Delhi HC opens private firms to audit by CAG

Allows audit of telecom firms : Argues CAG can audit every rupee earned by Government.

New Delhi | Published: January 7, 2014 4:04 am
Two writ petitions had been filed by the Association of Unified Telecom Service Providers of India and the Cellular Operators Association of India against orders issued by the Director General of Audit, Post & Telecommunications to all telecom service providers. Two writ petitions had been filed by the Association of Unified Telecom Service Providers of India and the Cellular Operators Association of India against orders issued by the Director General of Audit, Post & Telecommunications to all telecom service providers.

Ruling that the Comptroller and Auditor General of India was authorised to audit “every rupee flowing into the Consolidated Fund of India, by way of revenue,” the Delhi High court Monday dismissed pleas filed by private telecom companies against audit of their accounts.
“If all the income of the state, must, in view of the constitutional requirements, be credited to and form part of the Consolidated Fund of the State, it is obvious that the income derived by the state from any contract, cannot be kept out of the general revenues…,” the bench of Justice Pradeep Nandrajog and Justice V Kameswar Rao said.
Two writ petitions had been filed by the Association of Unified Telecom Service Providers of India and the Cellular Operators Association of India against orders issued by the Director General of Audit, Post & Telecommunications to all telecom service providers, directing them to produce books of accounts and other documents for verification of revenue to the CAG for three years from 2006-07 to 2008-09.
According to the companies, the CAG did not have the power to conduct a revenue audit of private telecom companies.
But the bench noted that as licence holders, the companies were bound by contract to maintain accounts relating to the licence agreement and, in particular, the revenue received by it.
“…There is a contractual obligation of the licensee to account for and pay to the Central government its share of the revenue…Needless to state, without an accounting, there is no way by which the Central government can determine its dues,” the bench said.
The verdict is likely to impact the way public private partnership and joint ventures work in the country since the court said a “new emerging regulatory state” was needed to curb the system that had grown out of “club governance”.
Emphasising the fiduciary relationship of trust between the government and the companies, the court held that under the terms of the licence agreement, the companies had undertaken the accounting responsibility for the Central government as well as themselves.
The court also noted that the terms of the contract between the government and the telecom companies involved grant of permission to the companies to use the natural resource of spectrum in exchange for a consideration, which would include a percentage of the revenue of the company plus radio spectrum charges and entry fee.
According to the court, as the payment was received by the government out of the gross revenue received by the companies, it was within the jurisdiction of the CAG.
“We conclude by holding that neither Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules is ultra vires Section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 nor is Section 16 ultra vires Article 149 (power of CAG) of the Constitution of India,” the bench said.
“We have already held… under the terms of the licence agreement, the licensee has undertaken the accounting
responsibility for the Central Government as well as itself.”
“Thus, the accounts of the licensees, in relation to the revenue receipts can be said to be the accounts of the Central government and thus subject to a revenue audit as per Section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act,” the bench said.
The court, however, made it clear that the CAG audit would have to be restricted only to a revenue audit “pertaining to the receipts and no more.”
“The Comptroller and Auditor General would not confuse himself with his wide, all embracing power under Section 14(2) of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 which includes inquiries into aspects like faithfulness, wisdom and economy in expenditures,” the court said.

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