Friday, Nov 28, 2014

Supreme Court allows CAG to audit private telecom firms

The apex court had on February 3 sought responses from the Centre and CAG on the pleas of the associations. (Reuters) The apex court had on February 3 sought responses from the Centre and CAG on the pleas of the associations. (Reuters)
Written by Utkarsh Anand | New Delhi | Posted: April 17, 2014 7:30 pm | Updated: April 17, 2014 9:43 pm

In a ruling that turns a new leaf on the scrutiny of accounts of public-private partnerships and joint ventures, the Supreme Court Thursday ordered that the Comptroller and Auditor General of India was authorised to examine the accounts of even private companies if they were dealing with natural resources.

Opening up the accounts of private telecom companies to a CAG audit, the court said it was imperative to ascertain how the government and the firms were dealing with natural resources, “which belonged to the people of the country”, and that the government received its due share under the agreements.

“When nation’s wealth, like spectrum, is being dealt with either by the union, state or its instrumentalities or even the private parties, like service providers, they are accountable to the people and to the Parliament,” held a bench of Justices K S Radhakrishnan and Vikramjit Sen.

Directing telecom giants such as Bharti Airtel and Vodafone to provide all records and documents sought by the CAG, the bench noted that through its audit, the CAG was not carrying out a statutory audit of the accounts of the service providers but was ascertaining whether the Centre was getting its legitimate share by way of “revenue sharing”.

The CAG, the court said, was not actually auditing the accounts of the UAS service providers as such, but examining all receipts to ascertain whether the Centre was getting its due share by way of licence fee and spectrum charges, which it is legitimately entitled to, by way of revenue sharing.

“CAG’s examination of the accounts of the service providers in a revenue sharing contract is extremely important to ascertain whether there is an unlawful gain to the service provider and an unlawful loss to the Union of India, because the revenue generated out of that has to be credited to the consolidated fund of India,” the bench said.

The ruling is considered extremely significant as it will have far-reaching consequences on a wide range of sectors, particularly on discoms and natural gas, where licences for exploitation of natural resources have been granted by the government under revenue-sharing clauses.

Experts said the SC verdict may be cited to also seek a CAG audit of the accounts of private companies in such cases.
The judgement came on a bunch of appeals by the Association of Unified Telecom Service Providers of India and the Cellular Operators Association of India – organisations representing telecom companies – which had sought to overturn the Delhi High Court’s verdict allowing the CAG to audit revenues of private companies.

The CAG had initiated an audit after TRAI found that some telecom operators were allegedly under-reporting income to avoid sharing it with the Government. The telecom companies had approached the high court seeking a stay on the CAG decision.

Referring to the constitutional powers of the CAG which is known as the guardian of the purse, the court said Parliament had an obligation to ascertain whether the entire receipts by way of licence fee and spectrum charges have been realised by the Union of India and credited to the consolidated fund of India and this task was assigned to the CAG.

Spectrum, a natural resource, belongs to the people and therefore people should know how it has been dealt with by the union, state or its instrumentalities or even by UAS licence holders, the court said.

“Instances are not rare, where even the executive, at times, acts hand in glove with licence holders, who deal with the natural resources, hence, necessity of proper parliamentary control over the resources,” the bench said, adding the revenue received by the government was “a receipt payable into the consolidated fund of India” for all purposes.

 

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