Explained: Why Bharti Airtel, Vodafone Idea shares rallied up to 4% on Tuesday

Shares of Vodafone Idea and Bharti Airtel gained up to 4% on Tuesday after the Bombay High Court quashed the government’s one-time spectrum charge (OTSC) demands, holding that all actions taken pursuant to the disputed demands would also stand annulled.

Vodafone Idea shares jumped 4% to Rs 14.90, while Airtel share price gained over a percent to Rs 1,836 on the BSE.

The ruling provides a combined relief of around Rs 20,000 crore to the two telecom operators. According to ET Now, Vodafone Idea has secured relief of Rs 11,000 crore, while Bharti Airtel has received relief of Rs 9,000 crore.

A division bench comprising Justices Manish Pitale and Shreeram Shirsat set aside the demand notices issued by the Centre for recovery of OTSC. The court observed that the government had failed to demonstrate any legal authority empowering it to take such a decision or issue the resulting demand notices.

The bench also directed that bank guarantees furnished by the telecom companies be returned. In addition, all demand notices and related orders concerning the one-time spectrum charge have been struck down. At the same time, the court clarified that the matter continues to remain pending before the Supreme Court.

The bench noted that the government, while citing public interest, had acted beyond the scope of the contractual and licensing arrangements entered into with the telecom operators. It further observed that the Centre had not identified any source of power authorising the impugned decisions.

The dispute traces its origins to a November 2012 Union Cabinet decision under which a one-time spectrum charge was to be levied on spectrum holdings exceeding 6.2 MHz from July 2008 onwards. Following that decision, demand notices were issued to Bharti Airtel and Vodafone Idea specifying the amounts payable towards OTSC.According to a PIB release, telecom operators holding spectrum up to 4.4 MHz (GSM) were exempted from any one-time charge. For spectrum holdings beyond 4.4 MHz (GSM), the government decided that a one-time charge would be imposed prospectively based on prices discovered in the 2012 spectrum auction.

Airtel and Vodafone Idea challenged the decision before the Bombay High Court in January 2013, arguing that the government lacked the authority under the Telegraph Act to impose a one-time spectrum charge, particularly with retrospective effect. At the time, the court granted interim protection to the companies and directed that no coercive action be taken while the matter was being heard.

In its judgment delivered on Monday, the High Court said the government could not claim that the spectrum’s status as a scarce and finite natural resource entitled it to unilaterally depart from the terms of its contracts with telecom operators.

“The government obviously cannot claim statutory power to act as per its own whim, notwithstanding the terms of the contract/licence executed as per the power available under the Act,” the High Court stated.

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