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

2. We are in these appeals concerned with the scope and 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 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 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 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 belongs to the people, though State legally owns it on behalf of its people because State benefits immensely from its value.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 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. 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 resources in a manner as not to impair or diminish the peoples right and peoples 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 are also limited, they have to be used in the best interest of 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 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 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, 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 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 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 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 access to telecommunication was of utmost importance to achieve the countrys 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 countrys economy by striking a balance between the two.Parliament, in the year 1997, enacted the Telecom Regulatory Authority of India (TRAI) Act to provide for the 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 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 28.01.2010, the TRAI issued a communication to 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 saidThe DoT later wrote a communication dated 16.03.2010 to one of the service providers, the subject matter of which reads "Audit and Telecom Service Providers by Comptroller & Auditor General", the operative portion of the saidOne of the service providers replied to the above-mentioned letter on 15.04.2010, the operative portion of the same reads asappreciate that DoT in terms of Clause 22.3 of UASL can call for Licensees 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 mention here that we are currently undergoing the extensive special audit of our books of accounts by an independent auditor M/s 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 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 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 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 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.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 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.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.We look forward to your kind consideration and support on the matter.The Director General of Audit, Post and Telecommunications, later, with specific reference to "Audit of Telecom Service Providers by C&AG"sent a communication dated 10.05.2010 to one of the serviceThe TRAI on 21.05.2010 sent yet another communication to one of the service providers with specific reference to "Furnishing of Books of Accounts to the Branch Audit Offices of the Director General of Audit, Post andThe TRAI also apprised the Service Providers that the audit sought to be conducted by CAG was separate and 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 Writ Petition 3673 of 2010, challenging the legality of the above-mentioned notices before the Delhi High Court, seeking followingPass a writ, order or direction to hold and declare 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;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.2s letters dated 10.5.2010 and 21.5.2010 and the directions contained therein;iv. Set aside/quash Respondent No.3s letter dated 28.1.2010 and the directions contained therein;v. pass any order(s) as the Court may deem fit in the interest of justice, equity and good conscience.The Division Bench of the Delhi High Court examined the legality of the above-mentioned communications in the light of Rule 5 of the TRAI Rules, 2002, Section 16 of the CAG Act, 1971 and Article 149 of the 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 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 specialAPPEAL NOS.10748 AND 10749 OF 201152. 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 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).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 2010 seeking followingSet 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;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.Passany order(s) as the Tribunal may deem fit in the interest of justice, equality and good conscience.The Tribunal considered the question as to whether it could examine the vires of Rule 5 of the Telecom Regulatory 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 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 a writ petition was already pending before the Delhi High Court challenging the vires of Rule 5 of TRAI Rules 2002 and then 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 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 followingBefore 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.(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.(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.(iv) The invoices and other documents supporting the books of accounts maintained by the petitioner would be voluminous keeping in view the fact that Vodafone alone has about 200 million subscribers.(v) Exercise of power by DOT in any event was an abuse of process of the Court.(vi) DOT cannot be permitted to do something indirectly which it cannot do directly.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) 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 of the Tribunal.(c) Having regard to clause 22.4 of the Conditions of License, DOT could adopt one of the three measures, namely:(i) refer the matter to the Comptroller and Auditor 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;(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.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" 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 licencees had been audited by the auditor and that a special audit could be undertaken only for the audited accounts and not for any other purpose. The Tribunal concluded asaudit 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 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.The Tribunal later referred to Clause 22.5 and stated asaudit 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 the statement of accounts is found to be inaccurate or misleading. The licensees are also required to bear 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 justice.In support of its reasoning, the Tribunal placed reliance on the judgments of this Court in Rajesh Kumar and Others v. Deputy CIT and Others (2007) 2 SCC 181  as also the reference order passed in Sahara India (Firm) Lucknow v. Commissioner of Income Tax, Central-I and Another (2008) 14 SCC 151. The 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 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 the petitions with costs of Rs.50,000/. Aggrieved by the same, these two appeals have been preferred.

Reasoning:
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.