Supreme Court of India
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS & OTHERSversusUNION OF INDIA
- Citation
- 2014 INSC 294
- Decided
- 17 April 2014
- Disposal
- Disposed off
- Bench
- K S RADHAKRISHNAN
Holding
The CAG is empowered to audit the accounts of private telecom service providers to ascertain that the Union receives its full revenue share from spectrum charges and licence fees, and Rule 5 of the TRAI Rules is constitutionally valid.
Summary
The Supreme Court examined whether the Comptroller and Auditor General of India (CAG) could audit the accounts of private telecom service providers under the Unified Access Services (UAS) licences to verify revenue sharing with the Union. Service providers argued that the CAG’s powers under Article 149 of the Constitution and Section 16 of the CAG Act were limited to government bodies and could not extend to private entities. The Court held that because spectrum is a natural resource belonging to the people and the licence fees and spectrum charges are payable into the Consolidated Fund of India, the CAG’s audit power extends to the service providers’ accounts to ensure the Union receives its full share. It further clarified that Rule 5 of the TRAI Service Providers Rules, 2002, which mandates furnishing records to the CAG, is a valid exercise of Parliament’s power under Article 149. Consequently, the Tribunal’s order limiting the CAG’s audit was set aside, the service providers’ appeals were dismissed, and the Department of Telecommunications’ appeals were allowed.
Issues considered
- The scope of the CAG’s constitutional and statutory powers under Article 149 of the Constitution and Section 16 of the CAG Act with respect to auditing private telecom licencees.
- Whether Rule 5 of the TRAI Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002 is ultra vires the CAG Act and the Constitution.
- The relationship between the audit provisions in the UAS licence (Clauses 22.5 and 22.6) and the CAG’s audit powers.
- The applicability of Article 266 of the Constitution to revenue generated from spectrum charges and licence fees.
Legislation cited
- Companies Act, 1956s. 224, s. 227
- Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971s. 13, s. 16, s. 18
- Constitution of Indias. Article 148, s. Article 149, s. Article 266
- Indian Telegraph Act, 1885
- Indian Wireless Telegraphy Act, 1933
- Telecom Regulatory Authority of India Act, 1997s. 3, s. 5
Subjects
Revenue sharingCAG auditTelecom licenceSpectrum allocationConstitutional lawArticle 149Section 16 CAG ActTRAI Rules 2002Public trust doctrineNatural resources
Judgment
[2014] 9 S.C.R. 780
A ASSOCIATION OF UNIFIED TELE SERVICES
PROVIDERS & OTHERS
V.
UNION OF INDIA
(Civil Appeal No. 4591 of 2014)
B APRIL 17, 2014
[K.S. RADHAKRISHNAN AND VIKRAMAJIT SEN, JJ.]
Telecom Regulatory Authority of India, Service Providers
C (Maintenance of Books of Accounts and other Documents)
Rules, 2002 - r.3 and 5 - Telecom Regulatory Authority of
India Act, 1997 - Scope and ambit of the powers and duties
of the Comptroller and Auditor General of India (GAG), the
Telecom Regulatory Authority of India (TRAI) and the
D Department of Telecommunications (Do T) in relation to 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 Do T and the private service providers - Powers of
E the GAG to conduct the revenue audit of all accounts drawn
by the licensees - Accounts of the licensee, in relation to the
revenue receipts, if can be said to be the accounts of the
Central Government and, thus, subjl3ct to a revenue audit, as
per s. 16 of the 1971 Act - Legal position explained -
F Comptroller and Auditor General's (Duties, Powers and
Conditions of Service) Act, 1971 - ss. 13, 16 and 18 -
Constitution of India, 1950 - Arts. 148, 149 and 266.
Dismissing the appeals filed by the Service Providers
and allowing the appeals filed by the DoT and others, the
G Court
HELD:1. The licensee is obliged to maintain the
accounts relating to licence agreement and particularly the
revenue received by it because it has to share the revenue
H 780
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 781
UNION OF INDIA
with the Union, which has to be calculated with reference A
to the Gross Revenue Receipts. [Para 29] [813-D]
2. 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 8
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. [Para 34] [817-
8, C]
c
3. 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 Licence holders and the quantum of the D
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 E
instrumentalities or even the private parties, like service
providers, they are accountable to the people and to the
Parliament. Parliamentary democracy also envisages,
inter alia, the accountability of the Council of Ministers to
the Legislature. [Para 37] [818-E-G] F
4. 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 G
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 H
782 SUPREME COURT REPORTS (2014] 9 S.C.R.
A 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
B 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. [Para 41] [820-
A-D]
5. "Spectrum", a natural resource, belongs to the
C 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
D with licence holders, who deal with the natural resources,
hence, necessity of proper parliamentary control over the
resources. [Para 42] [820-E, F]
6. Section 16 of the Act of 1971 deals with audit of
E receipts of Union or States. The expression "to audit all
receipts" therein does not distinguish the revenue
receipts and non-revenue receipts. For the purpose of
audit of receipts, the duty of the CAG extends "to such
examination of the accounts as it thinks fit and report
F thereon". Section 13 read along with Section 16 makes
it clear that the expression "to audit all transactions" so
also "audit of all receipts", payable into Consolidated
Fund of India would take in not only the accounts of the
Union and of the State and of any other authority or body
G as may be prescribed or under any law made by the
Parliament but also to audit all transactions which Union
and State have entered into which has a nexus with
Consolidated Fund, especially when the receipts have
direct connection with Revenue Sharing. [Paras 44 & 45]
H [821-G; 822-C-E]
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 783
UNION OF INDIA
7. Revenue share receivable by the Union being a A
receipt payable into the Consolidated Fund" by virtue of
Section 16 and 18(1 )(b) of 1971 Act, in relation to such
receipts, 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 B
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 c
and spectrum charges. [Para 48] [824-A-C]
8. Section 13, 16 and 18 of the 1971 Act have to be
read along with Article 149 of the Constitution and
Sections 3 and 5 of the TRAI Act, 1997 and, if so read, CAG
is entitled to seek the records in terms of Rule 3 of TRAI D
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 E
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 F
share by way of "Revenue Sharing". Service providers
are, therefore, bound to provide all the records and
documents called for by the CAG. [Para 50} [824-H; 825-
A-D]
G
9. CAG has 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
H
784 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 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 I
is getting its due share, while parting with the right to deal
B 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
c as to ascertain whether the Union of India is getting its
full share of revenue. [Para 51] [825-D-G]
10. The impugned communications dated 16.3.2010
and 10.5.2010 were issued by DoT and the Director General
of Audit, Post & Telecommunications respectively, to the
D UAS license holders. Both the communications would
indicate that they were sent for seeking cooperation for the
Audit of Telecom service providers by the CAG, which is
neither an audit by the department within the meaning of
Clause 22.5, nor a special audit under Clause 22.6 of UAS
E Licence Agreement. Both the communications dated
16.3.2010 and 10.5.2010 clearly indicate that CAG intends
to conduct the Audit, since there is "revenue sharing"
between the Union of India and the UAS licence holders
and the revenue generated will have to be credited to the
F Consolidated Fund of India. [Paras 62, 66] [831-C, D; 835-
E]
11. An audit to be conducted by CAG would not
depend upon the "formation of opinion" by the DoT that
G the statements or accounts submitted to it were
inaccurate or misleading, which would deprive the
statutory and constitutional powers conferred on the CAG
to conduct the audit or enquiry or inspection. The
impugned order of the Tribunal was an encroachment
upon the constitutional and statutory power conferred on
H CAG under Articles 148, 149 of the Constitution as well
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 785
UNION OF INDIA
as Section 16 of the 1971 Act read with Rule 5 of the TRAI A
Rules 2002 and the licensing provisions. Clauses 22.5 and
22.6 of the UAS Licence Agreement 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 . B
22.5, that the statements or accounts submitted by the
Licensee are inaccurate or misleading, is jurisdictional
fact, referring to the jurisdiction of DoTICAG to conduct
audit under clause 22.5 or a special audit under clause
22.6. 'Formation of opinion' under clause 22.5 is a c
subjective opinion of Licensor or els.e 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. [Paras 67, 69] 0
[836-D-F; 837-D-F]
Centre· for Public Interest Litigation and others v. Union
of India and others (2012) 3 SCC 1: 2012 (3) SCR 147;
Natural Resources Allocation, in Re: Special Reference No. 1
of 2012, 2012 (2012) 10 sec 1: 2012 (9) SCR 311; E
Secretary, Ministry of Information and Broadcasting,
Government of India and others v. Cricket Association of
Bengal and others 1995 (2) SCC 161: 1995 (1) SCR 1036;
Reliance Natural Resources Limited v. Reliance Industries
Limited (2010) 7 sec 1: 2010 (5) SCR 704; M.K. F
Ranganathan v. Government of Madras (1955) 2 SCR 374;
Rohit Pulp and Paper Mills v. Collector of Central Excise,
Baroda (1990) 3 SCC 447: 1990 (2) SCR 797; Ahmedabad
Pvt. Primary Teachers' Association v. Administrative Officer
and others (2004) 1 SCC 755: 2004 (1) SCR 470; S.R. G
Chaudhuri v. State of Punjab and others (2001) 7 SCC 126:
2001 (1 ) Suppl. SCR 621; Kihoto Hollohan v. Zachilfhu and
others (1992) Suppl. 2 SCC 651: 1992 (1) SCR 686; S.
Subramaniam Balaji v. State of Tamil Nadu and others (2013)
9 SCC 659; Arvind Gupta v. Union of India and others (2013) H
786 SUPREME COURT REPORTS (2014] 9 S.C.R.
A 1 SCC 393: 2012 (8 ) SCR 1058; Arun Kumar Agrawal v.
Union of India and others (2013) 7 sec 1: 2013 (3) SCR 508;
People's 'Union For Civil Liberties (PUCL) and another v.
