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2014 (4) TMI 1136 - SC - Indian LawsCAG Audit - Scope and ambit of the powers and duties of the Comptroller and Auditor General of India (CAG) the Telecom Regulatory Authority of India (TRAI) and the Department of Telecommunications (DoT) in relation to the proper computation and quantification of Revenue in determining the licence fee and spectrum charges payable to Union of India under Unified Access Services (UAS) Licences entered into between DoT and the private service providers - Held that - As read Section 13 16 and 18 of the 1971 Act along with Article 149 of the Constitution and Sections 3 and 5 of the TRAI Act 1997 and if so read in our view 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. Legality of the communication issued by the Department of Telecommunications and Director General of Audit Post and Telecommunication to the various Telecom service providers covered by Unified Access Service (UAS) License for making available all the accounting records for the purpose of audit by CAG - Held that - Audit conducted by the licensor or the licencee has nothing to do with the audit conducted by CAG. If the reasoning of the Tribunal is accepted then the DOT can always stall an Audit sought to be conducted not only by CAG in exercise of powers conferred under Article 149 of the Constitution read with the 1971 Act and TRAI Rules 2002 but also an audit under clause 22.5 as well as special audit under clause 22.6. Consequently an audit to be conducted by CAG would not depend upon the formation of opinion by the DoT that the statements or accounts submitted to it were inaccurate or misleading which in our view would deprive the statutory and constitutional powers conferred on the CAG to conduct the audit or enquiry or inspection. Tribunal s order in our view is an encroachment upon the constitutional and statutory power conferred on CAG under Articles 148 149 of the Constitution as well as Section 16 of the 1971 Act read with Rule 5 of the TRAI Rules 2002 and the licensing provisions. Clauses 22.5 and 22.6 are not meant for an audit to be conducted by CAG or TRAI but meant for an audit by the DoT. The Tribunal also committed an error in holding that the formation of opinion under clause 22.5 that the statements or accounts submitted by the Licensee are inaccurate or misleading is jurisdictional fact referring to the jurisdiction of DoT/CAG to conduct audit under clause 22.5 or a special audit under clause 22.6. Formation of opinion under clause 22.5 is a subjective opinion of Licensor or else the power to conduct any form of audit under clause 22.5 and 22.6 would be lost and Licensor has to go on convincing the licensee that the statements or accounts submitted by the Licensee are inaccurate and misleading.
Issues Involved:
1. Scope and ambit of the powers and duties of the Comptroller and Auditor General of India (CAG), the Telecom Regulatory Authority of India (TRAI), and the Department of Telecommunications (DoT) in relation to the computation and quantification of revenue for determining license fees and spectrum charges. 2. Legality of the communications issued by DoT and the Director General of Audit, Post and Telecommunications, regarding the audit of telecom service providers by CAG. 3. Validity of Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002. Issue-wise Detailed Analysis: 1. Scope and Ambit of Powers and Duties of CAG, TRAI, and DoT: The judgment addresses the significant issue of the powers and duties of CAG, TRAI, and DoT concerning the computation and quantification of revenue for determining license fees and spectrum charges payable under Unified Access Services (UAS) Licenses. The court emphasized that spectrum is a scarce, finite, and renewable natural resource belonging to the people. The State, as a trustee of the people, must act in consonance with the principles of equality and public trust, ensuring no action detrimental to public interest. The court reiterated that the State's actions and those of its agencies must serve the public good, resorting to fair and reasonable methods. The court also highlighted the importance of protecting natural resources for the enjoyment of the general public rather than permitting their use for purely commercial purposes. 2. Legality of Communications Issued by DoT and Director General of Audit: The communications dated 16.03.2010 and 10.05.2010 were issued by DoT and the Director General of Audit, Post and Telecommunications, respectively, requesting telecom service providers to provide accounting records for audit by CAG. The court noted that these communications were issued under Clause 22.3 of the UAS License, which allows the licensor or TRAI to call for and examine any books of accounts maintained by the licensee without recording any reasons. The court found that the Tribunal erred in interpreting these communications as being issued under Clauses 22.5 and 22.6, which pertain to audits conducted by DoT. The court clarified that the audit by CAG is independent and separate from audits conducted by DoT under Clauses 22.5 and 22.6. 3. Validity of Rule 5 of TRAI Rules, 2002: The court addressed the challenge to Rule 5 of the TRAI Rules, 2002, which mandates service providers to produce books of accounts and documents for audit by CAG. The court held that Rule 5 is consistent with Article 149 of the Constitution and Section 16 of the CAG Act, 1971. The court emphasized that CAG has the duty to audit all receipts payable into the Consolidated Fund of India, including revenue from license fees and spectrum charges. The court noted that CAG's audit is not a statutory audit of the service providers' accounts but an examination to ensure that the Union of India receives its due share of revenue. The court upheld the validity of Rule 5, stating that it manifests the conferment of powers upon CAG in relation to the accounts of private service providers. Conclusion: The Supreme Court upheld the powers of CAG to audit the accounts of telecom service providers to ensure that the Union of India receives its due share of revenue from license fees and spectrum charges. The court clarified that the audit by CAG is independent of the audits conducted by DoT under Clauses 22.5 and 22.6 of the UAS License. The court also upheld the validity of Rule 5 of the TRAI Rules, 2002, which mandates service providers to produce books of accounts and documents for audit by CAG. The appeals by the service providers were dismissed, and the judgment of the Tribunal was set aside.
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