Case: Association of Unified Tele Services Providers and Ors Vs. Union of India

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. 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.O. No. Report-PSP/F-4/Vol-II/2009-10/4OFFICE OF THEDirector General of Audit, Post & TelecommunicationsSham Nath Marg, (Near Old Secretariat), Delhi -110002R. P. SinghDirector GeneralDated 10-5-2010Sub: Audit of Telecom Service Providers by C&AG-Reg.Ref: 1) DoT letter No. 842-1086/2010/AS-IV dt. 16.03.20102) Your office letter No. TTSL/DoT/ Audit/2010 dt. 1.04.2010Dear Sh. DalalKindly 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 your Company in providing the books of 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 Noida Office. In this connection, it is requested that on 21st 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 shares, followed by brief interface meeting with my Audit term which would start the process of audit. The time and venue of the presentation is given in Annexure-I. Shri Subu R. Director (Report) of my office has been nominated as Nodal Officer who would be overseeing and coordinating the audit.RegardsYours 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 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. 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 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 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 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 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 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 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. Tribunals 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 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 statements or accounts submitted are inaccurate or misleading, order Audit of the accounts of the LICENSEE by appointing auditor at the cost of the LICENSEE and such auditor(s) shall have the same powers which the statutory auditors of the company enjoy under Section 227 of the Companies Act, 1956. The 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 companys accounts/records by "Special Auditors", the payment for which at a rate as fixed by the LICENSOR, shall be borne by the LICENSEE. This will be in thenature 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 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 "formation of opinion"under clause 22.5, that the statements or accounts submitted by the Licensee are inaccurateor 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 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]37. We are of the considered view that when the executive deals with the natural resources, like spectrum, which belongs to the people of this country, Parliament should know how the nations wealth has been dealt with by the executive and even by the UAS 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 the Union and the UAS Licence holders. When nations 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 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).We have to read Section 13, 16 and 18 of the 1971 Act along with Article 149 of the Constitution and Sections 3 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 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 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.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. CAGs 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. CAGs function is only to ascertain whether the Union of India is getting its due share, 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, 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.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 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.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 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 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 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 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 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 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. Tribunals 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 TRAI Rules 2002 and the licensing provisions.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 "formation of opinion"under clause 22.5, that the statements or accounts submitted by the Licensee are inaccurateor 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 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.