Union of India and another (2003) 4 sec 399: 2003 (2) SCR
1136; Rajesh Kumar and Others v. Deputy CIT and Others
~ (2007) 2 SCC 181: 2006 (8) Suppl. SCR 284; Sahara India
(Firm) Lucknow v. Commissioner of Income Tax, Central-I and
Another (2008) 14 SCC 151: 2008 (6) SCR 427; Anisminic
Ltd. v. Foreign Compensation Commission 1969 (1) All ER
208 - referred to.
c Case Law Reference:
2012 (3) SCR 147 referred to Para 3
2012 (9) SCR 311 referred to Para 3
D 1995 (1) SCR 1036 referred to Para 5
2010 (5) SCR 704 referred to Para 5
(1955) 2 SCR 374 referred to Para 15
1990 (2) SCR 797 referred to Para 15
E
2004 (1) SCR 470 referred to Para 15
2001 (1) Sl!ppl. SCR 621 referred to Para 18
1992 (1) SCR 686 referred to Para 18
F
(2013) 9 sec 659 referred to Para 35
2012 (8) SCR 1058 referred to Para 36
2013 (3) SCR 508 referred to Para 36
G 2003 (2) SCR 1136 referred to Para 40
2006 (8) Suppl. SCR 284 referred to Para 59
2008 (6) SCR 427 referred to Para 59
H 1969 (1) All ER 208 referred to Para 59
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 787
UNION OF INDIA
CIVIL APPELLATE JURISDICTION :Civil Appeal No. A
4591 of 2014.
From the Judgment and Order dated 06.01.2014 of the
High Court of Delhi at New Delhi in Civil Writ Petition No. 3673
of 2010.
B
WITH
C. A. No. 4592 of 2014 and
C. A. Nos. 10748 & 10749 of 2011
c
Harish N. Salve, Gopal Jain, Bina Gupta, Kaushik Laik,
Abhay A. Jena, Anuj Dhir, Shally Bhasin, Lakshmeesh S.
Karnath, Paras Anand, Chantanya Safaya (for E. C. Agrawala)
for the Appellants.
D
Paras Kuhad, ASG, Jitin Chaturvedi, Sarfaraj Ahmed, N.
K. Jha, Abhik Chimni, Swati Vijaywargiya, Gaurang Kanth,
Rahul Kumar, Savyasachi Sahai (for D. S. Mahra), Sanjay
Kapur, Anmol Chandan, Priyanka Das, Lekha Vishwanath for
the Respondents. E
The Judgment of the Court was delivered by
K.S. RADHAKRISHNAN, J.
CIVIL APPEAL NO. 4591 OF 2014 F
[Arising out of SLP (C) No. 1804 of 20141
AND
CIVIL APPEAL NO. 4592 OF 2014 G
[Arising out of SLP (C) No. 2925 of 20141
1 . Leave granted.
2. We are in these appeals concerned with the scope and H
788 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 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
B payable to Union of India under Unified Access Services (UAS)
Licences entered into between DoT and the private service
providers.
3. We have to examine the above-mentioned issue in the
light of the various constitutional, statutory and licensing
C provisions, bearing in mind the fact that we are dealing with
"spectrum", which is universally treated as a scarce finite and
renewable natural resource, the intrinsic utility of that natural
resource has been elaborately considered by this Court in
Centre for Public Interest Litigation and others v. Union of
D India and others (2012) 3 SCC 1 and in the Presidential
Reference, the opinion of which has been expressed in Natural
Resources Allocation, in Re: Special Reference No.1 of 2012
decided on September 27, 2012, reported in (2012) 10 SCC
1. This Court reiterated that the spectrum as a natural resource
E belongs to the people, though State legally owns it on behalf
of its people because State benefits immensely from its value.
This Court in Centre for Public Interest Litigation and others
(supra) referring to the intrinsic worth of spectrum stated as
follows:
F
"75. 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
G
which may be detrimental to public interest. Like any other
State action, constitutionalism must be reflected at every
stage of the distribution of natural resources. In Article
39(b) of the Constitution it has been provided that the
ownership and control of the material resources of the
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 789
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
community should be so distributed so as to best subserve A
the common good, but no comprehensive legislation has
been enacted to generally define natural resources and a
framework for their protection. Of course, environment laws
enacted by Parliament and State Legislatures deal with
specific natural resources i.e. forest, air, water, coastal B
zones, etc.
76 ................ The ownership regime relating to natural
resources can also be ascertained from international
conventions and customary international law, common law C
and national constitutions. In international law, it rests upon
the concept of sovereignty and seeks to respect the
principle of permanent sovereignty (of peoples and
nations) over (their) natural resources as asserted in the
17th Session of the United Nations General Assembly and
then affirmed as a customary international norm by the D
International Court of Justice in the case of Democratic
Republic of Congo v. Uganda .... ....... .
77. Spectrum has been internationally accepted as a
scarce, finite and renewable natural resource which is E
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. Although it does not belong to a particular State,
right of use has been granted to the States as per F
international norms.
78. In India, the courts have given an expansive
interpretation to the concept of natural resources and have
from time to time issued directions, by relying upon the
provisions contained in Articles 38, 39, 48, 48-A and 51- G
A(g) for protection and proper allocation/distribution of
natural resources and have repeatedly insisted on
compliance with the constitutional principles in the process
of distribution, transfer and alienation to private persons.
H
790 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 85. 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 this
regard, the doctrine of equality has two aspects: first, it
B regulates the rights and obligations of the State vis-a-vis
its people and demands that the people be granted
equitable access to natural resources and/or its products
and that they are adequately compensated for the transfer
of the resource to the private domain; and second, it
c 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 placed private parties."
D 4. We have indicated, the worth of spectrum to impress
upon the fact that the 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
E 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.
F Further it mandates affirmative State action for effective
management of natural resources and empowers the citizens
to question ineffective management.
5. UAS license holders have an obligation to use such
G 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.
In Secretary, Ministry of Information and Broadcasting,
Government of India and others v. Cricket Association of
Bengal and others 1995 (2) SCC 161, this Court held "there
is no doubt since air waive frequencies are public property and
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 791
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
are also limited, they have to be used in the best interest of A
the society and this can be done either by the Central Authority
by establishing its own broadcasting network or regulating the
grant of licenses to other agencies, including the private
agencies." In Reliance Natural Resources Limited v. Reliance
Industries Limited (2010) 7 SCC 1, this Court held that the B
constitutional mandate is that the natural resources belong to
the people of this country. This Court in several decisions took
the view that the natural resources are vested with the
Government as a matter of trust to the people of India and it is
the solemn duty of the State to protect the national interest and c
natural resources must always be used in the interest of the
country and not in private interest. In short, State is the legal
owner of spectrum as a trustee of the people and even though
it is empowered to distribute the same, the process of
distribution must be guided by constitutional provisions,
D
including the doctrine of equality and larger public good.
Bearing in mind the above constitutional principles, we may
proceed further.
6. We have the Indian Telegraph Act, 1885 in force, which
gives the "exclusive privilege" to the Central Government of E
establishing, maintaining and working of telegraph to the
Central Government and the Government is empowered to give
licences on such conditions and in consideration of such
payment, as it thinks fit, to any person to establish, maintain or
work a telegraph in any part of India. The Indian Wireless F
Telegraphy Act, 1933, regulates the possession of wireless
telegraph apparatus. The National Policy of 1994 was the first
major step towards deregularisation, liberalization and private
sector participation for providing certain basic telecom services
on affordable and reasonable prices to all people covering all G
villages and also to achieve various other objectives. Following
the New Telecom Policy of 1999 (NTP), licenses were granted
to various cellular mobile telephone service operators in various
cities and circles to make available affordable and effective·
communication for citizens, considering the fact that accE:SS to H
792 SUPREME COURT REPORTS [2014] 9 S.C.R.
A telecommunication was of utmost importance to achieve the
country's social and economic growth. NTP also attempted to
provide universal service to all uncovered areas, including the
rural areas and also provided high level services capable of
meeting the needs of the country's economy by striking a
B balance between the two. The NTP of 1999 specifically refers
to spectrum management which highlights the following aspects:
"10. The policy on spectrum management as enumerated
in NTP, 1999 was as under:
c (i) Proliferation of new technologies and the growing
demand for telecommunication services has led to
manifold increase in demand for spectrum and
consequently it is essential that the spectrum is utilised
efficiently, economically, rationally and optimally.
D
(ii) There is a need for a transparent process of a/location
of frequency spectrum for use by a service provider and
making it available to various users under specific
conditions.
E (iii) With the proliferation of new technologies it is essential
to revise the National Frequency Allocation Plan (NFAP)
in its entirety so that it becomes the basis for development,
manufacturing and spectrum utilisation activities in the
country amongst all users. NFAP was under review and the
F revised NFAP was to be made public by the end of 1999
detailing information regarding allocation of frequency
bands for various services, without including security
information.
(iv) NFAP would be reviewed no later than every two years
G
and would be in line with the Radio Regulations of the
lnternationai Telecommunication Union (ITU).
(v) Adequate spectrum is to be made available to meet
the growing need of telecommunication services. Efforts
H. would be made for relocating frequency bands assigned
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 793
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
earlier to defence and others. Compensation for relocation A
may be provided out of spectrum fee and revenue share.
(v1) There is a need to review the spectrum allocation in a
planned manner so that required frequency bands are
available to the service providers. 8
(vii) There is a need to have a transparent process of
allocation of frequency spectrum which is effective and
efficient and the same would be further examined in the
light of ITU guidelines. In this regard the following course
of action shall be adopted viz.: C
(a) spectrum usage fee shall be charged;
(b) an Inter-Ministerial Group to be called the Wireless
Planning Coordination Committee, as a part of the
0
Ministry of Communications for periodical review of
spectrum availability and broad allocation policy,
should be set up; anCI
(c) massive computerisation in WPC wing would be
started in the next three months so as to achieve E
the objective of making all operations completely
computerised by the end of the year 2000."
