The Telegraph
Friday , April 18 , 2014
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Audit agony for private firms

New Delhi, April 17: The Supreme Court today virtually brought all private companies using natural resources on a revenue-sharing basis with the government under the CAG scanner as it allowed the auditor to go through the accounts of telecom firms.

The apex court said a CAG audit of such private players was necessary to ensure that there is no unlawful loss to the government as there has been instances where the executive “acts hand in glove” with companies for their benefits.

“When nation’s wealth, like spectrum, is being dealt with either by the Union, state or even the private parties such as service providers, they are accountable to the people and to Parliament,” the apex court said.

A bench of Justices K.S. Radhakrishnan and Vikramjit Sen gave the order while dismissing the appeal of telecom players who said they could not be subjected to the CAG audit as that tantamounts to duplication since their accounts are already being cleared by a special auditor of the DoT.

The apex court today said the CAG’s function was separate and independent, which is not similar to the audit conducted by the DoT.

“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,” it said.

The government was bound to protect natural resources for the general public rather than permit their use for purely commercial purposes, the bench said.

“Unless the underlying records with the service providers are examined, it will not be possible to ascertain whether the government has received its full and complete share of revenue by way of licence fee and spectrum charges,” the bench said.

“Instances are not rare where even the executive acts hand-in-glove with licence holders, who deal with natural resources. Hence the need for proper parliamentary control over the resources,” it said.

“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. Further it empowers citizens to question ineffective management,” Justice Radhakrishnan said.

Top finance ministry officials said mining companies that have been granted licences on a revenue-share basis, power firms or firms that build and operate public facilities such as airports and highways could now be open to CAG audits.

Dipak Bhattacharya, Supreme Court advocate and senior partner of Tottenham India Law Associates, said: “The judgment is welcome it upholds the basic spirit of the law that public goods need to be for public good by implication we see this judgment being extended to all areas where public-private partnership or the leasing of public resources occurs, which could mean mining rights, airports.”

The Supreme Court’s decision comes soon after the Delhi high court refused to stay a decision of the erstwhile AAP-run Delhi government seeking a CAG audit of the accounts of three electricity distribution companies for allegedly gold-plating costs to seek an increase in tariffs.

Officials said controversies over revenue sharing and pricing could have been avoided if the government had set a ceiling on the price that can be charged by the firm which is allotted or auctioned the lease on a natural resource.

“The other way, which is followed in many countries, is to ask firms to quote how low a price they will charge for a public good they create or which they on-sell after value addition such as electricity, coal, telecom airwaves, airport facilities and highways, even as they commit to pay a fixed amount to the government,” said officials in the Planning Commission.

The plan panel and the civil aviation ministry had a tough time when they agreed to raise user fees at Delhi and Mumbai airports, which the parliamentary committee on public accounts saw as post-contractual benefits.

In today’s case, the telecom players had moved the Supreme Court to overturn an earlier Delhi high court verdict allowing the CAG to audit their revenues. The high court in January had upheld CAG’s constitutional powers to look into all forms of income earned by the government.

The case goes back to 2009 when the DoT hired CAG-empanelled auditors to look into the books of Bharti Airtel, Reliance, Vodafone India and Idea for 2006-07 and 2007-08.

Industry body COAI said the Supreme Court ruling would become a larger issue for corporate India and not just mobile operators.

“By the logic of the court, every tax payer should also be subject to audit by the CAG, in addition to the I-T department,” COAI director-general Rajan S. Mathews said.

“We are disappointed with the order but we will abide by the judgment,” AUSPI secretary-general Ashok Sud said.

Hemant Joshi, partner, Deloitte Haskins & Sells, said, “The judgment is likely to add to the complexity of the operating environment of telcos.”