Supreme Court: CAG can audit accounts of private telecom companies

April 17, 2014

The Supreme Court bench of Justice K S Radhakrishnan and Justice Vikramjit Sen ruled that the Comptroller and Auditor General (CAG) in his capacity can inspect the accounts of private telecom companies. The court held that such an inspection was essential in order to make certain that the government, which has granted the private companies licenses of the precious natural resources, was getting in return its genuine share as per the revenue sharing agreement between the private company and Government.
The Supreme Court while upholding the preceding decision by the High Court, that granted a right of statutory audit to the CAG however, made certain changes to it.
The Supreme Court bench made clear in its decision that this capacity to do a revenue audit by CAG will not be a statutory audit or a special audit but will be restricted to investigating the statements of account in order to make certain that there was no loss to public exchequer in the process. Thus, an audit by CAG should only relate to revenues and not into aspects such as “wisdom and economy in expenditures”.
Background:
2009: TRAI found that a few telecom operators were purportedly under-reporting income to evade paying revenue share to the Government. Department of Telecommunication (DoT) hired CAG-empanelled auditors investigate the revenue books of Bharti Airtel Ltd, Vodafone India Ltd, Idea Cellular Ltd and Reliance Communications Ltd for the years 2006-07 and 2007-08.
2012: DoT then issued notices to recover almost Rs 1,600 crore in unpaid dues from the telecoms after it was found by CAG that they had purportedly under-reported revenues.
The telecom operators then filed petitions with the Delhi High Court, seeking a stay on the CAG’s decision.
January 2014: Delhi High Court gave a green signal for CAG audit of the private firms’ accounts. The Delhi High Court held that it was the responsibility of the CAG to audit telecom companies as a part of their revenue goes to the CFI (Consolidated Fund of India).
The Delhi High Court held that as per the terms of agreements between Govt and pvt telecom firms, the accounting responsibility on behalf of the Centre was undertaken by these firms. So, the revenue receipts for these accounts could be termed as the accounts of the central government and for this reason, these accounts can be a subject matter of CAG’s audit.
February 2014: The telecom companies’ associations, together with the Association of Unified Telecom Service Providers of India (AUTSP) and the Cellular Operators Association of India (COAI) appealed in the Supreme Court, challenging the January 6, 2014 verdict of the Delhi High Court.
April 2014: Supreme Court upheld the decision of Delhi High Court with a few changes.