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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4591  OF 2014  (@ Special Leave Petition (Civil) No.1804 of 2014)

Association of Unified Tele Services  Providers & Others          …. Appellants  

                            Versus

Union of India      …. Respondent

WITH

CIVIL APPEAL NO. 4592 OF 2014 (@ Special Leave Petition (Civil) No.2925 of 2014)

WITH CIVIL APPEAL NO.10748 OF 2011

AND  CIVIL APPEAL NO.10749 OF 2011

J U D G M E N T  

K.S. Radhakrishnan, J.

CIVIL APPEAL NO. 4591 OF 2014 [Arising out of SLP (C) No. 1804 of 2014]

AND CIVIL APPEAL NO. 4592 OF 2014

[Arising out of SLP (C) No. 2925 of 2014]

1. Leave granted.

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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

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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.  This Court in  Centre  

for  Public  Interest  Litigation  and  others (supra)  

referring  to  the  intrinsic  worth  of  spectrum  stated  as  

follows:

“75. The  State  is  empowered  to  distribute  natural resources. However, as they constitute  public property/national asset, while distributing  natural resources the State is bound to act in  consonance with the principles of equality and  public trust and ensure that no action is taken  which  may  be  detrimental  to  public  interest.  Like  any  other  State  action,  constitutionalism  must  be  reflected  at  every  stage  of  the  distribution of natural resources. In Article 39(b)  of the Constitution it has been provided that the  ownership and control of the material resources  of the community should be so distributed so as  to  best  subserve  the  common  good,  but  no  comprehensive legislation has been enacted to  generally  define  natural  resources  and  a  framework  for  their  protection.  Of  course,  environment  laws  enacted  by  Parliament  and  State  Legislatures  deal  with  specific  natural  resources i.e.  forest,  air,  water,  coastal zones,  etc.

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76. …………… The ownership regime relating to  natural resources can also be ascertained from  international  conventions  and  customary  international  law,  common  law  and  national  constitutions. In international law, it rests upon  the concept of sovereignty and seeks to respect  the  principle  of  permanent  sovereignty  (of  peoples  and  nations)  over  (their)  natural  resources as asserted in the 17th Session of the  United  Nations  General  Assembly  and  then  affirmed as a customary international norm by  the International Court of Justice in the case of  Democratic  Republic  of  Congo v.  Uganda. ………..

77. Spectrum has been internationally accepted  as  a  scarce,  finite  and  renewable  natural  resource which is susceptible to degradation in  case  of  inefficient  utilisation.  It  has  a  high  economic value in the light of the demand for it  on  account  of  the  tremendous  growth  in  the  telecom sector. Although it does not belong to a  particular State, right of use has been granted  to the States as per international norms.

78. In India, the courts have given an expansive  interpretation  to  the  concept  of  natural  resources  and have from time to  time issued  directions,  by  relying  upon  the  provisions  contained in Articles 38, 39, 48, 48-A and 51- A(g)  for  protection  and  proper  allocation/distribution of  natural  resources and  have repeatedly insisted on compliance with the  constitutional  principles  in  the  process  of  distribution,  transfer  and  alienation  to  private  persons.

85. As natural resources are public goods, the  doctrine  of  equality,  which  emerges  from the  concepts of justice and fairness, must guide the  State in determining the actual mechanism for

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distribution of natural resources. In this regard,  the doctrine of equality has two aspects: first, it  regulates the rights and obligations of the State  vis-à-vis  its  people  and  demands  that  the  people be granted equitable access to natural  resources and/or its products and that they are  adequately compensated for the transfer of the  resource to the private domain; and  second, it  regulates the rights and obligations of the State  vis-à-vis private parties seeking to acquire/use  the resource and demands that the procedure  adopted  for  distribution  is  just,  non-arbitrary  and  transparent  and  that  it  does  not  discriminate  between  similarly  placed  private  parties.”

4. 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

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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  

people’s  right  and  people’s  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

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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

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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 country’s 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 country’s economy by striking  

a balance between the two. The NTP of 1999 specifically  

refers  to  spectrum  management  which  highlights  the  

following aspects:

“10. The  policy  on  spectrum management  as  enumerated in NTP, 1999 was as under:

(i)  Proliferation  of  new  technologies  and  the  growing  demand  for  telecommunication  services has led to manifold increase in demand

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for  spectrum and  consequently  it  is  essential   that  the  spectrum  is  utilised  efficiently,   economically, rationally and optimally.

(ii) There is a need for a transparent process of   allocation of frequency spectrum for use by a   service  provider  and  making  it  available  to   various users under specific conditions.

(iii) With the proliferation of new technologies it  is  essential  to  revise  the  National  Frequency  Allocation Plan (NFAP) in its entirety so that it  becomes  the  basis  for  development,  manufacturing  and  spectrum  utilisation  activities in the country amongst all users. NFAP  was under review and the revised NFAP was to  be  made public  by  the  end of  1999 detailing  information  regarding  allocation  of  frequency  bands  for  various  services,  without  including  security information.

(iv) NFAP would be reviewed no later than every  two years and would be in line with the Radio  Regulations  of  the  International  Telecommunication Union (ITU).

(v) Adequate spectrum is to be made available  to meet the growing need of telecommunication  services.  Efforts would be made for relocating  frequency  bands  assigned  earlier  to  defence  and others. Compensation for relocation may be  provided  out  of  spectrum  fee  and  revenue  share.

(vi)  There  is  a  need  to  review  the  spectrum  allocation in a planned manner so that required  frequency  bands  are  available  to  the  service  providers.

(vii)  There  is  a  need  to  have  a  transparent   process  of  allocation  of  frequency  spectrum

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which is  effective  and efficient  and the same  would be further examined in the light of ITU  guidelines. In this regard the following course of   action shall be adopted viz.:

(a) spectrum usage fee shall be charged; (b) an Inter-Ministerial Group to be called the  

Wireless  Planning  Coordination  Committee,  as  a  part  of  the  Ministry  of  Communications  for  periodical  review  of  spectrum availability and broad allocation  policy, should be set up; and

(c)  massive  computerisation  in  WPC  wing  would be started in the next three months  so as to achieve the objective of making  all operations completely computerised by  the end of the year 2000.”

 7. 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.  

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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  said  

communication reads as follows:

“In terms of Rule 5 of the Telecom Regulatory  Authority of India, Service Providers (Maintenance  of Books of Accounts and other Documents) Rule,  2002,  every  service  provider  shall  produce  all  such books of accounts and documents referred  to  in  sub  rule  (1)  of  rule  3  thereof  that  has  a  bearing  on  the  verification  of  the  Revenue,  to  Telecom  Regulatory  Authority  of  India  (the  authority);  

(ii) to  furnish  to  the  Comptroller  and  Auditor  General  of  India  the  statement  or  information,  relating  thereto,  which  the  Comptroller  and  Auditor  General  of  India  may require to be produced before him and  the Comptroller and Auditor General of India  may audit the same in accordance with the  provisions of Section 16 of the Comptroller  and  Auditor  General’s  (Duties,  Powers  and  Conditions of Service) Act, 1971.

2. The Comptroller and Auditor General of India  (through Director  General  of  Audit,  Post  &

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Telecommunications)  has  decided  to  audit  the books of accounts of your company for  the period of three years commencing from  2006-2007  onwards  to  assess  the  government  share  out  of  the  revenues  carried  by  your  company  in  terms  of  the  licence agreement with DoT.

