TDSAT orders Kerala cable operator to pay Rs 15.92 lakh to DEN Networks

The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) has directed Kerala-based local cable operator (LCO) Skyline Cable Network to pay Rs 15.92 lakh to DEN Networks towards outstanding subscription dues and the depreciated value of 1,025 set-top boxes (STBs) that were not returned after the LCO migrated to another multi-system operator (MSO).

In a judgment by Justice Ram Krishna Gautam, Member, allowed DEN Networks’ petition against Skyline Cable Network. The tribunal held that the competing MSO, Kerala Communicators Cable Ltd, could not be held liable because it was not a party to the interconnect agreement between DEN Networks and Skyline.

The tribunal directed Skyline to deposit Rs 54,679 towards outstanding subscription dues as of April 30, 2020, along with Rs 15.375 lakh towards the depreciated value of the 1,025 STBs. 

The total principal amount comes to Rs 15,92,179. TDSAT also awarded simple interest at 9% per annum on the two amounts from April 30, 2020, until the date of actual payment. The amount has to be deposited with the tribunal within two months of the judgment.

Dispute dates back to 2016 interconnect agreement

The dispute arose from an interconnect agreement executed between DEN Networks and Skyline Cable Network on January 1, 2016. DEN Networks, operating as a Distributor Platform Operator and cable television service provider, supplied encrypted television channel feeds to Skyline, which operated as an LCO in Kerala.

Under the arrangement, DEN Networks issued 1,025 STBs to Skyline for deployment at subscribers' premises. The tribunal noted that the STBs remained the property of the MSO under the contractual arrangement and were required to be returned once the relationship between the parties ended.

DEN Networks subsequently claimed that Skyline had failed to clear subscription dues. As of April 30, 2020, the outstanding amount stood at Rs 54,679. The company also sought the return of all 1,025 STBs or, alternatively, payment of Rs 20.49 lakh, calculated at the original value of Rs 1,999 per STB.

The petition also sought directions restraining Skyline from receiving cable television signals from another MSO until the outstanding dues were cleared and DEN Networks' STBs were returned.

Skyline cited dispute over commercial terms

Skyline contested DEN Networks' claims and alleged that it had entered into the 2016 agreement after being assured that the service charges payable to DEN would be 10% lower than those charged by competing MSOs.

According to Skyline's submissions before the tribunal, DEN Networks subsequently failed to honour that assurance and allegedly did not comply with TRAI guidelines concerning free channels to subscribers. The LCO also alleged that signals had been disconnected in Kerala without the statutory 21-day notice, triggering protests by LCOs in the state in 2019.

Skyline said the protests eventually led to intervention by state authorities, including the District Collector and Commissioner of Police in Ernakulam. According to the LCO, the authorities facilitated a settlement under which LCOs were given an option to exit their relationship with DEN Networks. Skyline subsequently migrated to Kerala Communicators Cable Ltd.

Skyline further argued that the revenue settlement mechanism and other charges imposed by DEN Networks had placed financial pressure on the LCO, leaving it with insufficient funds to operate its business and pay employees. It therefore chose to migrate to another MSO when the opportunity arose.

LCO argued STBs had been sold to subscribers

A key dispute before TDSAT concerned the 1,025 STBs.

Skyline acknowledged receiving the equipment but argued that the boxes had been deployed at subscribers' homes and were effectively sold to subscribers. It claimed that the STBs were sold for Rs 1,270 each and that there were no rental or security-deposit arrangements with subscribers. On that basis, Skyline argued that it no longer had possession of the equipment and therefore could not be required to return it to DEN Networks.

DEN Networks, however, maintained that ownership of the STBs remained with the MSO under the interconnect agreement. It argued that Skyline was required to return the equipment when its contractual relationship with DEN ended.

The tribunal accepted DEN Networks' position on ownership. It noted that execution of the interconnect agreement was undisputed and that the agreement expressly provided for MSO ownership of the STBs and their return upon cessation of the relationship.

TDSAT also noted that the issuance of all 1,025 STBs had been established through documentary evidence, including the inventory list. Skyline's contention that the equipment had subsequently been sold to subscribers could not override the contractual arrangement, the tribunal held.

TDSAT rejects full original STB value claim

While TDSAT upheld DEN Networks' entitlement to compensation for the unreturned STBs, it did not award the Rs 20.49 lakh claimed by the company based on the original value of Rs 1,999 per box.

Instead, the tribunal applied depreciation, taking into account the age of the equipment and the passage of time since the original agreement.

The tribunal observed that the interconnect agreement was entered into in 2016 and the petition was filed in 2020. Given that the STBs were electronic equipment and more than six years had passed by the time of adjudication, TDSAT concluded that awarding the original value would not be appropriate.

It fixed the depreciated value at Rs 1,500 per STB. For 1,025 boxes, this amounted to Rs 15.375 lakh.

The tribunal consequently directed Skyline to either return the 1,025 STBs in good and working condition or pay the depreciated value of Rs 1,500 per STB. Given the circumstances, the order ultimately required payment of Rs 15.375 lakh towards the boxes.

Migration to rival MSO becomes central to ruling

The migration of Skyline from DEN Networks to Kerala Communicators Cable Ltd was another central issue in the case.

TDSAT noted that Skyline's migration to the competing MSO was undisputed. However, the tribunal found that Skyline had failed to establish that it had complied with the required three-week notice before migration, cleared its outstanding subscription dues or returned the 1,025 STBs.

The tribunal referred to the applicable interconnect requirements and said the burden of proving compliance rested on Skyline. Since the LCO failed to establish that it had fulfilled these requirements, the fourth issue was decided in favour of DEN Networks.

The ruling is significant for the contractual obligations surrounding LCO migration between competing MSOs, particularly where subscriber equipment and outstanding payments remain unresolved.

Competing MSO escapes liability

TDSAT, however, rejected DEN Networks' attempt to make Kerala Communicators Cable Ltd jointly or severally liable for the dues and STB costs.

The tribunal found that the interconnect agreement was exclusively between DEN Networks and Skyline. Kerala Communicators Cable was not a party to that contract and had not made any promise to DEN Networks concerning Skyline's obligations.

On this basis, TDSAT held that there was no privity of contract between DEN Networks and the competing MSO. It further observed that a competitive MSO cannot ordinarily be saddled with liability for a default committed by an LCO where there is no contractual relationship between the MSO and the claimant.

The tribunal consequently decided the issue of liability against Kerala Communicators Cable in its favour and confined the monetary liability to Skyline.

Interest takes total financial exposure higher

In addition to the Rs 15.92 lakh principal amount, TDSAT awarded simple interest at 9% per annum on the outstanding subscription dues and depreciated STB value from April 30, 2020, until actual payment.

The tribunal said the interest rate was appropriate considering the fiscal scenario and financial position of the cable television network business. Skyline has been given two months from the date of judgment to deposit the amount with the tribunal. Failure to comply would allow DEN Networks to recover the amount through execution proceedings.

The judgment thus resolves a six-year-old dispute involving subscription dues, migration between MSOs and ownership of subscriber-side equipment, while drawing a clear distinction between the contractual obligations of an LCO and the liability of a competing MSO.