7. Parliament, in the year 1997, enacted the Telecom
Regulatory Authority of India (TRAI) Act to provide for the
F
establishment of TRAI and the Authority has been entrusted with
various regulatory functions on unified licensing. The Act and
the recommendations made by TRAI emphasized on efficient
utilization of spectrum to all the service providers and indicated
that it would make further recommendations on efficient
utilization of spectrum, spectrum pricing, availability and G
spectrum allocation procedure, and DoT has to issue spectrum
related guidelines, based on its recommendations.
8. Let us now examine the facts which gave rise to these
appeals. On 28.01..201
/. ·,· -
O; the TRAI issued a communication to H
794 SUPREME COURT REPORTS [2014] 9 S.C.R.
A one of the service providers for furnishing books of accounts
to the Branch Audit Office of the Director General of Audit, Post
and Telecommunication, operative portion of the said
communication reads as follows:
"In terms of Rule 5 of the Telecom Regulatory
B
Authority of India, Service Providers (Maintenance of
Books of Accounts and other Documents) Rule, 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
c Revenue, to Telecom Regulatory Authority of India (the
authority);
(ii) to furnish to the Comptroller and Auditor General of
India the statement or information, relating thereto,
D which the Comptroller and Auditor General of India
may require to be produced before him and the
Comptroller and Auditor General of India may audit
the same in accordance with the provisions of
Section 16 of the Comptroller and Auditor
E General's (Duties, Powers and Conditions of
Service) Act, 1971.
2. The Comptroller and Auditor General of India
(through Director General of Audit, Post &
Telecommunications) has decided to audit the
F books of accounts of your company for the period
of three years commencing from 2006-2007
onwards to assess the government share out of the
revenues carried by your company in terms of the
licence agreement with DoT.
G
3. Therefore in terms of the rule 5 of the TRAI, Service
Providers (Maintenance of Books of Accounts and
other Documents) Rules, 2002, it is requested that
all necessary records/books of accounts circle/
H area-wise, on the Maintenance of Books of
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 795
UNION OF INDIA [K.S. RADHAKRISHNAN, J.)
Accounts and other relevant matters during the last A
week of January, 2010 in the office of DO Audit,
P&T, New Delhi, which would facilitate the audit
work.
4. It is, therefore, requested that all necessary co-
operation may be extended to the Branch Audit 8
Officers and Delhi office of DG Audit P& T for
completion of the above audit work besides
providing all necessary records/information/
documents required in connection with this audit
work. C
This issues with the approval of the Authority."
9. The DoT later wrote a communication dated 16.03.2010
to one of the service providers, the subject matter of which D
reads "Audit and Telecom Service Providers by Comptroller &
Auditor General", the operative portion of the said
communication reads as under:
"In exercise of power conferred on the Licensor under
clause 22.3 of Unified Access Service (UAS) Licence, it E
is requested to provide the following accounting records,
for three years commencing from 2006-07, consisting of
books of accounts and other documents for all the services
offered under the above referred UAs licences issued to
reflect: F
(i) Total cost and breakup of original and current cost
i.e. cost after depreciation under separate heads
for different category of fixed assets;
(ii) Cost and breakup of operational expenses; G
(iii) Service wise revenue;
(iv) Income from other sources;
H
796 SUPREME COURT REPORTS [2014] 9.S.C.R.
A (v) Supporting books of accounts other documents
(a) Fixed assets register
(b) Stores and spares/Inventory register
B (c) Register showing service-wise particulars of
subscribers
(d) Register showing deposits from customers
(e) Cash books
c
(f) Journals
(g) Ledger
(h) Copies of bills and counterfoils of all
D receipts.
2. The above mentioned information should be sent
directly to DOG (Accounts), Department of
. Telecommunications, Room No.701, Sanchar Bhavan, 20,
E Ashoka Road, New Delhi - 110001 within 15 days from
date of issue of this letter.
Sd/- (16.3.2010)
(Shashi Mohan)
Director (AS-IV)
F Tele:23372063/Fax-23372404"
10. One of the service providers replied to the above-
mentioned letter on 15.04.2010, the operative portion of the
same reads as under:
G "We appreciate that DoT in terms of Clause 22.3 of UASL
can call for Licensee's books of accounts or go further and
direct for a special audit by independent auditor in terms
of Clause 22.6 and we have been complying and are
committed to complying with direction/s that may be
issued by DoT in this regard. However, we should like to
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 797
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
mention here that we are currently undergoing the A
extensive special audit of our books of accounts by an
independent auditor Mis S.K. Mittal & Co. appointed by
DoT for the same period i.e. FY 2006-07 and 2007-08.
In the light of the above, the recent communication of DoT 8
asking us to provide our accounting records for period of
three years starting from 2006-07 for an audit by the C&AG
is a matter of surprise and concern for us. We submit that
a fresh audit so closely on the heels of the special audit
by DoT appointed independent auditor is unwarranted and C
will result in duplication of efforts, time and waste of
resources. However, as a good corporate citizen, we have
provided to DoT the total cost and breakup of original and
current cost, cost and breakup of operational expenses,
service wise revenue, and income from other sources for
the year 2006-07, 2007-08 and 2008-09 vide our letters D
dated 1st April, 2010 and 12th April 2010 though this
information provided to DoT is very sensitive from
competitive point of view.
We ·would also like to submit that the provisions of the E
C&AG Act, 1971, which set out the duties and powers of
the C&AG pertain only to the audit of accounts of the Union
or the States or Government Companies or Corporations.
The audit of accounts of private companies such as ours
is not a part of duties and powers of the C&AG. F
It is, therefore, requested that while DoT can call for our
books of accounts, the audit of those does not fall within
the purview of the C&AG.
We submit that the information sought through the letter like G
operational expenses, total cost and break up of original
and current cost etc. is not only sensitive from competitive
point of view but has no direct linkages to the revenues of
the company and thus falls beyond our licence obligations.
H
798 SUPREME COURT REPORTS [2014] 9 S.C.R.
A We submit once again that we have already provided to
DoT the desired information and are ready and be willing
to provide any further specific information or data which
is required by DoT in accordance with the provisions of
the UAs licence.
B
We look forward to your kind consideration and support
on the matter."
11. The Director General of Audit, Post and
Telecommunications, later, with specific reference to "Audit of
C Telecom Service Providers by C&AG" sent a communication
dated 10.05.2010 to one of the service providers, the operative
portion of the same reads as under:
"OFFICE OF THE
D
DIRECTOR GENERAL OF AUDIT, POST &
TELECOMMUNICATIONS
SHAM NATH MARG (NEAR OLD SECRETARIAT), DELHI
E R.P. Singh
Director General Dated : 10.5.2010
Sub: Audit of Telecom Service Providers by C&AG-
Reg.
F
Ref : 1) DoT Letter No.842-1086/2010-AS-IV dt.
16.03.2010.
(2) Your office letter No.RTL/09-10/4433 Dt.
31.3.2010.
G
Dear Shri Singh,
Kindly refer to your office letter cited on the above subject
extending cooperation in conduct of the audit of revenue
share by C&AG. Certain difficulty has been expressed by
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 799
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
your Company in providing the books of accounts in A
physical form as they are being maintained in electronic
form in SAP R3. Further, it has been stated, the same
could be viewed in the concerned IT Systems which would
be made available at your headquarters at DAKC, Navi
Mumbai. In this connection, it is requested that on 20th B
May, 2010, a presentation may be given covering your
business activities, accounting policies, Accounting, billing
and financial systems and all other issues relating to
revenue share, followed by brief interface meeting with my
Audit team which would start the process of audit. The time c
and venue of the presentation is given in Annexure-1. Shri
Subu R. Director (Report) of my office has been nominated
as Nodal Officer who would be overseeing and
coordinating the Audit.
Regards, D
Yours sincerely,
R.P. Singh"
12. The TRAI on 21.05.2010 sent yet another
communication to one of the service providers with specific E
reference to "Furnishing of Books of Accounts to the Branch
Audit Offices of the Director General of Audit, Post and
Telecommunications", the operative portion of the same reads
as under:
"Telecom Regulatory Authority of India F
Mahanagar Doorsanchar Bhawan,
Jawahar Lal Nehru Marg, Old Minto Road
. New Delhi - 110 002
F.No.1.tl-21/2009-FA Dated 21st May, 2010
G
Mr. Anand Dalal
Addi. Vice President (Regulatory Affairs)
M/s Tata Group of Companies
lndicom Building
2A, Old lshwar Nagar
H
800 SUPREME COURT REPORTS (2014) 9 S.C.R.
A Main Mathura Road
New Delhi - 110 065
Subject : Furnishing of Books of Accounts to the
Branch Audit Offices of the Director General of
Audit, Post & Telecommunication.
B
Kindly refer to TRAl'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
c 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, New
Delhi.
D
2. We have been informed by the C&AG that your
company has not responded to these instructions so far.
3. In this connection, TRAI had received representations
E from the industry associates indicating that the scope of
the C&AG's audit is similar to the scope of the exercise
that is being done by the special auditor appointed by the
DoT and that this exercise would be a duplication of work.
The concerns expressed by the industry associations were
F brought to the notice of the C&AG. However, the C&AG
(through Director General Audit (P&T) has informed us that
the audit by the C&AG of India under Section 16 of the
C&A (DPC) Act is in exercise of the provisions of TRAI
Rules, 2002 and has no relation with the special audit
undertaken by the CAs appointed by DoT.
G
4. In view of the above, you are requested to make
available all necessary records/books of accounts circle/
area wise, to the corresponding Branch Audit Offices (as
indicated in the letter dated 28th January, 2010) and to
H submit consolidated accounts to the Delhi Office of the DG
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 801
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
Audit, P& T within 15 days of the receipt of this letter. You A
are also informed that non-compliance of this letter may
attract appropriate action under the TRAI Act.