3. Therefore in terms of the rule 5 of the TRAI,  Service Providers (Maintenance of Books of  Accounts  and  other  Documents)  Rules,  2002,  it  is  requested  that  all  necessary  records/books  of  accounts  circle/area-wise,  on  the  Maintenance  of  Books  of  Accounts  and other  relevant matters during the last  week of  January,  2010 in  the office  of  DO  Audit, P&T, New Delhi, which would facilitate  the audit work.

4. It is, therefore, requested that all necessary  co-operation may be extended to the Branch  Audit  Officers and Delhi  office of DG Audit  P&T for completion of the above audit work  besides  providing  all  necessary  records/information/  documents  required in  connection with this audit work.  

This  issues  with  the  approval  of  the  Authority.”

 9. The  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

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Providers by Comptroller & Auditor General”, the operative  

portion of the said communication reads as under:  

“In exercise of power conferred on the Licensor  under  clause  22.3  of  Unified  Access  Service  (UAS)  Licence,  it  is  requested  to  provide  the  following  accounting  records,  for  three  years  commencing from 2006-07, consisting of books  of  accounts  and  other  documents  for  all  the  services offered under the above referred UAs  licences issued to reflect :

(i) Total  cost  and  breakup  of  original  and  current  cost  i.e.  cost  after  depreciation  under  separate  heads  for  different  category of fixed assets;

(ii) Cost and breakup of operational expenses;

(iii) Service wise revenue;

(iv) Income from other sources;

(v) Supporting  books  of  accounts  other  documents

(a) Fixed assets register (b) Stores and spares/Inventory register (c) Register  showing  service-wise  

particulars of subscribers (d) Register  showing  deposits  from  

customers (e) Cash books (f) Journals (g) Ledger (h) Copies of bills and counterfoils of all  

receipts.

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2. The  above  mentioned  information  should  be sent directly to DDG (Accounts), Department  of Telecommunications, Room No.701, Sanchar  Bhavan, 20, Ashoka Road, New Delhi – 110001  within 15 days from date of issue of this letter.

Sd/- (16.3.2010) (Shashi Mohan) Director (AS-IV)

Tele:23372063/Fax-23372404”

10. One of  the service providers  replied to  the above-

mentioned letter on 15.04.2010, the operative portion of  

the same reads as under:

“We  appreciate  that  DoT  in  terms  of  Clause  22.3 of  UASL can call  for  Licensee’s  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

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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.”

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11.  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  service  

providers,  the  operative  portion  of  the  same  reads  as  

under:

“OFFICE OF THE DIRECTOR GENERAL OF AUDIT, POST &  

TELECOMMUNICATIONS

SHAM NATH MARG (NEAR OLD SECRETARIAT),  DELHI

R.P. Singh Director General Dated  :  10.5.2010

Sub: Audit of Telecom Service Providers by          C&AG-Reg.

Ref : 1) DoT Letter No.842-1086/2010-AS- IV                  dt. 16.03.2010.

2)  Your  office  letter  No.RTL/09- 10/4433              Dt. 31.3.2010.

Dear Shri Singh,

Kindly  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 R3.  Further, it has been stated, the

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same  could  be  viewed  in  the  concerned  IT  Systems which would be made available at your  headquarters  at  DAKC,  Navi  Mumbai.   In  this  connection,  it  is  requested  that  on  20th 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 share, followed  by brief interface meeting with my Audit team  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.

Regards, Yours sincerely,

R.P. Singh”

12.  The  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  and Telecommunications”,  the  operative  portion of  

the same reads as under:

“Telecom Regulatory Authority of India Mahanagar Doorsanchar Bhawan,  

Jawahar Lal Nehru Marg, Old Minto Road New Delhi – 110 002

F.No.14-21/2009-FA    Dated  21st May,  2010

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Mr. Anand Dalal Addl. Vice President (Regulatory Affairs) M/s Tata Group of Companies Indicom Building 2A, Old Ishwar Nagar Main Mathura Road New Delhi – 110 065

Subject  :  Furnishing of Books of Accounts  to                   the  Branch  Audit  Offices  of   the               Director  General  of  Audit, Post &               Telecommunication.

Kindly  refer  to  TRAI’s  letter  No.14-21/2009-FA  dated  28th January,  2010,  in  which  your  company has been asked to make available for  audit  all  necessary  records/books  of  accounts  circle/area-wise,  to  the  corresponding  Branch  Audit  Offices  (as  indicated  in  the  list)  and  to  submit consolidated accounts to the Delhi office  of the DG Audit, P&T.  Your company was also  requested  to  make  a  presentation  on  the  maintenance  of  books  of  accounts  and  other  relevant matters in the office of DG Audit P&T,  New Delhi.   

2. We have been informed by the C&AG that  your  company  has  not  responded  to  these  instructions so far.

3. In  this  connection,  TRAI  had  received  representations  from  the  industry  associates  indicating that the scope of the C&AG’s audit is  similar to the scope of the exercise that is being  done by the  special  auditor  appointed by the  DoT  and  that  this  exercise  would  be  a  duplication of work.  The concerns expressed by  the industry  associations  were brought  to  the

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notice  of  the  C&AG.   However,  the  C&AG  (through  Director  General  Audit  (P&T)  has  informed us that the audit by the C&AG of India  under  Section  16  of  the  C&A  (DPC)  Act  is  in  exercise of the provisions of TRAI Rules, 2002  and  has  no  relation  with  the  special  audit  undertaken by the CAs appointed by DoT.

4. In view of the above, you are requested to  make available all  necessary records/books of  accounts circle/area wise, to the corresponding  Branch Audit Offices (as indicated in the letter  dated  28th January,  2010)  and  to  submit  consolidated accounts to the Delhi Office of the  DG Audit, P&T within 15 days of the receipt of  this  letter.   You  are  also  informed  that  non- compliance  of  this  letter  may  attract  appropriate action under the TRAI Act.

This issues with the approval of the Authority.

Yours faithfully, Sd/-

(Anuradha Mitra) Pr. Advisor (FA)”

13. The 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

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DoT  and  TRAI,  filed  Civil  Writ  Petition  3673  of  2010,  

challenging  the  legality  of  the  above-mentioned notices  

before the Delhi High Court, seeking following reliefs:

“i. Pass 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.2’s letters  dated  10.5.2010  and  21.5.2010  and  the  directions contained therein;

iv. Set  aside/quash Respondent  No.3’s  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.”

14. 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

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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 special leave.

15. Shri  Harish  N.  Salve,  learned  senior  counsel  

appearing  for  the  appellants,  submitted  that  the  High  

Court  has  not  properly  appreciated the scope of  Article  

149 of  the Constitution of  India,  particularly  the phrase  

“accounts of the Union and States and any other authority  

or  body”.   Learned  senior  counsel  submitted  that  a  

composite interpretation would reveal that the term ‘body’  

is  to  be  construed  in  the  light  of  the  continuing  term  

“Union”,  “States”  and  “authority”  all  of  which  connote  

some form of State control.  Learned senior counsel also

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made  reference  to  the  principle  of  “nocitar  a  cociis.”  

Learned senior counsel made reference to the Judgment of  

this  Court  in  M.K.  Ranganathan v.  Government  of  

Madras  (1955) 2 SCR 374,  Rohit Pulp and Paper Mills  

v.  Collector of Central Excise, Baroda (1990) 3 SCC  

447, Ahmedabad Pvt. Primary Teachers’ Association  

v.  Administrative  Officer  and others  (2004)  1  SCC  

755.   Learned  senior  counsel  also  referred  to  the  

Constituent  Assembly  Debates  and  Article  149  of  the  

Constitution  of  India  and submitted  that  the  term “any  

other  authority  or  body”  was  only  meant  to  cover  the  

entities that perform State functions/or entities financed  

or controlled by the State, as opposed to local bodies and  

other miscellaneous corporations and organizations.   

