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TMI Blog2014 (1) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971. Neither Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002 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 of the Constitution of India - The Rule and the Section fits perfectly into the constitutional scheme of every rupee flowing into the Consolidated Fund of India, by way of revenue, to be audited by the Comptroller and Auditor General of India - The Rule, the Section and the constitutional provisions as interpreted by us perfectly fit the critical features of the new emerging regulatory State which has to reconstruct institution on the ruins of the club government requiring displacing the key feature of the club with standardization and formality - the provision of systematic information accessible both to insiders and outsiders and strengthening the control mechanism and public reporting – Decided against Petitioner. - WP (C) No. 3673/2010, WP(C) No. 3679/2010 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regulation of the corporate enterprise. 5. Company law had to answer three questions : (i) What is the proper relationship between legal owners and those who do the daily job of running corporations? The question arose from the most important structural feature of the modern corporation : the separation of ownership from control which has been recognized as a central feature of business life. (ii) What claims, beyond legal ownership, give entitlement to a say in governing corporations? and (iii) What is the appropriate relationship between the corporation and the democratic State? 6. Company law was unable to satisfactorily answer the three questions and thus it was not possible to assimilate all privatized concerns in the prevailing mode of company regulation as per the existing company laws. 7. The reason why company law could not provide cogent answers to the three questions, was that the affairs of the company, as an institution, were treated as affairs concerning the shareholders and the directors (as agents of the company) answerable only to the shareholders. A company was a private entity and entitled to say that its governance was reserved for those with property ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1988 (pp 175 and 206) published by Jonathan Cape, London, opines this was the result of Club Government . Just like nobody can predict as to who would get the membership of a club; just like why nobody can figure out as to why some clubs allow children in the club premises and some don t and some for fixed duration of time; just like why nobody can figure out why some clubs prescribe a particular dress code and some don t; similar were the attributes of club government. 9. There were thus three striking features of club government : (i) informality; (ii) reliance on knowledge acquired by insiders by virtue of their insider status; and (iii) screening from public scrutiny and accountability. 10. The new economic order and the new kind of State which emerged had to promote the values and ideals of professionalism, scientific and technical expertise, administrative competence and neutrality in governance if the new model had to succeed. 11. It is rightly said that crisis forges the link between the shortcomings and the evils of yesterday with the horizon and the vision of tomorrow. Thus, the crisis of the governing order had to forge the link between stagnation of the past a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions - large corporations - have ample resources to devise mode of circumvention. The result is that, in critical areas of regulation, a battle of wits is constantly fought between the regulators and the regulated, intent on evading compliance all together or in producing only creative compliance; the best documented of which are in the link areas of corporate tax regimes and the regulations of financial markets. 19. One only wishes that large corporate(s) realize that the battle of wits produces perversity : a whole variety of unintended consequences which, in turn, frustrate the object of the regulation. Circumvention and perversity produce an intensification of the command and this means that one is back to square one. 20. At the same time, those who seek accountability (as regulators) must also understand that their best chance of success would be a courteous and a conciliatory demeanour towards those who are regulated; and by impressing on their minds that the object of the regulator s visit is to assist them and not to fish out grounds for complaint. The prying eyes of those who seek accountability must adopt the vision of a friendly adviser, who treats those whom he visi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esource to the private domain; and second, it regulates the rights and obligations of the State vis-a-vis private parties seeking to acquire/use the resource and demands that the procedure adopted for distribution is just, non-arbitrary and transparent and that it does not discriminate between similarly place private parties. (Emphasis supplied) 22. Undisputedly, by virtue of Section 4 of the Indian Telegraph Act, 1885, the Central Government has the exclusive privilege of establishing, maintaining and working telegraphs, meaning thereby, that except for the Central Government no other person has the right to carry on telecommunication activities. By virtue of the proviso to sub-Section 1 of Section 4 of the Indian Telegraph Act, 1885 the Central Government is empowered to grant a license, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India. As defined in sub-Section 1AA of Section 3 of the Act Telegraph means any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writing, images and sounds or intelligence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge conferred upon the licensee is as per clause 2 (and its various subclauses) of the agreement. The agreement envisages, apart from an entry fee, an annual fee @ 6% of Adjusted Gross Revenue excluding spectrum charges to be paid by M/s.Tata Teleservices Ltd. to the Union of India. A Radio Spectrum Charge as per clause 18.3.1 is payable additionally. The Adjusted Gross Revenue, as per clause 19 of the licence agreement, is