This issues with the approval of the Authority.
Yours faithfully, B
Sd/-
(Anuradha Mitra)
Pr. Advisor (FA)"
13. The TRAI also apprised the Service Providers that the
audit sought to be conducted by CAG was separate and C
independent of the audit or special audit conducted by DoT,
and therefore, directed the Service Providers to make available
all the records for audit by CAG or else appropriate action
would be taken against them under the TRAI Act. Service
providers, aggrieved by the stand of DoT and TRAI, filed Civil D
Writ Petition 3673 of 2010, challenging the legality of the above-
mentioned notices before the Delhi High Court, seeking
following reliefs:
II i. Pass a writ, order or direction to hold and declare E
that Rule 5 of the Telecom Regulatory Authority of
India, Service Providers (Maintenance of Books of
Accounts and other Documents) Rules, 2002 for
being ultra vires of Section 16 of the C&AG Act and
Article 149 of the Constitution of India;
F
ii. Set aside/quash all actions taken/purported to be
taken by the Respondent No.1 and/or Respondent
No.2;
iii. Set aside/quash Respondent No.2's letters dated G
10.5.2010 and 21.5.2010 and the directions
contained therein;
iv. Set aside/quash Respondent No.3's letter dated
28.1.2010 and the directions contained therein;
H
.802 SUPREME COURT REPORTS [2014) 9 $.C.R.
A v. pass any order(s) as the Court may deem fit in the
interest of justice, equity and good conscience."
14. The Division Bench of the Delhi High Court examined
the legality of the above-mentioned communications in the light
8 of Rule 5 of the TRAI Rules, 2002;Section 16 of the CAG Act,
1971 and Article 149 ofthe Constitution of India read with UAS
licence conditions and took the view that the CAG has the
powers to conduct the revenue audit of all accounts drawn by
the licensees and expressed the view that the accounts of the
C licensee, in relation to the revenue receipts can be said to be
the accounts of the Central Government and, thus, subject to a
revenue audit, as per Section 16 of the CAG (Duties, Powers
and Conditions) Act, 1971. Holding so, the writ petitions were
dismissed against which these civil appeals have been
preferred by way of special leave.
D
15. Shri Harish N. Salve, learned senior counsel appearing
for the appellants, submitted that the High Court has not properly
appreciated the scope of Article 149 of the Constitution of India,
particularly the phrase "accounts of the Union and States and
E any other authority or body". Learned senior counsel submitted
that a composite interpretation would reveal that the term 'body'
is to be construed in the light of the continuing term "Union",
"States" and "authority" all of which connote some form of State
control. Learned senior counsel also made reference to the
F principle of "nocitar a cociis." Learned senior counsel made
reference to the Judgment of this Court in M.K. Ranganatharr
v. Government of Madras (1955) 2 SCR 374, Rohit Pulp and
Paper Mills v. Collector of Central Excise, Baroda (1990) 3
SCC 447, Ahmedabad Pvt. Primary Teachers' Association v.
G Administrative Officer and others (2004) 1 SCC 755. Learned
senior counsel also referred to the Constituent Assembly
Debates and Article 149 of the Constitution of India and
submitted that the term "any other authority or body" was only
meant to cover the entities that perform State functions/or
H entities financed or controlled by the State, as opposed to local
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 803
UNION-OF INDIA [K.S. RADHAKRISHNAN, J.]
bodies and other miscellaneous corporations ,and A
organizations.
16. Learned senior counsel submitted that Section 16 of
the Act of 1971 does not apply to audit of private telecom
licensees and submitted that the mere fact that licence fee
B
payable under the licence agreement has to be credited into
the Consolidated Fund of India in the form of receipts does not
mean that a proprietary audit in respect of such receipts
extends to a statutory audit of private telecom licensee.
Learned senior counsel also submitted that for audit of telecom
licensees the correct legal regime would be clause 22 of the C
Licence Agreement which specifically provides for audit and
special audit. Shri Salve also pointed out that the DoT, under
the agreement, can appoint an outside auditor of its choice or
even the CAG can conduct an audit in terms of clause 22 of
UAS. Learned senior counsel also pointed out that the mere D
fact that Rule 5 of 2002 Rules states that the CAG may carry
out an audit of the accounts of telecom licensee under Section
16 of the 1971 Act does not make such audit legally
permissible. Rule 5, according to learned senior counsel, ought
to be struck down as ultra vires and in contravention of Section E
16 of 1971 Act.
17. Shri Gopal Jain, learned senior counsel also appearing
for the appellants, submitted that the reasoning of the High Court
is patently erroneous in law and pointed out that the licence F
agreement obliges the licensee to maintain accounts as
prescribed in the agreement to produce those accounts as and
when demanded, and if the Government is satisfied that the
accounts are not maintained as per the prescribed manner, a
provision for special audit is there, which the service providers G
are also subjected to. So far as the audit referred to under
Article 149 of the Constitution is concerned, learned senior
counsel pointed out that there must be an element of
government control of finance and the same is completely
lfking in the case of the service providers. Learned senior
H
.804 $UPRtME COURT REPORTS [2014] 9 S.C.R .
A counsel also referred to the meaning and content of Article 266
of the Constitution and stated that the same deals with receipts
which are payable into the Consolidated Fund of India and the
receipts are only that of the Union and the States, as the case
may be, and not the private telecom companies.
B
18. Shri Paras Kuhad, learned Additional Solicitor General
of India, appearing for the respondent-Union of India, fully
supported the reasoning of the High Court and submitted that
the High Court has correctly appreciated and understood the
scope of Article 149 of the Constitution which has clearly
C defined the powers of the CAG. Learned ASG pointed out that
the conferment of powers upon Parliament under Article 149
is not limited to the accounts of the Union and the States and
other bodies and authorities, but also extends to inclusion
therein of the powers to legislate on all matters concerning or
D pertaining to the accounts of the Union. Learned ASG placed
considerable emphasis on the expression "in relation to" which
takes in the underlying accounts and records maintained by the
service providers. Learned ASG pointed out that the object of
Article 149 of the Constitution and Act of 1971 is to provide
E for Parliamentary control of executive on public funds,
consequently, ambit of audit by CAG has to cover all issues
that are required to be examined by the Parliament. Referring
to the essence of Parliamentary Democracy, learned ASG
placed reliance on the decision of this Court in S. R. Chaudhuri
F v. State of Punjab and others (2001) 7 SCC 126 and Kihoto
Ho/lohan v. Zachil/hu and others (1992) Suppl. 2 SCC 651.
19. Learned ASG also submitted "receipts payable into the
Consolidated Fund of India" under Article 266 of the
G Constitution of India take in "all revenue receipts received by
the Government of India" and submitted that a combined
reading of Sections 13, 16 and 18 would indicate that it is
obligatory on the part of the CAG to audit all transactions
entered into by the Union and the States pertaining to the
Consolidated Fund. Learned ASG referring to Rule 3 submitted
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 805
UNION OF INDIA [KS. RADHAKRISHNAN, J.]
that the Rule prescribes the records required to be maintained A
enabling TRAI to carry out its obligation under Section 11 and
Rule 5 provides for furnishing the said record to TRAI for the
said purpose and for its audit by CAG. Learned ASG, therefore,
submitted that the High Court has correctly interpreted the
various provisions of the Act and the constitutional provisions B
and hence calls for no interference.
20. We will, before examining the various contentions
raised by the learned senior counsel for the appellant and ASG
on the scope of Article 149 of the Constitution, Section 16 of C
Act of 1971, Rule 5 of 2002 Rules etc., examine the various
clauses in the UAS Licence Agreement. As already indicated,
the Licence Agreement specifically refers to Section 4 of the
Indian Telegraph Act, 1885, which highlights the fact that the
Central Government enjoys an "exclusive privilege" so far as
"spectrum" is concerned, which is a scarce, finite and renewable D
natural resource which has got intrinsic utility to mankind.
Spectrum, as already indicated, is a natural resource which
belongs to the people, and the State, its instrumentalities or the
licensee, as the case may be, who deal with the same, hold it
on behalf of the people and are accountable to the people. E
21. The DoT had entered into various UAS licence
agreements and, in certain cases, for few decades. Agreement
confers powers on DoT to suspend the operation of the licence
at any time if it is necessary or expedient to do so in the public F
interest or in the interest of the security of the State and also
reserves the right to take over the entire service equipments
and network of the licensee or revoke/terminate/suspend the
licence in the interest of public or national security or in the
interest of national emergency/war etc. Licensor also reserves G
the right to keep any area out of the operation zone of service
if implications of security so require. Few of the clauses, which
are relevant for our purposes, need reference and hence are
extracted hereunder. Clause 9.1 indicates the requirement of
furnishing of information which reads as under:
H
806 SUPREME COURT REPORTS [2014] 9 S.C.R.
A "9. Requirement to furnish information:
9.1 The LICENSEE shall furnish to the Licensor/TRAI,
on demand in the manner and as per the time
frames such documents, accounts, estimates,
returns, reports or other information in accordance
B
with the rules/ orders as may be prescribed from
time to time. The LICENSEE shall also submit
information to TRAI as per any order or direction
or regulation issued from time to time under the
provisions of TRAI Act, 1997 or ar\ amended or
c modified statute."
22. Clause 16 is general in nature and is extracted
hereunder:
D "16. General:
16.1 The LICENSEE shall be bound by the terms and
conditions of this Licence Agreement-as well as by
such orders/directions/ regulations of TRAI as per
provisions of the TRAI Act, 1997 as amended from
E time to time and instructions as are issued by the
Licensor/TRAI. ·
16.3 The Statutory provisions and the rules made under
Indian Telegraph Act 1885 or Indian Wireless
F Telegraphy Act, 1933 shall govern this Licence
agreement. Any order passed under these statutes
shall be binding on the LICENSEE."