16.   Learned senior counsel submitted that Section 16 of  

the Act of 1971 does not apply to audit of private telecom  

licensees and submitted that the mere fact that licence  

fee  payable  under  the  licence  agreement  has  to  be  

credited into the Consolidated Fund of India in the form of  

receipts does not mean that a proprietary audit in respect

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of  such receipts  extends to  a statutory  audit  of  private  

telecom licensee.  Learned senior counsel also submitted  

that for audit of telecom licensees the correct legal regime  

would  be  clause  22  of  the  Licence  Agreement  which  

specifically provides for audit and special audit.  Shri Salve  

also pointed out that the DoT, under the agreement, can  

appoint an outside auditor of its choice or even the CAG  

can  conduct  an  audit  in  terms  of  clause  22  of  UAS.  

Learned senior counsel also pointed out that the mere fact  

that Rule 5 of 2002 Rules states that the CAG may carry  

out  an audit  of  the accounts of  telecom licensee under  

Section  16  of  the  1971  Act  does  not  make  such  audit  

legally permissible.   Rule 5,  according to learned senior  

counsel,  ought  to  be  struck down as  ultra  vires  and in  

contravention of Section 16 of 1971 Act.

17. Shri Gopal Jain, learned senior counsel also appearing  

for  the  appellants,  submitted  that  the  reasoning  of  the  

High Court is patently erroneous in law and pointed out  

that  the  licence  agreement  obliges  the  licensee  to  

maintain  accounts  as  prescribed  in  the  agreement  to

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produce those accounts as and when demanded, and if  

the  Government  is  satisfied  that  the  accounts  are  not  

maintained as per the prescribed manner, a provision for  

special audit is there, which the service providers are also  

subjected to.  So far as the audit referred to under Article  

149  of  the  Constitution  is  concerned,  learned  senior  

counsel  pointed  out  that  there  must  be  an  element  of  

government control of finance and the same is completely  

lacking  in  the  case  of  the  service  providers.   Learned  

senior counsel also referred to the meaning and content of  

Article 266 of the Constitution and stated that the same  

deals  with  receipts  which  are  payable  into  the  

Consolidated Fund of India and the receipts are only that  

of the Union and the States, as the case may be, and not  

the private telecom companies.   

18. Shri Paras Kuhad, learned Additional Solicitor General  

of India, appearing for the respondent-Union of India, fully  

supported the reasoning of the High Court and submitted  

that  the  High  Court  has  correctly  appreciated  and  

understood the scope of  Article  149 of  the Constitution

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which has clearly defined the powers of the CAG.  Learned  

ASG  pointed  out  that  the  conferment  of  powers  upon  

Parliament under Article 149 is not limited to the accounts  

of  the  Union  and  the  States  and  other  bodies  and  

authorities,  but  also  extends  to  inclusion  therein  of  the  

powers to legislate on all matters concerning or pertaining  

to  the  accounts  of  the  Union.   Learned  ASG  placed  

considerable emphasis on the expression “in relation to”  

which  takes  in  the  underlying  accounts  and  records  

maintained by the service providers.  Learned ASG pointed  

out that the object of Article 149 of the Constitution and  

Act  of  1971  is  to  provide  for  Parliamentary  control  of  

executive on public funds, consequently, ambit of audit by  

CAG  has  to  cover  all  issues  that  are  required  to  be  

examined by the Parliament.  Referring to the essence of  

Parliamentary Democracy, learned ASG placed reliance on  

the decision of this Court in S.R. Chaudhuri v. State of  

Punjab  and  others  (2001)  7  SCC  126  and  Kihoto  

Hollohan v.  Zachillhu and others (1992) Suppl. 2 SCC  

651.  

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19. Learned ASG also submitted “receipts  payable into  

the Consolidated Fund of India” under Article 266 of the  

Constitution of India take in “all revenue receipts received  

by  the  Government  of  India”  and  submitted  that  a  

combined  reading  of  Sections  13,  16  and  18  would  

indicate that it is obligatory on the part of the CAG to audit  

all transactions entered into by the Union and the States  

pertaining  to  the  Consolidated  Fund.   Learned  ASG  

referring to Rule 3 submitted that the Rule prescribes the  

records required to be maintained enabling TRAI to carry  

out its obligation under Section 11 and Rule 5 provides for  

furnishing the said record to TRAI for the said purpose and  

for its audit by CAG.  Learned ASG, therefore, submitted  

that the High Court has correctly interpreted the various  

provisions of the Act and the constitutional provisions and  

hence calls for no interference.

20. We  will,  before  examining  the  various  contentions  

raised by the learned senior counsel for the appellant and  

ASG  on  the  scope  of  Article  149  of  the  Constitution,  

Section  16  of  Act  of  1971,  Rule  5  of  2002  Rules  etc.,

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examine  the  various  clauses  in  the  UAS  Licence  

Agreement.   As already indicated, the Licence Agreement  

specifically refers to Section 4 of the Indian Telegraph Act,  

1885,  which  highlights  the  fact  that  the  Central  

Government  enjoys  an  “exclusive  privilege”  so  far  as  

“spectrum”  is  concerned,  which  is  a  scarce,  finite  and  

renewable natural resource which has got intrinsic utility  

to mankind.  Spectrum, as already indicated, is a natural  

resource which belongs to the people, and the State, its  

instrumentalities or the licensee, as the case may be, who  

deal with the same, hold it on behalf of the people and are  

accountable to the people.   

21. The  DoT  had  entered  into  various  UAS  licence  

agreements  and,  in  certain  cases,  for  few  decades.  

Agreement  confers  powers  on  DoT  to  suspend  the  

operation of the licence at any time if it is necessary or  

expedient to do so in the public interest or in the interest  

of the security of the State and also reserves the right to  

take over the entire service equipments and network of  

the  licensee  or  revoke/terminate/suspend  the  licence in

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the interest of public or national security or in the interest  

of  national  emergency/war etc.    Licensor  also reserves  

the right to keep any area out of the operation zone of  

service if  implications of security so require.  Few of the  

clauses,  which  are  relevant  for  our  purposes,  need  

reference and hence are extracted hereunder.  Clause 9.1  

indicates  the  requirement  of  furnishing  of  information  

which reads as under:

“9. Requirement to furnish information:  

9.1  The  LICENSEE  shall  furnish  to  the  Licensor/TRAI,  on  demand in  the  manner  and  as  per  the  time  frames  such  documents,  accounts,  estimates,  returns,  reports or other information in accordance  with  the  rules/  orders  as  may  be  prescribed  from  time  to  time.  The  LICENSEE shall also submit information to  TRAI  as  per  any  order  or  direction  or  regulation issued from time to time under  the  provisions  of  TRAI  Act,  1997  or  an  amended or modified statute.”  

22. Clause  16  is  general  in  nature  and  is  extracted  

hereunder:

“16. General:    16.1 The LICENSEE shall be bound by the terms  

and conditions  of  this  Licence Agreement  as  well  as  by  such  orders/directions/

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regulations of TRAI as per provisions of the  TRAI  Act,  1997 as amended from time to  time and instructions as are issued by the  Licensor/TRAI.  

