The government, as a licensor, is fully empowered to ask the CAG to audit private firms which are licensees.
The ruling by the Delhi High Court last month that the Comptroller
and Auditor General (CAG) had the authority to audit the revenue of
private telecom companies opens the door to the CAG audit of companies
operating in the infrastructure sector that are either in partnership
with the government or hold licences to exploit public resources. The
complainant, the Association of Unified Telecom Service Providers of
India, has since petitioned the Supreme Court against the judgment. The
high court had upheld the CAG’s authority to audit the revenue accounts
of private telecom companies who are licensees of the Government of
India for providing mobile and cellular telephone services in specified
areas. What one is looking at here is the CAG, on the directions of the
government, eventually taking up audit of companies in a swathe of areas
– power, water, roads and more. In recent weeks, the governments of
Delhi and Maharashtra have both given notice of an audit of electricity
generating/distributing companies.
The CAG’s organisation (the Director General of Audit, Posts and
Telecommunications) had asked the licensee telecom companies to submit
their accounts for audit for the purpose of checking whether the
prescribed revenue-based licence fee had been correctly calculated. This
demand was based on Section 16 of the CAG’s Duties, Powers and
Conditions of Service Act 1971, which Parliament had enacted under
Article 149 of the Constitution, as also Rule 5 of the Telecom
Regulatory Authority of India, Service Providers (Maintenance of Books
of Accounts and Other Documents) Rules, 2002. The companies went to the
Delhi High Court challenging the CAG’s authority to audit their
accounts, a case, which after the high court’s ruling is now before the
Supreme Court.
The Supreme Court’s decision must be awaited, but leaving the legal
and constitutional issue aside, it is necessary to consider the nature
of the relationship between the Government of India and the telecom
companies in question, and what the government can or must do in terms
of that relationship. The relationship is one of licensor and licensee,
with the licensor granting a licence to the licensee to provide certain
services to the public in a specified area. This enables the licensee to
earn substantial revenues. As a condition of that licence, the licensee
is required by the licence agreement to pay an entry fee and an annual
fee as a percentage of what is called the “adjusted gross revenue”. To
enable the licensor to satisfy itself that the annual fee has been
correctly paid, the agreement prescribes the maintenance and submission
of accounts, a certificate from the licensee’s auditors, etc. The
licensor can call for the submission of books of accounts, prescribe an
independent verification of the amount due to the licensor, order an
audit and a special audit, and so on. In other words, the licensor is
fully enabled to satisfy itself in various ways about the correctness of
the fee paid by the licensee.
This stands to reason. If the government confers a revenue-earning
capacity on the licensee (a private sector company) and prescribes a fee
as a percentage of the revenue so earned, it is that government’s duty
to ensure that it duly and correctly collects the fee so prescribed. It
is also a contractual right. There is no room for debate here. How will
the government as the licensor exercise the right to order an audit and a
special audit? It will obviously have to assign that task to an
auditor. Again, there is no room for doubt here. Should or can that
auditor be the CAG of India? It is not clear why not.
This question can be approached in two different ways: from the
perspective of the CAG’s constitutional or statutory powers and
responsibilities, or from that of the rights of the licensor under the
licence agreement. The first route is before the Supreme Court for a
ruling. The second route is being explored here. If the government as
licensor can order a regular or special audit, is it constrained to
entrust that audit only to an auditor in the private sector? Why can it
not use a professional agency associated with the government, and indeed
a part of the government?
It is not necessary to invoke Section 16 of the CAG’s Act for this
purpose. There is Section 20 under which the government can request the
CAG to undertake an audit of an authority or body, but such a request
can be made only after consulting the CAG. This is popularly known as
“consent audit”. In Section 20 it is not necessary to interpret the term
“authority or body”; the Act is clearly not referring to a governmental
body here as the entire section is about authorities or bodies that are
not within the purview of CAG’s audit.
It is not that the consent audit route
should be followed, but
merely that the government has the right and the duty to ensure the
recovery of the right revenue; that it is empowered to order an audit
for this purpose; and that it can (if it wishes to) use the CAG for this
purpose on a consent basis. The consent audit in this case (if agreed
upon) will of course have to be limited to checking the revenue. All
this is based on the presumption that the government as licensor is
genuinely interested in exercising its rights and remedies under the
licence agreement.