23. Part 2 of the licence conditions refers to commercial
conditions and clause 17 deals with performance, which reads
G as under:
"17. Tariffs:
17.1 The LICENSEE will charge the tariffs for the
SERVICE as per the Tariff orders/ regulations I
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 807
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
directions issued by TRAI from time to time. The A
LICENSEE shall also fulfill requirements regarding
publication of tariffs, notifications and provision of
information as directed by TRAI through its orders/
regulations/directions issued from time to time as
per the provisions of TRAI Act, 1997 as amended B
from time to time."
24. Part 3 of the licence conditions deals with the finance
conditions, fee payable, etc. which reads as under:
"18.1 Entry Fee: c
One Time non-refundable Entry Fee of Rs.2 crore
has been paid by the Licensee prior to signing of
this Licence Agreement.
18.2 Licence Fees: D
In addition to the Entry Fee described above, the
Licensee shall also pay Licence Fee annually @ 6
(six)% of Adjusted Gross Revenue (AGR),
excluding spectrum charges. E
Annual Licence fee w.e.f. 1.4.2004 shall be @ 6
(six)% of AGR. The Licensor reserves the right to
modify the above mentioned Licence Fee any time
during the currency of this agreement.
F
18.3 Radio Spectrum Charges:
18.3.1 The LICENSEE shall pay spectrum charges
in addition to the Licence Fee on revenue share
basis as notified separately from time to time by the G
WPC Wing. However, while calculating 'AGR' for
limited purpose of levying spectrum charges based
on revenue share, revenue from 'wireline
subscribers shall not be taken into account.
H
808 SUPREME COURT REPORTS [2014] 9 S.C.R.
.... A 18.3.2 Further royalty for the use of spectrum for
point to point links and other access links shall be
separately payable as per the details and
prescription of Wireless Planning & Coordination
Wing. The fee/ royalty for the use of spectrum I
B possession of wireless telegraphy equipment
depends upon various factors such as frequency,
hop and link length, area of operation and other
related aspects etc. Authorization of frequencies for
setting up Microwave links by Licensed Operators
c and issue of Licenses shall be separately dealt with
by WPC Wing as per existing rules."
25. Clause 19 deals with definition of Adjusted Gross
Revenue (AGR) which reads as under:
D "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
E 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
F 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:
G
I. PSTN related call charges (Access Charges)
actually paid to other eligible/entitled
telecommunication service providers within India;
H II. Roaming revenues actually passed on to other
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 809
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
eligible/entitled telecommunication service A
providers and;
Ill. Service Tax on provision of service and Sales Tax
actually paid to the Government if gross revenue
had included as component of Sales Tax and 8
Service Tax."
26. Clause 20 deals with the schedule of payments of
annual licence fee and other dues. Relevant clauses being 20.4,
20.6, 20.7 and 20.11 are extracted hereunder:
c
"20.4 The quarterly payment shall be made together with
a STATEMENT in the prescribed form as
annexure-11, showing the computation of revenue
and Licence fee payable. The aforesaid quarterly
STATEMENTS of each year shall be required to be D
audited by the Auditors (hereinafter called
LICENSEE'S Auditors) of the LICENSEE
appointed under Section 224 of the Companies'
Act, 1956. The report of the Auditor should be in
prescribed form as annexure-11. E
20.6 Final adjustment of the Licence fee for the year shall
be made based on the gross revenue figures duly
certified by the AUDITORS of the LICENSEE in
accordance with the provision of Companies' Act,
1956. F
20. 7 A reconciliation between the figures appearing in
the quarterly statements submitted in terms of the
clause 20.4 of the agreement with those appearing
in annual accounts shall be submitted along with a G
copy of the published annual accounts audit report
and duly audited quarterly statements, within 7
(seven) Calendar days of the date of signing of the
audit report. The annual financial account and the
statement as prescribed above shall be prepared
H
810 SUPREME COURT REPORTS [2014] 9 S.C.R.
A following the norms as prescribed in Annexure.
20.11 The LICENSOR, to ensure proper and correct
verification of revenue share paid, can, if deemed
necessary, modify, alter, substitute and amend
whatever stated in Conditions 20.4, 20.7, 22.5 and
B
22.6 hereinbefore and hereinafter written."
27. Clause 22 deals with the preparation of accounts.
Relevant clauses are extracted hereunder:
c "22. Preparation of Accounts.
22.1 The LICENSEE will draw, keep and furnish
independent accounts for the SERVICE and shall
fully comply orders, directions or regulations as may
be issued from time to time by the LICENSOR or
D
TRAI as the case may be.
22.2 The LICENSEE shall be obliged to:
(a) Compile and maintain accounting records,
E sufficient to show and explain its transactions in
respect of each completed quarter of the Licence
period or of such lesser periods as the LICENSOR
may specify, fairly presenting the costs (including
capital costs), revenue and financial position of the
LICENSEE's business under the LICENCE
F
including a reasonable assessment of the assets
employed in and the liabilities attributable to the
LICENSEE's business, as well as, for the
quantification of Revenue or any other purpose.
G (b) Procure in respect of each of those accounting
statements prepared in respect of a completed
·financial year, a report by the LICENSEE's Auditor
in the format prescribed by the LICENSOR, stating
inter-alia whether in his opinion the statement is
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 811
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
adequate for the purpose of this condition and A
thereafter deliver to the LICENSOR a copy of each
of the accounting statements not later than three
months at the end of the accounting period to which
they relate.
B
(c) Send to the LICENSOR a certified statement
sworn on an affidavit, by authorized representative
of the company, containing full account of Revenue
as defined in condition 19 for each quarter
separately along with the payment for the quarter.
c
22.3 (a) The LICENSOR or the TRAI, as the case may
be, shall have a right to call for and the LICENSEE
shall be obliged to supply and provide for
examination any books of accounts that the
LICENSEE may maintain in respect of the business D
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 E.
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 F
a cause for cancellation of the LICENCE.
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 G
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,
H
812 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 1956. The remuneration of the Auditors, as fixed by
the LICENSOR, shall be borne by the LICENSEE.
22.6 The LICENSOR may also get conducted a 'Special
Audit' of the LICENSEE company's accounts/
records by "Special Auditors", the payment for
B
which at a rate as fixed by the LICENSOR, shall be
borne by the LICENSEE. This will be in the nature
of auditing the audit described in para 22.5 above.
The Special Auditors shall also be provided the
same facility and have the same powers as of the
c companies' auditors as envisaged in the
Companies Act, 1956.
22.7 The LICENSEE shall be liable to prepare and
furnish the company's annual financial accounts
D according to the accounting principles prescribed
and the directions given by the LICENSOR or the
TRAI, as the case may be, from time to time."
28. Clause 32 deals with the obligations imposed upon the
licensee, which read as under:
·E
"32. Obligations imposed on the LICENSEE.
32.1 The provisions of the Indian Telegraph Act 1885, the
Indian Wireless Telegraphy Act 1933, and the
F Telecom Regulatory Authority of India Act, 1997 as
modified from time to time or any other statute on
their replacement shall govern this LICENCE.
32.2 The LICENSEE shall furnish all necessary means
and facilities as required for the application of
G provisions of Section 5(2) of the Indian Telegraph
Act, 1885, whenever occasion so demands.
Nothing provided and contained anywhere in this
Licence Agreement shall be deemed to affect
adversely anything provided or laid under the
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 81 3
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
provisions of Indian Telegraph Act, 1885 or any A
other law on the subject in force."
29. We have earlier referred to the clauses of the licence
agreement, which indicate the pattern of "revenue sharing"
between the Union of India and the licensee. Licence fee B
envisages, apart from the one-time non refundable Entry Fee,
the licence fee annually be paid @ 6% of AGR excluding
spectrum charges. Right is also reserved on the licensor to
modify the licence fee during the currency of the agreement.
Spectrum charges have to be paid in addition to the licence C
fee on "Revenue Sharing Basis". While levying spectrum
charges based on AGR, the components which form the AGR
have also been given in clause 19.1, which is wide enough to
embrace other source of revenue inflow. Licensee is, therefore,
obliged to maintain the accounts relating to licence agreement
and particularly the revenue received by it because it has to D
share the revenue with the Union, which has to be calculated
with reference to the Gross Revenue Receipts.
30. TRAI Service Providers (Maintenance of Books of
Accounts and other Documents) Rules, 2002 have been framed E
by the Central Government in exercise of the powers conferred
under sub-section (1) read with clause (d) of sub-section (2) of
Section 35 of the TRAI Act, 1997. Rule 3 deals with the
maintenance of books of accounts and other documents, which
reads as under: F
"3. Maintenance of Books of Accounts and other
Documents - (1) Every service provider shall keep and
maintain the following books of accounts and other
documents in the manner as specified by the Central
Government from time to time, namely:- G
(i) books of accounts to reflect the itemized original
and current cost service-wise of fixed assets and
separate heads for different category of assets may
be maintained; H
814 SUPREME COURT REPORTS [2014] 9 S.C.R.
A (ii) books of accounts and other documents to reflect
service-wise itemised operational expenses;
(iii) books of accounts to reflect service-wise revenue;
(iv) books of accounts to reflect income from other
B sources;
(v) supporting books of accounts and other documents
as -
(a) fixed assets register;
c
(b) stores and spares register
(c) register showing particulars, service-wise, of
subscribers;
D
(d) register showing deposits from customers;
(e) cash book;
(f) journal;
E
(g) ledger; and
(h) copies of bills and copies of counter foils of
all receipts.
F Explanation - For the purpose of this rule -
(a) "itemized" means the requirement for both the total
cost and also its break-up;
(b) "current cost" means cost after depreciation; and
G
(c) "fixed assets" includes sub-heads such as building,
plant and machinery, etc.
(2) Every service provider shall intimate to the Authority the
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 815
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
place where the books of accounts and other documents A
are maintained."