 16.3  The  Statutory  provisions  and  the  rules  

made under Indian Telegraph Act 1885 or  Indian Wireless Telegraphy Act, 1933 shall  govern this Licence agreement.  Any order  passed  under  these  statutes  shall  be  binding on the LICENSEE.”  

23.  Part 2 of the licence conditions refers to commercial  

conditions and clause 17 deals with performance, which  

reads as under:

“17. Tariffs:    17.1 The LICENSEE will charge the tariffs for the  

SERVICE  as  per  the  Tariff  orders/  regulations  /  directions  issued  by  TRAI  from time to time. The LICENSEE shall also  fulfill requirements regarding publication of  tariffs,  notifications  and  provision  of  information as directed by TRAI through its  orders/regulations/directions  issued  from  time to time as per the provisions of TRAI  Act, 1997 as amended from time to time.”

24. Part 3 of the licence conditions deals with the finance  

conditions, fee payable, etc. which reads as under:

“18.1 Entry Fee:

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One Time non-refundable Entry Fee of Rs.2  crore has been paid by the Licensee prior  to signing of this Licence Agreement.  

 18.2 Licence Fees:  

In  addition  to  the  Entry  Fee  described  above, the Licensee shall also pay Licence  Fee annually @ 6 (six)% of Adjusted Gross  Revenue  (AGR),  excluding  spectrum  charges.

Annual Licence fee w.e.f. 1.4.2004 shall be  @ 6 (six)% of AGR.  The Licensor reserves  the right to modify the above mentioned  Licence Fee any time during the currency  of this agreement.  

18.3 Radio Spectrum Charges:    

18.3.1 The LICENSEE shall pay spectrum charges  in addition to the Licence Fee on revenue  share  basis  as  notified  separately  from  time to time by the WPC Wing.  However,  while calculating ‘AGR’ for limited purpose  of  levying  spectrum  charges  based  on  revenue  share,  revenue  from  wireline  subscribers  shall  not  be  taken  into  account.  

 18.3.2 Further royalty for the use of spectrum for  

point to point links and other access links  shall  be  separately  payable  as  per  the  details  and  prescription  of  Wireless  Planning  &  Coordination  Wing.  The  fee/  royalty for the use of spectrum /possession  of wireless telegraphy equipment depends  upon  various  factors  such  as  frequency,  hop and link length, area of operation and  other related aspects etc. Authorization of  frequencies for setting up Microwave links

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by  Licensed  Operators  and  issue  of  Licenses shall be separately dealt with by  WPC Wing as per existing rules.”

25. Clause  19  deals  with  definition  of  Adjusted  Gross  

Revenue (AGR) which reads as under:

“19. Definition of ‘Adjusted Gross Revenue’:  

19.1 Gross Revenue:  

The  Gross  Revenue  shall  be  inclusive  of  installation charges, late fees, sale proceeds  of  handsets  (or  any  other  terminal  equipment  etc.),  revenue  on  account  of  interest,  dividend,  value  added  services,  supplementary  services,  access  or  interconnection  charges,  roaming  charges,  revenue  from  permissible  sharing  of  infrastructure  and  any  other  miscellaneous  revenue, without any set-off for related item  of expense, etc.  

19.2 For the purpose of arriving at the “Adjusted  Gross Revenue (AGR)” the following shall be  excluded from the Gross Revenue to arrive  at the AGR:   

I.  PSTN  related  call  charges  (Access  Charges)  actually  paid  to  other  eligible/entitled  telecommunication  service providers within India;  

II. Roaming revenues actually passed on to  other  eligible/entitled telecommunication  service providers and;

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III.  Service Tax on provision of service and  Sales  Tax  actually  paid  to  the  Government  if  gross  revenue  had  included as component of Sales Tax and  Service Tax.”  

26. Clause 20 deals  with  the schedule of  payments  of  

annual licence fee and other dues.  Relevant clauses being  

20.4, 20.6, 20.7 and 20.11 are extracted hereunder:

“20.4  The  quarterly  payment  shall  be  made  together  with  a  STATEMENT  in  the  prescribed  form  as  annexure-II,  showing  the  computation  of  revenue  and  Licence  fee  payable.  The  aforesaid  quarterly  STATEMENTS  of  each  year  shall  be  required  to  be  audited  by  the  Auditors  (hereinafter called LICENSEE’S Auditors) of  the LICENSEE appointed under Section 224  of the Companies’ Act, 1956. The report of  the Auditor should be in prescribed form as  annexure-II.  

20.6  Final adjustment of the Licence fee for the  year  shall  be  made  based  on  the  gross  revenue  figures  duly  certified  by  the  AUDITORS of the LICENSEE in accordance  with  the  provision  of  Companies’  Act,  1956.  

20.7  A  reconciliation  between  the  figures  appearing  in  the  quarterly  statements  submitted in  terms of  the clause 20.4 of  the  agreement  with  those  appearing  in  annual accounts shall be submitted along  with  a  copy  of  the  published  annual

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accounts  audit  report  and  duly  audited  quarterly  statements,  within  7  (seven)  Calendar days of the date of signing of the  audit report. The annual financial account  and  the  statement  as  prescribed  above  shall  be prepared following the norms as  prescribed in Annexure.

20.11  The  LICENSOR,  to  ensure  proper  and  correct verification of revenue share paid,  can,  if  deemed necessary,  modify,  alter,  substitute and amend whatever stated in  Conditions  20.4,  20.7,  22.5  and  22.6  hereinbefore and hereinafter written.”  

 27. Clause  22  deals  with  the  preparation  of  accounts.  

Relevant clauses are extracted hereunder:

“22. Preparation of Accounts.    22.1  The LICENSEE will draw, keep and furnish  

independent  accounts  for  the  SERVICE  and shall  fully comply orders,  directions  or  regulations  as  may  be  issued  from  time to time by the LICENSOR or TRAI as  the case may be.  

 22.2 The LICENSEE shall be obliged to:    a)   Compile and maintain accounting records,  

sufficient  to  show  and  explain  its  transactions in respect of each completed  quarter  of  the  Licence period  or  of  such  lesser  periods  as  the  LICENSOR  may  specify,  fairly  presenting  the  costs  (including  capital  costs),  revenue  and  financial  position  of  the  LICENSEE’s  business  under  the  LICENCE  including  a  reasonable  assessment  of  the  assets

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employed in and the liabilities attributable  to the LICENSEE’s business, as well as, for  the quantification of Revenue or any other  purpose.  

 (b)   Procure  in  respect  of  each  of  those  

accounting statements prepared in respect  of a completed financial year, a report by  the  LICENSEE’s  Auditor  in  the  format  prescribed by the LICENSOR, stating inter- alia whether in his opinion the statement is  adequate for the purpose of this condition  and thereafter deliver to the LICENSOR a  copy of each of the accounting statements  not later than three months at the end of  the accounting period to which they relate.  

 c)    Send to the LICENSOR a certified statement  

sworn  on  an  affidavit,  by  authorized  representative of the company, containing  full  account  of  Revenue  as  defined  in  condition  19  for  each  quarter  separately  along with the payment for the quarter.  

 22.3 (a) The LICENSOR or the TRAI, as the case  

may be, shall have a right to call for and  the LICENSEE shall  be obliged to supply  and provide for examination any books of  accounts that the LICENSEE may maintain  in respect of the business carried on to  provide the service(s) under this Licence  at  any  time  without  recording  any  reasons thereof.  

