Setback for Bharti Airtel, Reliance Communications, Vodafone as Supreme Court allows account audit by CAG

Apr 17 2014, 11:34 IST
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The telecom companies approached the High Court seeking a stay on the CAG’s decision. The telecom companies approached the High Court seeking a stay on the CAG’s decision.
SummaryBharti Airtel, Reliance Communications, Vodafone sought to stop CAG prying into pvt cos accounts.

In a judgement with far-reaching consequences across various business sectors, but especially for Bharti Airtel, Reliance Communications Ltd, Vodafone and Idea Cellular Ltd, the Supreme Court on Thursday ruled that the Comptroller and Auditor General (CAG) was empowered to examine the accounts of private telecom companies.

The Supreme Court held that such a scrutiny was imperative to ensure that the government, which has accorded the private companies licenses of the valuable natural resources, was receiving its "legitimate share."

The Supreme Court modified the Delhi High Court order that had granted a right of statutory audit to the CAG. The SC said that the audit will not be a statutory audit or a special audit but will confine to examining the statements of accounts for ascertaining there was no loss to public exchequer.

A bench of Justices K S Radhakrishnan and Vikramjit Sen asserted that since telecom companies exploited natural resources, it had to make sure the government received its due under the revenue sharing agreement.

Telecom operators had moved the Supreme Court to overturn the High Court’s verdict allowing the CAG to audit revenues of private companies. The Association of Unified Telecom Service Providers of India and the Cellular Operators Association of India had challenged the verdict that said the top auditor was empowered to conduct revenue audits of the firms. The CAG had initiated an audit after TRAI found that some telecom operators were allegedly under-reporting income to avoid paying revenue share to the Government. The telecom companies approached the High Court seeking a stay on the CAG’s decision.

Setting aside their plea, the court, on January 6, had said there are no doubts on CAG’s constitutional powers to look into all forms of income derived by the Government. It, however, added that in relation to accounts of telecom companies, audit has to pertain to revenues and not into aspects such as “wisdom and economy in expenditures”.

The January 6 court ruling has been viewed with apprehension by private firms as it is possible to interpret the directive to say all companies that contribute to the consolidated fund of India can be audited by CAG.

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

DoT then issued notices to recover almost

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