defined as under:- 19. Definition of Adjusted Gross Revenue 19.1 Gross Revenue The Gross Revenue shall be inclusive of installation charges, late fees, sale proceeds of handsets (or any other terminal equipment etc.), revenue on account of interest, dividend, value added services, supplementary services, access or interconnection charges, roaming charges, revenue from permissible sharing of infrastructure and any other miscellaneous revenue, without any set-off for related item of expense, etc. 19.2 For the purpose of arriving at the Adjusted Gross Revenue (AGR) the following shall be excluded from the Gross Revenue to arrive at the AGR:- I. PSTN related call charges (Access Charges) actually paid to other eligible/entitled telecommunication service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be obliged to supply and provide for examination any book of accounts that the LICENSEE may maintain in respect of the business carried on to provide the service(s) under this Licence at any time without recording any reasons thereof. 22.3(b) LICENSEE shall invariably preserve all billing and all other accounting records (electronic as well as hard copy) for a period of THREE years from the date of publishing of duly audited approved Accounts of the company and any dereliction thereof shall be treated as a material breach independent of any other breach, sufficient to give a cause for cancellation of the LICENCE. 22.4 The records of the LICENSEE will be subject to such scrutiny as may be prescribed by the LICENSOR so as to facilitate independent verification of the amount due to the LICENSOR as its share of the revenue. 22.5 The LICENSOR may, on forming an opinion that the statements or accounts submitted are inaccurate or misleading, order Audit of the accounts of the LICENSEE by appointing auditor at the cost of the LICENSEE and such auditor(s) shall have the same powers which the statutory auditors of the company enjoy under Section 227 of the Companies Act, 1956. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the gross revenue receipts. Needless to state, without an accounting there is no way by which the Central Government can determine its dues. 30. Every contract contains an implied covenant of good faith and fair dealing, obligating the contracting parties to refrain from doing anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. 31. Under the terms of the licence agreement the licensee has undertaken the accounting responsibility for the Central Government as well as itself; a responsibility arguably carrying with it a fiduciary duty to accurately and honestly report the true receipts of the gross revenue. 32. Accountants owe a fiduciary duty to their clients. Accountants also owe a duty not to supply negligently or intentionally false information to non-clients whom the accountant knows, with substantial certainty, will rely on the information in their dealings with the clients. The role of the licensee, as an accountant, under the licence agreement cannot be glossed over. 33. It may be true that the licensees are not an accounting firm but they employ accountants and book keepers, who perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of 3 years and that under clause 22.4 the Central Government is empowered to scrutinize the said books of accounts so as to facilitate independent verification thereof for the purpose of ascertaining the amount due to it as its share of the revenue. 37. We may note at this stage that the dispute pertaining to the power of the Central Government under Clause 22.5 to appoint special auditors to conduct a special audit as per clause 22.6 has been settled in favour of the licensees by the Telecom Disputes Settlement Appellate Tribunal as per its decision dated February 10, 2011 in Petition No.139/2010 Cellular Operators Association of India Ors. Vs. Department of Telecommunication and Petition No.141/2010 Association of Unified Telecom Services Providers of India (AUSPI) Ors. Vs. Department of Telecommunication Anr. and the matter currently awaits a final adjudication before the Supreme Court on the subject. 38. It is the case of the petitioners that under Article 149 of the Constitution of India, the Comptroller and Auditor General in India is empowered only to audit the accounts of the Union and of the States as also of such authorities or bodies as may be prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uditor General of India for three years commencing from 2006-07 onwards. The three letters read as under:- TELECOM REGULATORY AUTHORITY OF INDIA MAHANAGAR DOORSANCHAR BHAVAN, JAWAHAR LAL NEHRU MARG, OLD MINTO ROAD, NEW DELHI 110002 F.NO.14.21/2009-FA Dated 28th January, 2010 To, Mr.Devinder Singh/Sunil Gupta M/s Reliance Group of Companies 15th Floor, Vijaya Building, 17, Barakhamba Road, New Delhi 110001 Subject: Furnishing of Books of Accounts to the Brach Audit Offices of the Director General of Audit, Post Telecommunications. Dear Sir, In terms of rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002, every service provider shall produce all such books of accounts and documents referred to in sub rule (1) of rule 3 thereof that has a bearing on the verification of the Revenue, to Telecom Regulatory Authority of India (the Authority) (ii) to furnish the Comptroller and Auditor General of India the statement or Information, relating thereto, which the Comptroller and Auditor General of India may require to be produced before him and the Comptroller and Auditor General o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Audit team which would start the process of audit. The time and venue of the presentation is given in Annexure-I. Shri Subu R.Director (Report) of my office has been nominated as Nodal Officer who would be overseeing and coordinating the Audit. Yours sincerely, Sd/- (R.P.SINGH) WP(C) NOS. 3673/2010 3679/2010 Page 21 of 33 x x x F.No.14-21/209-FA Dated 21st May, 2010 To, Mr.Anand Dalal Addl.Vice President (Regulatory Affairs) M/s. Tata Group of Companies Indicom Building 2A, Old Ishwar Nagar Main Mathura Road New Delhi 110065 Subject: Furnishing of Books of Accounts to the Branch Audit Offices of the Director General of Audit, Post Telecommunications. Kindly refer to TRAI s letter No.14-21/2009-FA dated 28th January 