 22.3 (b) LICENSEE shall  invariably preserve all  

billing  and  all  other  accounting  records  (electronic  as  well  as  hard  copy)  for  a  period of THREE years from the date of  publishing  of  duly  audited  &  approved  Accounts  of  the  company  and  any  dereliction thereof shall  be treated as a

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material breach independent of any other  breach,  sufficient  to  give  a  cause  for  cancellation of the LICENCE.  

 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 company’s  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  the  nature  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.  

 22.7  The  LICENSEE  shall  be  liable  to  prepare  

and furnish the company’s annual financial  accounts  according  to  the  accounting  principles  prescribed  and  the  directions  given by the LICENSOR or the TRAI, as the  case may be, from time to time.”

28. Clause 32 deals with the obligations imposed upon  

the licensee, which read as under:

“32. Obligations imposed on the LICENSEE.

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 32.1 The provisions of the Indian Telegraph Act  

1885,  the Indian Wireless Telegraphy Act  1933,  and  the  Telecom  Regulatory  Authority  of  India  Act,  1997  as  modified  from time to time or any other statute on  their  replacement  shall  govern  this  LICENCE.  

 32.2 The LICENSEE shall  furnish  all  necessary  

means  and  facilities  as  required  for  the  application of provisions of Section 5(2) of  the Indian Telegraph Act, 1885, whenever  occasion  so  demands.  Nothing  provided  and  contained  anywhere  in  this  Licence  Agreement  shall  be  deemed  to  affect  adversely anything provided or laid under  the  provisions  of  Indian  Telegraph  Act,  1885 or any other law on the subject in  force.”

29. We have earlier referred to the clauses of the licence  

agreement,  which  indicate  the  pattern  of  “revenue  

sharing”  between  the  Union  of  India  and  the  licensee.  

Licence  fee  envisages,  apart  from  the  one-time  non  

refundable Entry Fee, the licence fee annually be paid @  

6% of  AGR  excluding  spectrum charges.   Right  is  also  

reserved on the licensor to modify the licence fee during  

the currency of the agreement.  Spectrum charges have to  

be paid in addition to the licence fee on “Revenue Sharing  

Basis”.   While levying spectrum charges based on AGR,

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the components which form the AGR have also been given  

in  clause 19.1,  which is  wide enough to embrace other  

source of revenue inflow.  Licensee is, therefore, obliged  

to  maintain  the  accounts  relating  to  licence  agreement  

and particularly the revenue received by it because it has  

to  share  the  revenue  with  the  Union,  which  has  to  be  

calculated with reference to the Gross Revenue Receipts.   

30. TRAI  Service  Providers  (Maintenance  of  Books  of  

Accounts and other Documents)  Rules,  2002 have been  

framed  by  the  Central  Government  in  exercise  of  the  

powers conferred under sub-section (1) read with clause  

(d) of sub-section (2) of Section 35 of the TRAI Act, 1997.  

Rule 3 deals with the maintenance of books of accounts  

and other documents, which reads as under:

“3. Maintenance of Books of Accounts and  other Documents –  (1)   Every service provider  shall  keep  and  maintain  the  following  books  of  accounts and other documents in the manner as  specified by the Central Government from time to  time, namely:- (i) books  of  accounts  to  reflect  the  itemized  

original and current cost service-wise of fixed  assets  and  separate  heads  for  different  category of assets may be maintained;

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(ii) books  of  accounts  and  other  documents  to  reflect  service-wise  itemised  operational  expenses;  

(iii) books  of  accounts  to  reflect  service-wise  revenue;

(iv) books  of  accounts  to  reflect  income  from  other sources;

(v) supporting  books  of  accounts  and  other  documents as –

(a)    fixed assets register;

(b)    stores and spares register

(c) register  showing  particulars,  service- wise, of subscribers;

(d)    register  showing  deposits  from  customers;

(e)    cash book;

(f)    journal;

(g)    ledger; and  

(h) copies  of  bills  and  copies  of  counter  foils of all receipts.

Explanation – For the purpose of this rule –

(a) “itemized” means the requirement for both  the total cost and also its break-up;

(b) “current  cost”  means  cost  after  depreciation; and

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(c) “fixed  assets”  includes  sub-heads  such  as  building, plant and machinery, etc.

(2)   Every service provider shall  intimate to the  Authority the place where the books of accounts  and other documents are maintained.”

 31. Rule 5 of 2002 Rules, the validity of which is under  

challenge, reads as under:

“5.    Audit

Every service provider shall produce all such books  of accounts and documents, referred to in sub-rule  (1) of  rule 3, that has a bearing on the verification  of the Revenue, to the Authority –

(i) for  the  purpose  of  calculating  license  fee;  and

(ii) to  furnish  to  the  Comptroller  and  Auditor  General  of  India  the  statement  or  information,  relating  thereto,  which  the  Comptroller  and  Auditor  General  of  India  may require to be produced before him and  the Comptroller and Auditor General of India  may audit the same in accordance with the  provisions of Section 16 of the Comptroller  and  Auditor  General’s  (Duties,  Powers  and  Conditions  of  Service)  Act,  1971  (56  of  1971).”

32. UAS Licence holders do not dispute the fact that they  

have to maintain books of accounts and other documents

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referred to in Rule 3 of 2002 Rules and they also do not  

question the right of the DoT under Clause 22.5 to appoint  

an  auditor,  nor  do  they  question  the  DoT’s  power  to  

appoint a Special Auditor under Clause 22.6 or even the  

audit being conducted by DoT through CAG.  UAS Licence  

holders also do not dispute that the transactions between  

them  and  the  Union  of  India  form  the  basis  for  

ascertaining the amounts payable to the Union of India, by  

way of Revenue Share, which has to be credited to the  

Consolidated Fund of India.     What they dispute is the  

competence of CAG to conduct audit of the accounts of  

the service providers in accordance with the provisions of  

Section 16 of the Act of 1971 read with Rule 5(ii) of 2002  

Rules.  Power of the CAG under Section 16 of the 1971 Act  

has been disputed primarily on the ground that Article 149  

of the Constitution confers powers on the CAG to conduct  

audit of accounts only of the Union and the States or any  

other authority or  body prescribed by or under any law  

made  by  Parliament,  not  private  entities  or  their  

underlying accounts and records maintained by them in  

the  absence of  law made by  the  Parliament.   We may

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point  out that  this is  the prime question that arises for  

consideration in these appeals.  

CAG

33. We may first examine the powers of the CAG under  

our constitutional scheme. Article 148 of the Constitution  

states  that  there  shall  be  a  Comptroller  and  Auditor  

General,  who  shall  be  appointed  by  the  President  by  

warrant under his hand and shall only be removed in like  

manner and on like grounds as of Judge of the Supreme  

Court  of  India.   The  CAG  is,  therefore,  an  important  

functionary under the Constitution and, it is often said, he  

is the guardian of the purse and that he should see that  

not  farthing  of  it  is  spent  without  the  authority  of  the  

Parliament.  Article 149 deals with the duties and powers  

of the CAG which reads as under:

“149.  Duties  and  powers  of  the  Comptroller  and  Auditor  General.   The  Comptroller and Auditor General shall  perform  such duties and exercise such powers in relation  to the accounts of the Union and of the States  and of any other authority or body as may be  prescribed  by  or  under  any  law  made  by  Parliament and, until provision in that behalf is  so made, shall perform such duties and exercise

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such powers in relation to the accounts of the  Union and of the States as were conferred on or  exercisable  by  the  Auditor  General  of  India  immediately before the commencement of this  Constitution in relation to the accounts of the  Dominion  of  India  and  of  the  Provinces  respectively.”