31. Rule 5 of 2002 Rules, the validity of which is under
challenge, reads as under:
"5. Audit B
Every service provider shall produce all such books of
accounts and documents, referred to in sub-rule (1) of rule
3, that has a bearing on the verification of the Revenue, to
the Authority - c
(i) for the purpose of calculating license fee; and
(ii) to furnish to the Comptroller and Auditor General of
India the statement or information, relating thereto,
which the Comptroller and Auditor General of India D
may require to be produced before him and the
Comptroller and Auditor General of India may audit
the same in accordance with the provisions of
Section 16 of the Comptroller and Auditor
General's (Duties, Powers and Conditions of E
Service) Act, 1971 (56 of 1971)."
32. UAS Licence holders do not dispute the fact that they
have to maintain books of accounts and other documents
referred to in Rule 3 of 2002 Rules and they also do not
F
question the right of the DoT under Clause 22.5 to appoint an
auditor, nor do they question the DoT's power to appoint a
Special Auditor under Clause 22.6 or even the audit being
conducted by DoT through CAG. UAS Licence holders also do
not dispute that the transactions between them and the Union
of India form the basis for ascertaining the amounts payable G
to the Union of India, by way of Revenue Share, which has to
be credited to the Consolidated Fund of India. What they
dispute is the competence of CAG to conduct audit of the
accounts of the service providers in accordance with the
provisions of Section 16 of the Act of 1971 read with Rule 5(ii) H
816 SUPREME COURT REPORTS [2014] 9 S.C.R.
A of 2002 Rules. Power of the CAG under Section 16 of the 1971
Act has been disputed primarily on the ground that Article 149
of the Constitution confers powers on the CAG to conduct audit
of accounts only of the Union and the States or any other
authority or body prescribed by or under any law made by
B Parliament, not private entities or their underlying acco~nts and
records maintained by them in the absence of law made by the
Parliament. We may point out that this is the prime question
that arises for consideration in these appeals.
C CAG
33. We may first examine the powers of the CAG under
our constitutional scheme. 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
D shall only be removed in like manner and on like grounds as of
Judge of the Supreme Cot1rt 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 farthing of it is spent without the authority of the
E 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
F 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
G 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."
H
ASSOCIATION OF UNIFIED TELE.
SERVICES PROVIDERS v. 817 '
UNION OF !NOIA [K.S. RADHAKRISHNAN, J.]
34. Article 149 does confer the power on the CAG to A
discharge duties and powers in relation to the account$ of the
Union and the States or any other authority or body, as may
be prescribed under the Jaw made by the Parliament. CAG,
therefore, is exercising constitutional powers and duties in
relation to the accounts, while the High Court under Article 226 B
of the CcmsJ.it!Jtion, 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, c
independence of judiciary, rule of law, judicial review, unity and
integrity of the country, secular and federal character of the
Constitution, and so on.
35. The scope of Article 148 vis-a-vis the powers of the
CAG came up for consideration before this Court in D
S.Subramaniam Balaji v. State of Tamil Nadu and others
(2013) 9 SCC 659 and this Court held that the CAG is the
constitutional functionary appointed under Article 148 of the
Constitution and its main role is to audit the income and
expenditure of the Government, government bodies and State E
run corporations and the extent of its duties is listed in the
Comptroller and Auditor General (Duties, Powers etc.) Act,
19/'r It is stated that functioning of the Government is controlled
by the government, laws of the land, legislature and the CAG.
CAG has the pow!=lr to examine the propriety, legality and F
validity of all expenses incurred by the government and the office
of the CAG exercises effective control over the government
accounts and expenditure incurred on the schemes only after
implementation of the scheme, as a result, the duties of the
CAG will arise only after the expenditure has been incurred. G
36. In Arvind Gupta v. Union of India and others (2013)
1 sec 393 this Court, while examining the scope of Articles
149, 150 and 151 of the Constitution, vis-a-vis the reports of
the CAG, noticed and pointed out that the CAG's functions are
H
818 SUPREME COURT REPORTS · [2014] 9 S.C.R.
A carried out in the economy's efficiency and effectiveness with
which the government has used its resources and it was pointed
out that performance/audit reports prepared under the
regulations have to be viewed accordingly. In Arun Kumar
Agrawal v. Union of India and others (2013) 7 SCC 1 this
s Court while interpreting Section 16 of 1971 Act held that the
CAG has to satisfy himself that the rules and procedures,
designed to secure an effective check on the assessment,
collection and proper allocation of revenue are being duly
observed and CAG has to examine the decisions which have
c financial implications, including the propriety of decision
making. This Court also noticed that the report of the CAG is
required to be submitted to the President, who shall cause them
to be laid before each House of Parliament, as provided under
Article 151 (1) of the Constitution of India. By placing the reports
of the CAG in the Parliament, CAG regulates the accountability
0
of the Executive to the Parliament in the field of financial
administration, thereby upholding the parliamentary democracy.
37. We are of the considered view that when the executive
deals with the natural resources, like spectrum, which belongs
E 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 U~S 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
F 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. Parliamentary democracy also envisages, inter
G alia, the accountability of the Council.of Ministers to the
Legislature. In this connection reference may be made to the
Judgment of this Court in S.R. Chaudhuri (supra) and Kihoto
Hollohan (supra).
38. Learned senior counsel appearing for the service
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 819
. UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
providers, while interpreting Article 149 of the Constitution, A
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 B
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.
39. While examining the scope of Article 149, read with
Section 16 of 1971 Act, let us not forget that we are dealing C
with a natural resource which belongs to the peoples of this
country, and hence we have to give a purposive interpretation
to Article 149 read with Section 16 of 1971 Act and Rule 5(i)(ii)
of 2002 Rules. Much emphasis has been made on the
Constituent Assembly Debates in respect of Article 149 (which D
was previously Article 145 in the 1940's Draft Constitution) and
it was submitted that the term "any other authority or body" in
Article 149 was only meant to cover entities that performed
State functions and/ or entities financed or controlled by the
State, as opposed to "local bodies and other miscellaneous E
corporations and organizations".
40. Constitution, as it is often said "is a living organic thing
and must be applied to meet the current needs and
requirements". Constitution, therefore, is not bound to be F
understood or accepted to the original understanding of the
constitutional economics. Parliamentary Debates, referred to
by service providers may not be the sole criteria to be adopted
by a court while examining the meaning and content of Article
149, since its content and significance has to vary from age to G
age. Fundamental Rights enunciated in the Constitution itself,
as held by this Court in People's .Union For Civil Liberties
(PUCL) and another v. Union of India and another (2003) 4
sec 399, have no fixed content, most of them are empty
vessels into which each generation has to pour its content in
the light of its experience. H
820 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 41. 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
B shall be credited to CFI. CAG can carry out examination intc:i
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
c 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
0
subject matter, with which we are concerned, as already
indicateCl, 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
E 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. We have to understand the scope
of Article 149 of the Constitution, Section 16 of 1971 Act and
F Rule 5 of TRAI Rules 2002, in that perspective.·
42. Chapter 3 of the Act of 1971 deals with the duties and
powers of the CAG. Section 13 of the Act deals with the general
provisions relating to audit and the same is extracted
G hereinbelow:
"13. It shall be the duty of the Comptroller and Auditor
General -
(a) to audit all expenditure from the Consolidated Fund
H of lndfa and of each State and of each Union
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 821
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
Territory having a Legislative Assembly and ro A
ascertain whether the moneys shown in the
accounts as having been disbursed were legally
available for and applicable to the service or
purpose to which they have been applied or
charged and whether the expenditure conforms to B
the authority which governs it;
(b) to audit all transactions of the Union and of the
State relating to Contingency Funds and Public
Accounts;
c
(c) to audit all trading, manufacturing, profit and loss
accounts and balance sheets and other subsidiary
accounts kept in any department of the Union or of
a State;
D
and in each case to report on the expenditure, transactions
or accounts so audited by him."
43. Section 13(b) provides that the CAG would "audit all
transactions of the Union and of the States relating to
Contingency Funds and Public Accounts". The expression E
"transaction" means an incident of buying and selling or action
of conducting business, it also means an exchange or
interaction between people. The "transaction" is, therefore, an
expression of widest amplitude and would cover even the lease
agreement entered into by the Union with service providers. The F
expression "relating to" refers to "Contingency Funds and Public
Accounts". While examining the scope of Section 13, the test
to be applied is, is it a transaction of Union or State or is it, in
any way, "relates to contingency public fund".
G
44. Section 16 of the Act of 1971 deals with audit of
receipts of Union or States, reads' as under:
"16. It shall be the duty of the Comptroller and Auditor-
General to audit all receipts which are payable into the
Consolidated Fund of India and of each State and of each H
822 SUPREME COURT REPORTS [2014] 9 S.C.R.
A Union Territory having a Legislative Assembly and to
satisfy himself that the rules and procedures in that behalf
designed to secure an effective check on the assessment,
collection and proper allocation of revenue and are being
duly observed and to make for this purpose such
B examination of the accounts as he thinks fit and report
thereon."
45. The expression "to audit all receipts" does not
distinguish the revenue receipts and non-revenue receipts. For
the purpose of audit of receipts, the duty of the CAG extends
C "to such examination of the accounts as it thinks fit and report
thereon". Section 13 read along with Section 16 makes it clear
that the expression "to audit all transactions" so also "audit of
all receipts", payable into Consolidated Fund of India would
take in not only the accounts of the Union and of the State and
D of any other authority or body as may be prescribed or under
any law made by the Parliament but also to audit all
transactions which Union and State have entered into which has
a nexus with Consolidated Fund, especially when the receipts
have direct connection with Revenue Sharing.
E
46. Above reasoning is further re-inforced if we look at
Section 18 of the Act, which deals with the powers of the CAG
in connection with the audit of accounts, which reads as follows
.-
F "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
G 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
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 823
UNION OF INDIA [K.S. RADHAKRISHNAN, J.)
of or an otherwise relevant to the transactions to A
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
B
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 C
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." D
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.
