In a major boost to regulation, the Delhi high court on Monday upheld the contention of the comptroller and auditor general of India (CAG) that he could scrutinize the accounts of private telecom companies. Such an audit would, however, be limited to receipts in order to check whether those companies complied with their revenue sharing obligation to the public exchequer.

 

The caveat entered by the high court was that the CAG can conduct "only an audit pertaining to the receipts" and not inquire into aspects like faithfulness, wisdom and economy in expenditures.

Relying on Article 149 of the Constitution, a division bench of Justice Pradeep Nandrajog and Justice VK Rao held it mandates CAG to perform duties and exercise powers in relation to the accounts of the Union, which includes "a record of money received and spent by the Union."

"A plain reading of Article 149 would reveal that it is the constitutional duty of the CAG to perform such duties and exercise such powers in relation to the accounts of the Union and the states and of any other authority or body as may be prescribed by or under any law made by Parliament," the court said, agreeing with CAGs stand argued through lawyers Aman Lekhi and Gaurang Kanth.

The court said there is no conflict between CAG Act, the Constitution of India and the TRAI rules and concluded these fit perfectly "into the constitutional scheme of every rupee flowing into the Consolidated Fund of India, by way of revenue, to be audited by CAG." It pointed out that as per the license agreement "in a very real sense" the telecom companies "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." It said the accounts of the telecom companies, in relation to revenue receipts, can be termed as the accounts of the Central Government and would be the subject matter of CAG's audit.

'Synergy will benefit nation'

Dismissing the pleas of Association of Unified Telecom Service Providers and Cellular Operators Association of India ( COAI), the high court, in its 33-page judgment, said the synergy between the regulatory bodies and the telecom companies "would be not only for the benefit of the industry, the economy of the country, the society at large but would go a long way in establishing public confidence in good corporate governance."

The HC also had a word of advice for the big telecom firms which tried to block a CAG audit. It said "institutions typically subject to regulations — large corporations - have ample resources to devise mode of circumvention." This in turn leads to a situation where "a battle of wits is constantly fought between the regulators and the regulated, intent on evading compliance altogether 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."

The court said it wished "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."

HC had a word of caution for CAG too, saying 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 visits as gentlemen desirous of doing right and not the vision of a suspicious opponent desirous of finding evil and ready to make the most of it."

The bench rejected the pleas of private firms that the CAG, under Article 149 of the Constitution, is empowered only to audit the accounts of the Union and of the States as also of such authorities or bodies as may be prescribed by or under any law made by Parliament and private companies are outside the purview of the constitutional scheme.

It noted that the state's income, even from a contract, is the part of its general revenue and could be the subject matter of CAG's audit. The bench, in its judgment, also referred to the contents of the licence agreements entered into between the telecom service providers and the central government. (Times of India)