HC strikes down state’s ₹26-cr demand on TCL

Court imposes ₹25-lakh penalty on government in a case relating to a Bandra plot for VSNL staff quarters

MUMBAI: The Bombay High Court on Monday pulled up the state government for defending an “untenable” litigation against Tata Communications Limited (TCL) and imposed a cost of ₹25 lakh for exhausting their time and money over decades. The court also struck down the state’s demand for ₹26 crore from TCL as unearned income for a plot in Bandra, which the government had allotted for staff quarters of Videsh Sanchar Nigam Ltd (VSNL).

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The plot had been allotted by the state government to Overseas Communication Services (OCS) – then under the ministry of telecommunications – for construction of staff quarters in 1991. Earlier, in 1986, the central government had transferred the management, control and all assets of OCS to Videsh Sanchar Nigam Limited (VSNL).

Construction of the staff quarters began in 1992 and was completed in 1998. Later, due to the liberalisation and the disinvestment policy, the central government sold 25% of its 52% shareholding in VSNL to a Tata Group company. Over the years, the Tata Group acquired a larger stake in VSNL via the markets, and changed VSNL’s name to Tata Communications Limited (TCL) in January 2008.

Three years later, on March 25, 2011, the district collector issued a show-cause notice, alleging delayed construction, unauthorised transfer of land from VSNL to TCL, and misuse of the plot. In its reply, TCL clarified that no transfer of land was done; merely the name “VSNL” had been changed to “TCL”, and that the building continued being used as staff quarters, for which it was allotted.

However, in 2012, the collector directed TCL to pay ₹26.06 crore as unearned income on grounds that construction was delayed without seeking an extension, and the land had been transferred by VSNL to TCL without permission.

TCL filed appeals before the assistant commissioner and the revenue minister, which were dismissed in 2013 and 2014, respectively. This prompted TCL to move the Bombay High Court in July 2014.

The state government argued that the original allottee of the land was OCS exclusively, and therefore, “a private entity cannot be permitted to benefit at the expense of the public property”.

Quashing the collector’s order, a single-judge bench of Justice Kamal Khata held that mere dilution of shareholding in VSNL can neither be characterised as a transfer of the land to TCL, nor can it be construed as an indirect attempt to achieve what could not be achieved directly.

The court also found a “fundamental defect” in the show-cause notice, highlighting that it does not state that the alleged change in shareholding amounted to a “transfer”, which forms the basis of the demand. “The reasoning that the property stood transferred from VSNL to TCL is untenable, since shareholders possess no proprietary rights in the company’s assets in specie,” the court observed.

Further, it also criticised the state government for having remained inactive for more than 25 years and then raising a claim, which is “misconceived” and “hopelessly time-barred”.

The court held that the state “chose to defend an untenable order, which compelled the petitioner to litigate for years, and thereby misused public funds and court time”. It said it was necessary to impose a cost on the government to ensure accountability and to deter untenable actions or defence of proceedings that are demonstrably well-founded and supported by law. The court, therefore, ordered the government to pay ₹25 lakh to TCL within four weeks.