E
4 7. Section 16 of Act 56 of 1971 has to be understood in
the light of Article 266 of the Constitution. Article 266 also uses
the expression "all revenue receipts by the Government of India"
which evidently includes income of the nation received by the
DoT in parting with the privilege i.e. 'spectrum" on a revenue F
sharing basis with service providers. The expression "licence
fee" in clause 18.1 and "Radio spectrum charges" in clause
18.3.1 in the licence agreement for UAS have to be understood ..
in that perspective. The licence fee received by the DoT so also
the Radio spectrum charges while granting the privilege to deal G
with the spectrum by the licensees is a "revenue received by
the Government" within the meaning of Article 266 i.e. "a receipt
payable into the Consolidated Fund of India" within the
meaning of Section 16 of 1971 Act.
H
824 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 48. Revenue share receivable by the Union being a receipt
payable into the Consolidated Fund" by virtue of Section 16 and
18(1 )(b) of 1971 Act, in relation to such receipts, 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
B and 22.2 of the licence agreement. We are of the view that
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
c licence fee and spectrum charges.
49. We may now examine the challenge made to Rule 5
of TRAI Rules 2002, on the basis that the same is ultra vires to-
Section 16 of CAG Act, 1971 and Article 149 of the
Constitution. Clauses 9.1 as well as 16.1 of the Licence
D Agreement categorically states that the licensee shall be bound
by the terms and conditions of the agreement as well as by the
order/directions/regulations of TRAI as per the provisions of
TRAI Act, 1997. For effective fulfillment of the above-mentioned
statutory obligations, TRAI framed 2002 Rules under Section
E 35 of Act of 1971. Rule 3 of TRAI Rules 2002, as already stated,
casts an obligation on the service providers to maintain the
Books of Accounts and other documents so as to make
available the same to CAG. Article 149 of the Constitution, as
already indicated, provides for confirmation of powers upon
F CAG under any law i.e. even by supporting legislation and Rule
5 falls in that category. Rule 5 obliges every service provider
to produce all such books of accounts or documents referred
·to in sub-rule (1) of Rule 3 so that the CAG can carry out audit
entrusted to it by virtue of the powers conferred under Article
G 149 read with Section 16 of Act of 1971. Rule 5 only manifests
conferment of powers upon CAG in relation to the accounts of
bodies in the nature of private service providers which we have
already found is consistent with Article 149 of the Constitution.
50. We have to read Section 13, 16 and 18 of the 1971
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 825
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
Act along with Article 149 of the Constitution and Sections 3 A
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 8
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 c
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.
D·
51. 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 E
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 shar~. 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, F
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.
G
CIVIL APPEAL NOS.10748 AND 10749 OF 2011
52. We are, in these appeals, concerned with the legality
of the communication dated 16.3.2010 issued by the
Department of Telecommunications and the communication
dated 10.5:2010 issued by the Director General of Audit, Post H
826 SUPREME COURT REPORTS [2014] 9 S.C.R.
A and Telecommunication, to the various Telecom service
providers covered by Unified Access Service (UAS) License
for making available all the accounting records for three years
commencing from 2006-2007 for the purpose of audit by the
Comptroller of Auditor General of India (CAG).
B
53. The Telecom Service Providers approached the
Telecom Disputes Settlement and Appellate Tribunal (for short
'the Tribunal') and filed two petition Nos. 139 and 141 of 201 O
seeking following reliefs:
C "i. Set aside/quash the impugned communications
inter alia dated 16th March, 2010 and 10th May,
2010 seeking audit of telecom companies by the .
C&AG and seeking information beyond the ambit
and scope of the UAS license;
D
ii. Strike down Rule 5(b) of TRAI Service Providers
(Maintenance of Books of Accounts and other
Documents) Rules, 2002 as being ultra vires.
iii. Pass any order(s) as the Tribunal may deem fit in
E the interest of justice, equality and good
conscience."
54. The Tribunal considered the question as to whether it
could examine the vires of Rule 5 of the Telecom Regulatory
F Authority of India, Service Providers (Maintenance of Books of
Accounts and other Documents) Rules, 2002 as a preliminary
issue and, on 19.5.2010, held that rules framed by the Central
Government in exercise of its Rule making power under
Sections 35 of the Act could not be a subject matter of
G challenge before it and held that no relief could be granted on
the challenge of the vires of Rule 5 of TRAI Rules 2002. The
Tribunal, therefore, admitted the petitions only on the limited
ground of examining the legal validity of the communications
dated 16.3.2010 and 10.5.2010. The Tribunal also noticed that
H a writ petition was already pending before the Delhi High Court
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 827
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
challenging the vires of Rule 5 of TRAI Rules 2002 and then A
went on to examine the legality of the above mentioned
communications.
55. The Tribunal proceeded as if the above mentioned
communications were issued by the DoT in exercise of its
8
jurisdiction conferred under Clauses 22.3 to 22.6 of the
Conditions of License enumerated in the license agreement for
UAS. The above mentioned communications, as noted by the
Tribunal, were questioned by the service providers on the
following grounds:
c
"(i) Before directing an audit in regard to the accounts of
the licensees, the DOT was required to form an opinion
which in turn would require an application of mind on its
part and assignment of reasons which having not been
complied with, the impugned action cannot be sustained. D
(ii) A special audit having been conducted in respect of
the financial years 2006-2007 and 2007-2008 by a private
Auditor, the impugned action on the part of the respondent
must be held to be wholly illegal.
E
(iii) Adherence to the principles of natural justice which is
a sine-qua-non for exercise of the power conferred on DOT
having not been complied with, the impugned letters are
liable to be quashed.
F
(iv) The invoices and other documents supporting the
books of accounts maintained by the petitioner would be
volumrnous keeping in view the fact that Vodafone alone
has abou~?O million subscribers.
(v) Exercise of power by DOT in any event was an abuse G
of process of the Court.
(vi) DOT cannot be permitted to do something indirectly
which it cannot do directly."
H
828 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 56. The Tribunal also considered the contentions raised
by the Department, which are as follows:
"(a) DOT has exercised its power in terms of the letter
issued by TRAI as also by the Comptroller of Auditor
General of India. ·
B
(b) Some of the parties, namely, Vodafone and Airtel
having expressly undertaken to produce the books of
accounts and co-operate with the respondent are stopped
and precluded from raising the question of the jurisdiction
c of the Tribunal.
(c) Having regard to clause 22.4 of the Conditions of
License, DOT could adopt one of the !hree measures,
namely: (i) refer the matter to the Comptroller and Auditor
D General which has even otherwise the requisite jurisdiction
to audit the books of accounts of the petitioners for the
purpose of ascertaining as to whether the revenue earned
by them has correctly been shared with the DOT in terms
of the conditions of license; (ii) conduct an audit within the
meaning of provisions of clause 22.5 of the license and;
E
(iii) conduct a special audit.
(d) The power to conduct an audit through CAG or
departmentally or a special audit are independent powers
in respect whereof DOT can exercise its discretion."
F
. 57. The Tribunal noticed that a special audit had already
been conducted and hence the question of having another audit
in terms· of Clause 22.5 would arise only if the Department
"forms an opinion" which would mean an "honest and bona fide"
G opinion that the accounts submitted by the service providers
were inaccurate and misleading. The Tribunal' also took the view
that the recourse to Clause 22.5 could be taken only after the
accounts for the lice. icees had been audited by the auditor and
that a special audit could be undertaken only for the audited
. '
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 829
UNION OF INDIA [K.S. RADHAKRISHNAN, J.)
accounts and not for any other purpose. The Tribunal concluded A
as follows:
"An audit or a special audit within the meaning of clauses
22.5 and 22.6 envisages some special actions. For the
purpose of taking recourse to clause 22.5 the respondent 8
was required to form an opinion which would mean an
honest and bonafide one. The respondent as a 'State'
within the meaning of Article 12 of the Constitution of India
is also required to act reasonably and fairly."
58. The Tribunal later referred to Clause 22.5 and stated C
as follows:
"An audit in terms of Clause 22.5 of the license, therefore,
can be directed, provided a misstatement or a mis-
declaration is noticed. The opinion can be formed only if o
the statement of accounts is found to be inaccurate or
misleading. The licensees are also required to be'ilr the
costs of the Auditors. In terms of the aforementioned
provisions, not only the same would require assignment of
"'reasons but also compliance of the principles of natural
E
justice."
59. In support of its reasoning, the Tribunal placed reliance
on the jud,gment_s of this Court in Rajesh Kumar and Others v.
Deputy CIT aiid Others (2007) 2 SCC 181 as ·also the
reference order passed in Sahara India (Firm) Lucknow v. F
Commissionerof Income Tax, Central-I and Another (2008)
14. SCC 151. Tl\e Tribunal also examined the principles laid
down in Anisminic Ltd. V. Foreign Compensation
Commission 1969 (1) All England Reporter 208 on the
question of "jurisdictional error" and took the view that, after the G
special audit had been conducted, the question of having
another audit in terms of Clause 22.5 of the Conditions of
License would' not arise. Holding so, the Tribunal set aside the
communications dated 16.3.2010 and 10.5.2010 and allowed
.H
830 SUPREME COURT REPORTS [2014] 9 S.C.R.
A the petitions with costs of Rs.50,000/. Aggrieved by the same,
these two appeals have been preferred.
