CAG entitled to audit private telecom service providers - SC
CAN the Telecom Service providers be audited by the Comptroller & Auditor General of India? This was the basic question the Supreme Court answered recently.
In Centre for Public Interest Litigation and others v. Union of India and others - , the Supreme Court had observed,
The State is empowered to distribute natural resources. However, as they constitute public property/national asset, while distributing natural resources the State is bound to act in consonance with the principles of equality and public trust and ensure that no action is taken which may be detrimental to public interest.
Spectrum has been internationally accepted as a scarce, finite and renewable natural resource which is susceptible to degradation in case of inefficient utilisation. It has a high economic value in the light of the demand for it on account of the tremendous growth in the telecom sector.
As natural resources are public goods, the doctrine of equality, which emerges from the concepts of justice and fairness, must guide the State in determining the actual mechanism for distribution of natural resources.
In the case at hand, the Supreme Court observed,
State actions and actions of its agencies/instrumentalities/licensees must be for the public good to achieve the object for which it exits, the object being to serve public good by resorting to fair and reasonable methods. State is also bound to protect the resources for the enjoyment of general public rather than permit their use for purely commercial purposes. Public trust doctrine, it is well established, puts an implicit embargo on the right of the State to transfer public properties to private party if such transfer affects public interest. Further it mandates affirmative State action for effective management of natural resources and empowers the citizens to question ineffective management.UAS (Unified Access Service) license holders have an obligation to use such resources in a manner as not to impair or diminish the people's right and people's long term interest in that property or resource.
And who can question ineffective management better than the CAG ?
Article 148 of the Constitution states that there shall be a Comptroller and Auditor General, who shall be appointed by the President by warrant under his hand and shall only be removed in like manner and on like grounds as of Judge of the Supreme Court of India. The CAG is, therefore, an important functionary under the Constitution and, it is often said, he is the guardian of the purse and that he should see that not a farthing of it is spent without the authority of the Parliament.
Article 149 deals with the duties and powers of the CAG which reads as under:
"149. Duties and powers of the Comptroller and Auditor General. The Comptroller and Auditor General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively."
CAG - basic structure of the constitution? The Supreme Court noted that Article 149 does confer the power on the CAG to discharge duties and powers in relation to the accounts of the Union and the States or any other authority or body, as may be prescribed under the law made by the Parliament. CAG, therefore, is exercising constitutional powers and duties in relation to the accounts, while the High Court under Article 226 of the Constitution, so also the Supreme Court under Article 32 of the Constitution, is exercising judicial powers. Duties and powers conferred by the Constitution on the CAG under Article 149 cannot be taken away by the Parliament, being the basic structure of our Constitution, like Parliamentary democracy, independence of judiciary, rule of law, judicial review, unity and integrity of the country, secular and federal character of the Constitution, and so on.
Supreme Court is of the considered view that when the executive deals with the natural resources, like spectrum, which belongs to the people of this country, Parliament should know how the nation's wealth has been dealt with by the executive and even by the UAS (Unified Access Service) Licence holders and the quantum of the Revenue generated out of the use of the spectrum and whether the same has been properly assessed, collected and accounted for by the Union and the - UAS Licence holders. 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.
The senior counsel appearing for the service providers, while interpreting Article 149 of the Constitution, questioned the CAG's jurisdiction, stating that so far as the service providers are concerned, it does not extend to them since they are not government companies, nor do they receive any funding from the government. Further, it is also pointed out that they do not fall, rather not covered within the ambit of 'any other authority or body' prescribed under any law made by the Parliament. It was also pointed out that the CAG cannot audit private companies, like the service providers.
The Supreme Court was not impressed and observed,
Parliament has an obligation to ascertain whether the entire receipts by way of licence fee, spectrum charges, have been realized by the Union of India and credited to the Consolidated Fund of India (CFI). Article 266 says, all the public moneys received by or on behalf of the Government of India shall be credited to CFI. CAG can carry out examination into the economy, efficacy and effectiveness with which the Union of India has used its resources, and whether it has realized the entire licencee fee, spectrum charges and also whether the Union of India has correctly carried out the audit under Clauses 22.5 and 22.6 of UAS Licence Agreement. 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 subject matter, with which we are concerned, as already indicated, is "spectrum", a natural resource, which belongs to the people, therefore, people of this country, through Parliament should know how its natural resources have been dealt with by the Union, State or its instrumentalities or even by UAS licence holders. 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.
Section 18 of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 , which deals with the powers of the CAG in connection with the audit of accounts, reads as follows :-
"18. (1) The Comptroller and Auditor-General shall in connection with the performance of his duties under this Act, have authority -
(a) to inspect any office of accounts under the control of the Union or of a State including treasuries, and such offices responsible for the keeping of initial or subsidiary accounts, as submit accounts to him;
(b) to require that any accounts, books, papers and other documents which deal with or form the basis of or an otherwise relevant to the transactions to which his duties in respect of audit extend, shall be sent to such place as he may appoint for his inspection;
(c) to put such questions or make such observations as he may consider necessary, to the person in charge of the office and to call for such information as he may require for the preparation of any account or report which it is his duty to prepare.
(2) The person in charge of any office or department, the accounts of which have to be inspected and audited by the Comptroller and Auditor-General, shall afford all facilities for such inspection and comply with requests for information in as complete a form as possible and with all reasonable expedition."
Section 18(1)(b) delineates the powers of the CAG to call for the books of accounts, papers and other documents which form the basis of various transactions to which his duties extend.
The Supreme Court observed,
Revenue share receivable by the Union being a receipt payable into the Consolidated Fund", the CAG is entitled to seek the records maintained in terms of Rule 3 of Rules of 2002 and the records maintained under clauses 22.1 and 22.2 of the licence agreement. Unless the underlying records which are in the exclusive custody of the Service Providers are examined, it would not be possible to ascertain whether the Union of India, as per the agreement, has received its full and complete share of Revenue, by way of licence fee and spectrum charges.
The Supreme Court held:
++ CAG is entitled to seek the records in terms of Rule 3 of TRAI Rules 2002 read with Clause 22 of the Licence Agreement.
++ CAG, in that process, is not actually auditing the accounts of the UAS Service providers as such, but examining all the receipts to ascertain whether the Union is getting its due share by way of licence fee and spectrum charges, which it is legitimately entitled to, by way of Revenue Sharing. By adopting that process, CAG is not carrying out any statutory audit of the accounts of the service providers, but for the limited purpose of ascertaining whether the Union is getting its legitimate share by way of "Revenue Sharing".
++Service providers are, therefore, bound to provide all the records and documents called for by the CAG.
++ CAG has, therefore, a duty to examine and satisfy himself that all the rules and procedures in that behalf are being met not only by the Union but also the service providers as a whole, since both, the Union, as well as the service providers, are dealing with the natural resources.
++CAG's function is, therefore, separate and independent, which is not similar to the audit conducted by the DoT under Clause 22.5 or special audit under Clause 22.6.
++ CAG's function is only to ascertain whether the Union of India is getting its due share, while parting with the right to deal with its exclusive privilege to the Service Providers, who are dealing with a national wealth, to that extent, Rule 5(1)(ii) has to be read down, but the service providers are bound to make available all the books of accounts and other documents maintained by them under Rule 3, so as to ascertain whether the Union of India is getting its full share of revenue.