government had “suddenly changed track midway through the working of the contract” and in doing so demonstrated “inconsistency in the conduct of the respondent” — an inconsistency the court found impossible to sustain.
(Edited by Nardeep Singh Dahiya)
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