34. Article  149  does  confer  the  power  on  the  CAG  to  

discharge duties and powers in relation to the accounts of  

the Union and the States or any other authority or body,  

as  may  be  prescribed  under  the  law  made  by  the  

Parliament.   CAG,  therefore,  is  exercising  constitutional  

powers and duties in relation to the accounts, while the  

High Court under Article 226 of the Constitution, so also  

the Supreme Court under Article 32 of the Constitution, is  

exercising judicial powers.  Duties and powers conferred  

by the Constitution on the CAG under Article 149 cannot  

be  taken  away  by  the  Parliament,  being  the  basic  

structure  of  our  Constitution,  like  Parliamentary  

democracy, independence of judiciary, rule of law, judicial  

review,  unity  and  integrity  of  the  country,  secular  and  

federal character of the Constitution, and so on.  

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35. The scope of Article 148 vis-à-vis the powers of the  

CAG  came  up  for  consideration  before  this  Court  in  

S.Subramaniam Balaji v.  State of  Tamil  Nadu and  

others (2013) 9 SCC 659 and this Court held that the CAG  

is  the constitutional  functionary  appointed under  Article  

148 of the Constitution and its main role is to audit the  

income and expenditure of the Government, government  

bodies and State run corporations and the extent of its  

duties  is  listed  in  the  Comptroller  and  Auditor  General  

(Duties,  Powers  etc.)  Act,  1971.   It  is  stated  that  

functioning  of  the  Government  is  controlled  by  the  

government,  laws of  the land,  legislature  and the CAG.  

CAG has the power to examine the propriety, legality and  

validity of all expenses incurred by the government and  

the office of the CAG exercises effective control over the  

government  accounts  and  expenditure  incurred  on  the  

schemes only after implementation of the scheme, as a  

result,  the  duties  of  the  CAG  will  arise  only  after  the  

expenditure has been incurred.

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36. In  Arvind  Gupta v.  Union  of  India  and  others  

(2013) 1 SCC 393 this Court, while examining the scope of  

Articles 149, 150 and 151 of the Constitution, vis-à-vis the  

reports of the CAG, noticed and pointed out that the CAG’s  

functions are carried out in the economy’s efficiency and  

effectiveness  with  which  the  government  has  used  its  

resources and it was pointed out that performance/audit  

reports prepared under the regulations have to be viewed  

accordingly. In Arun Kumar Agrawal v. Union of India  

and others (2013) 7 SCC 1 this Court while interpreting  

Section 16 of 1971 Act held that the CAG has to satisfy  

himself that the rules and procedures, designed to secure  

an  effective  check  on  the  assessment,  collection  and  

proper allocation of revenue are being duly observed and  

CAG has to examine the decisions which have financial  

implications,  including the propriety  of  decision making.  

This  Court  also  noticed  that  the  report  of  the  CAG  is  

required to be submitted to the President, who shall cause  

them  to  be  laid  before  each  House  of  Parliament,  as  

provided under Article 151(1) of the Constitution of India.  

By placing the reports of the CAG in the Parliament, CAG

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regulates  the  accountability  of  the  Executive  to  the  

Parliament in the field of financial administration, thereby  

upholding the parliamentary democracy.   

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 nation’s 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  nation’s  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).

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38. Learned  senior  counsel  appearing  for  the  service  

providers,  while  interpreting  Article  149  of  the  

Constitution,  questioned  the  CAG’s  jurisdiction,  stating  

that so far as the service providers are concerned, it does  

not  extend  to  them  since  they  are  not  government  

companies,  nor  do  they  receive  any  funding  from  the  

government.  Further, it is also pointed out that they do  

not fall, rather not covered within the ambit of ‘any other  

authority or body’ prescribed under any law made by the  

Parliament.  It was also pointed out that the CAG cannot  

audit private companies, like the service providers.   

39. While examining the scope of Article 149, read with  

Section  16  of  1971  Act,  let  us  not  forget  that  we  are  

dealing  with  a  natural  resource  which  belongs  to  the  

peoples  of  this  country,  and  hence  we  have  to  give  a  

purposive interpretation to Article 149 read with Section  

16  of  1971  Act  and  Rule  5(i)(ii)  of  2002  Rules.   Much  

emphasis  has  been  made  on  the  Constituent  Assembly  

Debates in respect of Article 149 (which was previously  

Article  145 in  the 1940’s  Draft  Constitution)  and it  was

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submitted that the term “any other authority or body” in  

Article  149  was  only  meant  to  cover  entities  that  

performed  State  functions  and/  or  entities  financed  or  

controlled by the State, as opposed to “local bodies and  

other miscellaneous corporations and organizations”.

40. Constitution,  as it  is  often said “is  a living organic  

thing and must be applied to meet the current needs and  

requirements”.  Constitution, therefore, is not bound to be  

understood or accepted to the original understanding of  

the  constitutional  economics.   Parliamentary  Debates,  

referred  to  by  service  providers  may  not  be  the  sole  

criteria  to  be  adopted  by  a  court  while  examining  the  

meaning and content of Article 149, since its content and  

significance has to vary from age to age.  Fundamental  

Rights enunciated in the Constitution itself, as held by this  

Court  in  People’s  Union  For  Civil  Liberties  (PUCL)  

and another  v.  Union of India and another (2003) 4  

SCC 399, have no fixed content, most of them are empty  

vessels into which each generation has to pour its content  

in the light of its experience.  

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41. Parliament has an obligation to ascertain whether the  

entire receipts by way of licence fee, spectrum charges,  

have been realized by the Union of India and credited to  

the Consolidated Fund of India (CFI).  Article 266 says, all  

the  public  moneys  received  by  or  on  behalf  of  the  

Government  of  India  shall  be  credited  to  CFI.  CAG can  

carry  out  examination  into  the  economy,  efficacy  and  

effectiveness with which the Union of India has used its  

resources, and whether it has realized the entire licencee  

fee, spectrum charges and also whether the Union of India  

has correctly carried out the audit under Clauses 22.5 and  

22.6 of UAS Licence Agreement.  CAG’s examination of the  

accounts of the Service Providers in a Revenue Sharing  

Contract  is  extremely  important  to  ascertain  whether  

there is an unlawful gain to the Service Provider and an  

unlawful loss to the Union of India, because the revenue  

generated  out  of  that  has  to  be  credited  to  the  

Consolidated Fund of India. The subject matter, with which  

we are concerned, as already indicated, is “spectrum”, a  

natural resource, which belongs to the people, therefore,

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people of  this  country,  through Parliament  should  know  

how its  natural  resources  have  been  dealt  with  by  the  

Union,  State  or  its  instrumentalities  or  even  by  UAS  

licence holders.  Instances are not rare, where even the  

Executive,  at  times,  acts  hand  in  glove  with  licence  

holders,  who  deal  with  the  natural  resources,  hence,  

necessity  of  proper  parliamentary  control  over  the  

resources.   We have to understand the scope of Article  

149 of the Constitution, Section 16 of 1971 Act and Rule 5  

of TRAI Rules 2002, in that perspective.