60. Shri Paras Kuhad, learned Additional Solicitor General
appearing for the appellants, submitted that the Tribunal has
completely misapplied various clauses of the licence
8
agreement, especially Clauses 22.3, 22.5 and 22.6 which,
according to the learned senior counsel, empower the
Department to call for the books of account of the service
providers for its audit. Shri Kuhad submitted that the
communications dated 16.3.2010 and 10.5.2010 are intended
C to carry out an audit by the CAG and that the Department has
got the legal right to call upon the service providers to make
available all the records so that they could be scrutinized by the
CAG. CAG, it was pointed out, has got the power under Article
149 of the Constitution read with Section 16 of the Comptroller
D of Auditor General's (Duties, Powers and Conditions of
Service) Act, 1971 and Rule 5 of TRAI Rules, 2002 and the
conditions of license to carry on audit of the accounts of the
service providers, since the Union of India and the service
providers are in agreement for revenue sharing. Shri Kuhad
E also questioned the finding of the Tribunal that before exercising
the powers by the CAG for audit, the department has to form
an opinion that the statements and account already submitted
were inaccurate and misleading. Shri Kuhad further,submitted
that the Tribunal has completely misread of the various clauses
F of UAS License as well as the powers conferred under the
1971 Act.
61. Shri Gopal Jain, learned senior counsel appearing for
the respondents service providers, supported the reasoning of
G the Tribunal in setting aside the communications dated
16.3.2010 and 10.5.2010 and submitted that an audit by CAG,
or for that matter even by the Department, could be conducted
only if the DoT had formed an opinion that the statements or
accounts submitted by the service providers were inaccurate
H or misleading. In other words, it was pointed out, that for taking
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 831
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
recourse to Clause 22.5, the department was required to form A
an opinion which would mean "honest and bona fide opinion"
that the accounts made available were misleading or
inaccurate and, for that purpose, the department has to act
reasonably and fairly. ·
B
62. We are of the view that there has been a complete
misreading of the various clauses of the licensing agreement
as well as understanding of law on the point. Let us first
examine the background under which the communications
dated 16.3.2010 and 10.5.2010 were issued by DoT and the
Director General of Audit, Post & Telecommunications c
respectively, to the UAS license holders. Both the
communications would indicate that they were sent for seeking
cooperation for the Audit of Telecom service providers by the
CAG, which is neither an audit by the department within the
meaning of Clause 22.5, nor a special audit under Clause 22.6. D
For easy reference, we may, once again, refer the relevant
portions of the communication dated 16.3.201 O:
"Government of India
Ministry of Communication
E
Department of Telecommunication
(AS Cell)
Sanchar Bhawan, 20, Ashoka Road,
New Delhi - 110 001
No. 842-1086/1010-AS-IV Dated 16th March, 2010 F
To
M/s. Bharti Airtel Ltd. And Bharti Hexacom Ltd.,
Unitech World Cyber Park
Power-A, 4th Floor,
G
Sector 39, Gurgaon - 122 001
Subject : Audit of Telecom Service Providers by C&AG
Reference: Unified Access Service Licence Agreements
as detailed below:
H
832 SUPREME COURT REPORTS [2014] 9 S.C.R.
A SI. No. Service Area Licence No. Dated
xxx Xxx Xxx xxx
In exercise of powers conferred on the Licensor under
clause 22.3 of Unified Access Service (UAS) Licence, it
B is requested to provide the following accounting records,
for three years commencing from 2006-07, consisting of
books of accounts and other documents for all the services
offered under the above referred UAS licences issued, to
reflect:
c
(i) Total cost and break-up of original and current cost
i.e. cost after depreciation under separate head for
different category of fixed assets;
(ii) Cost and breakup of operation expenses
D
(iii) Service wise revenue
(iv) Income from other sources
(v) Supporting books of accounts/ other documents as
E
(a) Fixed asset register
(b) Stores and spares I inventory register
(c) Register showing service - wise particulars
F of subscribers
(d) Register showing deposits from customers
(e) Cash books
G (f) Journals
(g) Ledger
(h) Copes of bill and counter foils of all receipts.
H [Emphasis Supplied]
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 833
UNION OF INDIA [K.S. RADHAKRISHNAN, J.]
2. The above mentioned information should be sent A
directly to DOG (Accounts), Department of
Telecommunications, Room No. 701, Sanchar
Bhavan, 20, Ashoka Road, New Delhi 110 001
within 15 days from date of issue of this letter.
Sd/- 16.3.201 O B
(Shashi Mohan)
Director (AS-IV)"
63. The communication dated 16.3.2010 was issued by
the DoT in exercise of powers conferred under Clause 22.3 of
UAS License calling for the accounting records for three years C
consisting of books of accounts and other documents referred
to therein. The purpose of issuing such a letter has been
specifically earmarked stating "Audit of telecom service
providers by C&AG". Above mentioned communications were
issued not under Clause 22.5, as noticed by the Tribunal, but D
under Clause 22.3, which is reflected in the above mentioned
communications itself. Clause 22.3 reads as follows:
"22.3 (a) The LICENSOR or the TRAI, as the case may
be, shall have a right to call for and the LICENSEE shall E
be obliged to supply and provide for examination any
books 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'. F
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 G
material breach independent of any other breach, sufficient
to give a cause for cancellation of the LICENCE."
(Emphasis Supplied)
H
834 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 64. Clause 22.3(a) specifically states that the licensor or
TRAI shall have a right to call for and the licensee shall be
obliged to supply and provide for examination any books of
accounts that the licensee may maintain in respect of the
business carried on to provide services under this license at
B any time "without recording any reasons thereof'. In other words,
while issuing the communication dated 10.5.2010, DoT or TRAI
is not expected to record any reasons and that they can
summon books of accounts in respect of the business at any
time, from the UAS Licence holders.
c 65. Let us now examine the communication dated
10.5.2010 issued by the Director General of Audit, Post &
Telecommunications to the UAS service providers, which
specifically refers to the communication dated 16.3.2010,
which is extracted below, once again, for an easy reference:
D
"D.O. No. Report-PSP/F-4Nol-11/2009-10/4
OFFICE OF THE
Director General of Audit, Post & Telecommunications
Sham Nath Marg, (Near Old Secretariat),
Delhi - 110002
E
R. P. Singh
Director General Dated 10-5-2010
Sub: Audit of Telecom Service Providers by C&AG-Reg.
F
Ref: 1) DoT letter No. 842-1086/2010/AS-IV dt.
16.03.2010
2) Your office letter No. TTSL/DoT/ Audit/2010 dt.
1.04.2010
G
Dear Sh. Dalal
Kindly refer to your office letter cited on the above
subject extending cooperation in conduct of the audit of
H revenue share by C&AG. Certain difficulty has been
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 835
UNION OF INDIA [K.S. RADHAKRISHNAN, J.)
expressed by your Company in providing the books of A
accounts in physical form as they are being maintained in
electronic form in SAP ERP System. Further, it has been
stated that the audit could be carried out by access to your
systems at Neida Office. In this connection, it is requested
that on 21st May 2010 a presentation may be given B
covering your business activities, accounting policies,
accounting, billing and financial systems and all other
issues relating to revenue shares, followed by brief
interface meeting with my Audit term which would start the
process of audit. The time and venue of the presentation c
is given in Annexure-1. Shri Subu R. Director (Report) of
my office has been nominated as Nodal Officer who would
be overseeing and coordinating the audit.
Regards
D
Yours sincerely,
Sd/-
R. P. Singh"
66. Both the communications dated 16.3.2010 and
10.5.2010, referred to above, clearly indicate that CAG intends E
to conduct the Audit, since there is "revenue sharing" between
the Union of India and the UAS licence holders and the revenue
generated will have to be credited to the Consolidated Fund
of India.
F
67. The Tribunal, in our view, has committed a fundamental
error in taking the view that the above mentioned
communications were issued by the DoT in exercise of the
powers conferred under Clauses 22.3 to 22.6, in fact, the
communications specifically refer to only Clause 22.3, and not
to any other clauses! On the other hand, the Tribunal made G
specific reference to Clause 22.5 which, in our view, is
inapplicable in a case where the audit is sought to be
conducted by CAG. The Tribunal has also not properly
appreciated the scope of clauses 20.4, 22.5 and 22.6. There
are three stages of audit. First, audit is to be conducted by the H
836 SUPREME COURT REPORTS [2014] 9 S.C.R.
A Licencee under Clause 20.4 through an auditor appointed
under Section 224 of the Companies Act. Clause 22.5
empowers the licensor to conduct an audit, if it is found that
statements or accounts submitted are inaccurate and
misleading. In our view, the opinion to be formed is purely
B subjective, it need not establish to the satisfaction of the
licencee that the statements or accounts are inaccurate and
misleading. Further, Clause 22.6 is an independent Clause
which has no relationship with Clause 22.5. This is an additional
power conferred on the Licensor to conduct special audit. In
c other words, 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
0
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
E 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
F TRAI Rules 2002 and the licensing provisions.
68. We may, in this connection, refer to Clauses 22.5 and
22.6 for an easy reference:
"22.5 The LICENSOR may, on forming an opinion that the
G
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
H
ASSOCIATION OF UNIFIED TELE SERVICES PROVIDERS v. 837
UNION OF INDIA [K.S. RADHAKRISHNAN, J)
of the Companies Act, 1956. The remuneration of the A
Auditors, as fixed by the LICENSOR, shall be borne by the
LICENSEE.
22.6 The LICENSOR may also get conducted a 'Special
Audit' of the LICENSEE company's accounts/records by 8
"Special Auditors", the payment for which at a rate as fixed
by the LICENSOR, shall be borne by the LICENSEE. This
will be in the nature of auditing the audit described in para
22.5 above. The Special Auditors shall also be provided
the same facility and have the same powers as of the C
companies' auditors as envisaged in the Companies Act,
1956."
69. 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 D
"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 E
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. F
70. We, therefore, find no merit in the appeals filed by the
Service Providers and hence those appeals are dismissed, as
above. The appeals filed by the DoT and others are, however,
allowed, setting aside the judgment of the Tribunal. In the facts
and ·circumstances of the case, there will be no order as to G
costs.
Bibhuti Bhushan Bose Appeals disposed of.
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