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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 1

st

April, 2010 and 12

th

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 20

th

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 21

st

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 28

th

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 28

th

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.,

Page 27 27

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

Page 28 28

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/

Page 29 29

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:

Page 30 30

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

Page 31 31

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;

Page 32 32

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

Page 33 33

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

Page 34 34

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

Page 35 35

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.

Page 36 36

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,

Page 37 37

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;

Page 38 38

(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

Page 39 39

(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

Page 40 40

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

Page 41 41

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

Page 42 42

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.

Page 43 43

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.

Page 44 44

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

Page 45 45

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).

Page 46 46

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

Page 47 47

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.

Page 48 48

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,

Page 49 49

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

Page 50 50

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

Page 51 51

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

Page 52 52

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

Page 53 53

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

Page 54 54

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.

Page 55 55

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

Page 56 56

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

Page 57 57

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.

Page 58 58

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 16

th

March,

2010 and 10

th

May, 2010 seeking audit of

telecom companies by the C&AG and seeking

information beyond the ambit and scope of

the UAS license;

Page 59 59

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

Page 60 60

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.

Page 61 61

(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.

Page 62 62

(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.”

Page 63 63

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

Page 64 64

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

Page 65 65

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

Page 66 66

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)

Page 67 67

Sanchar Bhawan, 20, Ashoka Road, New Delhi –

110 001

No. 842-1086/1010-AS-IV

Dated 16

th

March, 2010

To

M/s. Bharti Airtel Ltd. And Bharti Hexacom

Ltd., Unitech World Cyber Park

Power-A, 4

th

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

Page 68 68

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,

Page 69 69

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

Page 70 70

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

Page 71 71

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 21

st

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

Page 72 72

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

Page 73 73

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:

Page 74 74

“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

Page 75 75

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.