 42. Chapter 3 of the Act of 1971 deals with the duties  

and powers of the CAG.  Section 13 of the Act deals with  

the general provisions relating to audit and the same is  

extracted hereinbelow:

“13. It shall be the duty of the Comptroller and  Auditor General –

(a) to  audit  all  expenditure  from  the  Consolidated  Fund  of  India  and  of  each  State and of each Union Territory having a  Legislative  Assembly  and  to  ascertain  whether  the  moneys  shown  in  the  accounts  as  having  been  disbursed  were  legally available for and applicable to the  service  or  purpose  to  which  they  have  been applied or charged and whether the

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expenditure  conforms  to  the  authority  which governs it;

(b) to audit all transactions of the Union and of  the  State  relating  to  Contingency  Funds  and Public Accounts;

(c) to audit  all  trading,  manufacturing,  profit  and loss accounts and balance sheets and  other  subsidiary  accounts  kept  in  any  department of the Union or of a State;

and in each case to report on the expenditure,  transactions or accounts so audited by him.”

43. Section 13(b) provides that the CAG would “audit all  

transactions  of  the  Union  and  of  the  States  relating  to  

Contingency Funds and Public Accounts”.  The expression  

“transaction” means an incident of buying and selling or  

action of conducting business, it also means an exchange  

or  interaction  between  people.   The  “transaction”  is,  

therefore,  an expression of widest amplitude and would  

cover even the lease agreement entered into by the Union  

with service providers. The expression “relating to” refers  

to  “Contingency  Funds  and  Public  Accounts”.   While  

examining the scope of Section 13, the test to be applied

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is, is it a transaction of Union or State or is it, in any way,  

“relates to contingency public fund”.   

44. Section  16  of  the  Act  of  1971  deals  with  audit  of  

receipts of Union or States, reads as under:

“16.  It shall be the duty of the Comptroller and  Auditor-General  to  audit   all  receipts  which  are  payable into the Consolidated Fund of India and of  each State and of each Union Territory  having a  Legislative  Assembly  and  to  satisfy  himself  that  the rules and procedures in that behalf designed  to secure an effective check on the assessment,  collection and proper allocation of revenue and are  being duly observed and to make for this purpose  such examination of the accounts as he thinks fit  and report thereon.”

45. The  expression  “to  audit  all  receipts”  does  not  

distinguish  the  revenue  receipts  and  non-revenue  

receipts.  For the purpose of audit of receipts, the duty of  

the CAG extends “to such examination of the accounts as  

it thinks fit  and report thereon”.  Section 13 read along  

with  Section  16  makes  it  clear  that  the  expression  “to  

audit  all  transactions”  so  also  “audit  of  all  receipts”,  

payable into Consolidated Fund of India would take in not  

only the accounts of the Union and of the State and of any  

other authority or body as may be prescribed or under any

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law  made  by  the  Parliament  but  also  to  audit  all  

transactions  which  Union  and  State  have  entered  into  

which  has  a  nexus  with  Consolidated  Fund,  especially  

when the receipts  have direct  connection with Revenue  

Sharing.    

46. Above reasoning is further re-inforced if we look at  

Section 18 of the Act, which deals with the powers of the  

CAG in connection with the audit of accounts, which reads  

as follows :-

“18.   (1)  The Comptroller  and Auditor-General  shall in connection with the performance of his  duties under this Act, have authority –

(a) to inspect any office of accounts under the  control of the Union or of a State including  treasuries, and such offices responsible for  the  keeping  of  initial  or  subsidiary  accounts, as submit accounts to him;

(b) to  require  that  any  accounts,  books,  papers  and  other  documents  which  deal  with or form the basis of or an otherwise  relevant  to  the transactions  to  which  his  duties in respect of audit extend, shall be  sent to such place as he may appoint for  his inspection;

(c) to  put  such  questions  or  make  such  observations  as  he  may  consider  necessary, to the person in charge of the  office and to call for such information as he

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may  require  for  the  preparation  of  any  account  or  report  which  it  is  his  duty  to  prepare.

(2) The  person  in  charge  of  any  office  or  department, the accounts of which have to be  inspected and audited by the Comptroller and  Auditor-General,  shall  afford  all  facilities  for  such  inspection  and comply  with  requests  for  information in as complete a form as possible  and with all reasonable expedition.”

Section 18(1)(b) delineates the powers of the CAG to call  

for the books of accounts,  papers and other documents  

which form the basis of various transactions to which his  

duties extend.   

47. Section 16 of Act 56 of 1971 has to be understood in  

the light of Article 266 of the Constitution.  Article 266 also  

uses  the  expression  “all  revenue  receipts  by  the  

Government of India” which evidently includes income of  

the  nation  received  by  the  DoT  in  parting  with  the  

privilege i.e. ‘spectrum” on a revenue sharing basis with  

service providers.  The expression “licence fee” in clause  

18.1 and “Radio spectrum charges” in clause 18.3.1 in the

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licence agreement for UAS have to be understood in that  

perspective.  The licence fee received by the DoT so also  

the Radio spectrum charges while granting the privilege to  

deal  with  the  spectrum by  the  licensees  is  a  “revenue  

received  by  the  Government”  within  the  meaning  of  

Article 266 i.e.  “a receipt payable into the Consolidated  

Fund of India” within the meaning of Section 16 of 1971  

Act.   

48. Revenue  share  receivable  by  the  Union  being  a  

receipt payable into the Consolidated Fund” by virtue of  

Section 16 and 18(1)(b) of 1971 Act, in relation to such  

receipts,  the  CAG  is  entitled  to  seek  the  records  

maintained in terms of Rule 3 of Rules of 2002 and the  

records  maintained under  clauses 22.1 and 22.2 of  the  

licence agreement.   We are of the view that unless the  

underlying records which are in the exclusive custody of  

the  Service  Providers  are  examined,  it  would  not  be  

possible to ascertain whether the Union of India,  as per  

the agreement, has received its full and complete share of  

Revenue, by way of licence fee and spectrum charges.

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49. We may now examine the challenge made to Rule 5  

of TRAI Rules 2002, on the basis that the same is ultra  

vires to Section 16 of CAG Act, 1971 and Article 149 of the  

Constitution.  Clauses 9.1 as well as 16.1 of the Licence  

Agreement categorically states that the licensee shall be  

bound by the terms and conditions of the agreement as  

well as by the order/directions/regulations of TRAI as per  

the provisions of TRAI Act, 1997.  For effective fulfillment  

of the above-mentioned statutory obligations, TRAI framed  

2002 Rules under Section 35 of Act of 1971. Rule 3 of TRAI  

Rules 2002, as already stated, casts an obligation on the  

service providers to maintain the Books of Accounts and  

other  documents  so  as  to  make  available  the  same to  

CAG.     Article  149  of  the  Constitution,  as  already  

indicated, provides for confirmation of powers upon CAG  

under any law i.e. even by supporting legislation and Rule  

5  falls  in  that  category.   Rule  5  obliges  every  service  

provider  to  produce  all  such  books  of  accounts  or  

documents referred to in sub-rule (1) of Rule 3 so that the  

CAG can carry out audit entrusted to it by virtue of the

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powers conferred under Article 149 read with Section 16  

of  Act  of  1971.   Rule  5  only  manifests  conferment  of  

powers upon CAG in relation to the accounts of bodies in  

the  nature  of  private  service  providers  which  we  have  

already  found  is  consistent  with  Article  149  of  the  

Constitution.   

50. 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

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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.  

CAG’s  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.  

CAG’s 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.

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CIVIL APPEAL NOS.10748 AND 10749 OF 2011

52. 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 following reliefs:

“i. Set  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;

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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. Pass any order(s) as the Tribunal may deem fit  in  the  interest  of  justice,  equality  and  good  conscience.”

54. 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

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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  following  

grounds:

“(i) Before  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.