2010, in which your company has been asked to make available for audit all necessary records/books of accounts circle/area-wise, to the corresponding Branch Audit Offices (as indicated in the list) and to submit consolidated accounts to the Delhi office of the DG Audit, P T. Your company was also requested to make a presentation on the maintenance of books of accounts and other relevant matters in the office of DG Audit P T, Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Union and States- (1) The Comptroller and Auditor-General shall be responsible- (a) for compiling the accounts of the Union and of each State from the initial and subsidiary accounts rendered to the audit and accounts offices under the control by treasuries, offices or departments responsible for the keeping of such accounts; and (b) for keeping such accounts in relation to any of the matters specified in clause(a) as may be necessary: Provided that the President may, after consultation with the Comptroller and Auditor-General, by order, relieve him from the responsibility for compiling- (i) the said accounts of the Union (either at once or gradually by the issue of several orders); or (ii) the accounts of any particular services or departments of the Union: Provided further that the Governor of a State may, with the previous approval of the President and after consultation with the Comptroller and Auditor-General, by order, relieve him from the responsibility for compiling- (i) the said accounts of the State (either at once or gradually by the issue of several orders), or (ii) the accounts of any particular services or departments of the State: Provided also that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on.- Where the grant or loan to a body or authority from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly in a financial year is not less than rupees twenty-five lakhs and the amount of such grant or loan is not less than seventy-five per cent of the total expenditure of that body or authority, such body or authority shall be deemed, for the purposes of this sub-section, to be substantially financed by such grants or loans, as the case may be. (2) Notwithstanding anything contained in sub-section (1), the Comptroller and Auditor-General may, with the previous approval of the President of the Governor of a State or the Administrator of a Union territory having a Legislative Assembly, as the case may be, audit all receipts and expenditure of any body or authority where the grant to such body or authority from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly, as the case may be, in a financial year is not less than rupees one crore. (3) Where the receipts and expenditure of any body or authority are, by virtue of the fulfilment of the conditions specified in subsection (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof would be subject to an audit by the Comptroller and Auditor General of India including the manner and scope of the audit. 44. For the purposes of our decision we would be proceeding on the basis that the bodies or authorities accounts whereof would be subject to an audit by the Comptroller and Auditor General of India would be the ones as suggested by the petitioners and that the private telecom companies would not be the bodies or authorities conceived of by Article 149 of the Constitution of India, leaving the question open but noting that in the decision reported as AIR 1982 SC 149 S.P.Gupta Vs. Union of India, in paragraph 62 the Supreme Court observed:- The interpretation of every statutory provision must keep pace with changing concepts and values and it must, to the extent to which its language permits or rather does not prohibit, suffer adjustments through judicial interpretation so as to accord with the requirement of the fast changing society which is undergoing rapid social and economic transformation.... It is elementary that law does not operate in a vacuum. It is, therefore, intended to serve a social purpose and it cannot be interpreted without taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled the Consolidated Fund of the State . (2) All other public moneys received by or on behalf of the Government of India or the Government of a State shall be credited to the public account of India or the public account of the State, as the case may be. (3) No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution. 47. We highlight the expression all revenues received by the Government of India and shall form one consolidated fund to be entitled the Consolidated Fund of India in Article 266. 48. The expression revenues as observed by the Division Bench of the Punjab High Court in the decision reported as AIR 1957 Punjab 45 Gopi Parshad Vs. State of Punjab appearing in Article 266 has not been defined but there can be no manner of doubt that it means the income of the nation derived from taxes, duties or other sources for the payment of the nation s expenses. It is a term generally used in referring to income of a Government, and so used, means all the public money which the State collects and receives from whatever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to compiling and keeping accounts and vide Section 13 has prescribed the manner in which the expenditure shall be audited and vide Section 16 has prescribed the manner in which the receipts have to be audited. 51. We see no scope for any argument of there being any conflict between Section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 and Article 149 of the Constitution of India. We see no scope for an argument to urge any conflict between Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002 and Section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 for the reason, interpreting the contract, we have already held hereinabove that in a very real sense the licensees are the accountant of the Central Government with respect to the complete, accurate and honest maintenance of the books as to any transaction(s) involving revenue. (See para 33 above). We have already held in paragraph 31 above that under the terms of the licence agreement the licensee has undertaken the accounting responsibility for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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