India Inc and leading corporate lawyers in the country have been taken aback by the Delhi High Court’s judgment on Monday where the court ruled that the Comptroller and Auditor general (CAG) can audit the books of accounts of private sector telecom companies.
Corporates and legal experts pointed out that such a practice is non-existent elsewhere and they were taken by surprise at the ruling. Experts feel if this example is taken ahead then it may be possible to bring other private sector entities within the ambit of CAG audit on the pretext of their revenue or royalty sharing with the government.
Deepak Parekh, chairman, HDFC Ltd, said, “It is a negative development but in companies that are operating in power, telecom sectors that are essentially services company and their services are for the common man, there has to be some check on what is the mode of calculating utility and there has to be some check on the charges.”
Legal experts feel that the judgment may not hold in a higher court (Supreme Court).
“The order came as a surprise and I do not think that the judgment will go through in the higher court. It will get stayed. It is very strange and there is no precedent of such a practice in any country,” said Haigreve Khaitan, partner, Khaitan & Co.
A top official with another leading corporate law firm said that their client was already preparing to contest the judgement.
Planning Commission member Saumitra Chaudhuri said the order opens up a difficult line of argument. “Any company supplying goods or services to the government can be potentially audited through this logic,” he said.
Rajat Kathuria, director and CEO, Icrier, said by the logic offered by the court all tax paying companies could also be audited by the government auditor, since there is principally not much difference between a tax and a non-tax revenue.
Industry body Ficci also did not take the ruling positively and said that private companies are not meant to be audited by CAG.
“As far as audit through CAG is concerned, we believe the CAG was constituted to be answerable to Parliament in respect of businesses which are owned by the government. Therefore to my mind, there is no place for CAG interfering into a private company’s books,” said Sidharth Birla, president Ficci.
While a bench of Justices — Pradeep Nandrajog and V Kameswar Rao — permitted CAG to conduct audit of private telecom companies under the Telecom Regulatory Authority of India (Trai) Act, the Delhi government has also warned private power distribution companies that their licences may be cancelled if they do not co-operate with CAG which is scrutinising their finances.