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(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.”

56. 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.

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(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.”

57. 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 as follows:

“An audit 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.”

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58. The Tribunal later referred to Clause 22.5 and stated  

as follows:

“An audit 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.”

59. 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

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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.

60. Shri Paras Kuhad, learned Additional Solicitor General  

appearing for the appellants, submitted that the Tribunal  

has completely misapplied various clauses of the licence  

agreement, especially Clauses 22.3, 22.5 and 22.6 which,  

according  to  the  learned  senior  counsel,  empower  the  

Department to call for the books of account of the service  

providers  for  its  audit.   Shri  Kuhad  submitted  that  the  

communications  dated  16.3.2010  and  10.5.2010  are  

intended to carry out an audit by the CAG and that the  

Department has got the legal right to call upon the service  

providers to make available all  the records so that they  

could be scrutinized by the CAG.  CAG, it was pointed out,  

has got the power under Article 149 of the Constitution  

read  with  Section  16  of  the  Comptroller  of  Auditor  

General’s (Duties, Powers and Conditions of Service) Act,  

1971 and Rule 5 of TRAI Rules, 2002 and the conditions of  

license to carry on audit  of  the accounts of the service

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providers,  since  the  Union  of  India  and  the  service  

providers  are  in  agreement  for  revenue  sharing.   Shri  

Kuhad  also  questioned  the  finding  of  the  Tribunal  that  

before exercising the powers  by the CAG for  audit,  the  

department has to form an opinion that  the statements  

and  account  already  submitted  were  inaccurate  and  

misleading.  Shri Kuhad further submitted that the Tribunal  

has  completely  misread  of  the  various  clauses  of  UAS  

License as well as the powers conferred under the 1971  

Act.    

61. Shri Gopal Jain, learned senior counsel appearing for  

the  respondents  service  providers,  supported  the  

reasoning  of  the  Tribunal  in  setting  aside  the  

communications  dated  16.3.2010  and  10.5.2010  and  

submitted that an audit by CAG, or for that matter even by  

the Department, could be conducted only if the DoT had  

formed  an  opinion  that  the  statements  or  accounts  

submitted  by  the  service  providers  were  inaccurate  or  

misleading.  In  other  words,  it  was  pointed out,  that  for  

taking  recourse  to  Clause  22.5,  the  department  was

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required to form an opinion which would  mean “honest  

and bona fide opinion” that the accounts made available  

were misleading or inaccurate and, for that purpose, the  

department has to act reasonably and fairly.

62. 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.   For  easy  

reference, we may, once again, refer the relevant portions  

of the communication dated 16.3.2010:

“Government of India Ministry of Communication

Department of Telecommunication (AS Cell)

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Sanchar Bhawan, 20, Ashoka Road, New Delhi –  110 001

No. 842-1086/1010-AS-IV Dated 16th March, 2010

To M/s. Bharti Airtel Ltd. And Bharti Hexacom  Ltd., Unitech World Cyber Park Power-A, 4th Floor, Sector 39, Gurgaon – 122 001

Subject : Audit of Telecom Service Providers by  C&AG

Reference:  Unified  Access  Service  Licence  Agreements as detailed below:

Sl. No. Service  Area

Licence  No.

Dated

 xxx Xxx Xxx xxx  

In exercise of powers conferred on the Licensor  under clause 22.3 of Unified Access Service (UAS)  Licence,  it  is  requested to provide the following  accounting records, for three years commencing  from 2006-07, consisting of books of accounts and  other documents for all the services offered under  the above referred UAS licences issued, to reflect:

i) Total  cost  and  break-up  of  original  and  current cost i.e. cost after depreciation under  separate head for different category of fixed  assets;

ii) Cost and breakup of operation expenses iii) Service wise revenue iv) Income from other sources v) Supporting  books  of  accounts/  other  

documents as a) Fixed asset register b) Stores and spares / inventory register

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c) Register showing service – wise particulars  of subscribers

d) Register showing deposits from customers e) Cash books f) Journals  g) Ledger h) Copes  of  bill  and  counter  foils  of  all  

receipts.                                                      [Emphasis Supplied]

2. The above mentioned information should be  sent  directly  to  DDG  (Accounts),  Department  of  Telecommunications,  Room  No. 701, Sanchar Bhavan, 20, Ashoka Road,  New Delhi 110 001 within 15 days from date  of issue of this letter.

Sd/-  16.3.2010 (Shashi Mohan)

Director (AS-IV)”

63. The communication dated 16.3.2010 was issued by  

the DoT in exercise of powers conferred under Clause 22.3  

of UAS License calling for the accounting records for three  

years  consisting  of  books  of  accounts  and  other  

documents referred to therein.    The purpose of issuing  

such  a  letter  has  been  specifically  earmarked  stating  

“Audit  of  telecom  service  providers  by  C&AG”.  Above  

mentioned communications were issued not under Clause  

22.5, as noticed by the Tribunal, but under Clause 22.3,

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which is reflected in the above mentioned communications  

itself.  Clause 22.3 reads as follows:

“22.3 (a) The LICENSOR or the TRAI, as the  case may be, shall have a right to call for and the  LICENSEE shall be obliged to supply and provide  for examination any books of accounts that the  LICENSEE  may  maintain  in  respect  of  the  business  carried  on  to  provide  the  service(s)  under this Licence at any time “without recording  any reasons thereof”.

22.3(b) LICENSEE shall  invariably preserve all  billing  and  all  other  accounting  records  (electronic as well as hard copy) for a period of  THREE years from the date of publishing of duly  audited  &  approved  Accounts  of  the  company  and any dereliction thereof shall be treated as a  material  breach  independent  of  any  other  breach, sufficient to give a cause for cancellation  of the LICENCE.”

(Emphasis Supplied)

64. Clause 22.3(a) specifically states that the licensor or  

TRAI shall have a right to call for and the licensee shall be  

obliged to supply and provide for examination any books  

of accounts that the licensee may maintain in respect of  

the  business  carried  on  to  provide  services  under  this  

license  at  any  time  “without  recording  any  reasons  

thereof”.   In other words, while issuing the communication  

dated 10.5.2010, DoT or TRAI is not expected to record  

any reasons and that they can summon books of accounts

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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/2009-10/4

OFFICE OF THE  Director General of Audit, Post &  

Telecommunications Sham Nath Marg, (Near Old Secretariat), Delhi –  

110002

R. P. Singh Director General                         Dated 10-5-2010

Sub: Audit of Telecom Service Providers by  C&AG-Reg.

Ref:  1)  DoT letter No. 842-1086/2010/AS-IV  dt. 16.03.2010

2) Your  office  letter  No.  TTSL/DoT/  Audit/2010 dt. 1.04.2010

Dear Sh. Dalal

Kindly refer to your office letter cited on the  above subject extending cooperation in conduct  of the audit of revenue share by C&AG.  Certain

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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.

Regards

Yours 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

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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

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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.   Tribunal’s  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:

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“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  company’s  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  the  nature  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  

inaccurate or 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

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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.   

70. We, therefore, find no merit in the appeals filed by  

the  Service  Providers  and  hence  those  appeals  are  

dismissed, as above.   The appeals filed by the DoT and  

others are, however, allowed, setting aside the judgment  

of  the  Tribunal.   In  the  facts  and circumstances  of  the  

case, there will be no order as to costs.

……..……………………J. (K.S. Radhakrishnan)

……..……………………J. (Vikramajit Sen)

New Delhi, April 17, 2014.