SC allows CAG to audit accounts of private firms

 The Supreme Court on Thursday ruled that Comptroller and Auditor General (CAG) could audit the account books of private companies which were doing business using national wealth or natural resources on a revenue-sharing basis with the government.

Though the judgment came in a case related to telecom service providers doing business using spectrum on a revenue-sharing basis, it will have vital impact also on private companies engaged in natural gas extraction and coal mining on the basis of production-sharing contracts (PSC) with the government.

"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 Parliament. Parliamentary democracy also envisages the accountability of the council of ministers to the legislature," a bench of Justices K S Radhakrishnan and Vikramjit Sen said.

The verdict comes at a critical time when the apex court is dealing with 2G spectrum scam, coal block allocation irregularities and also hearing arguments on MP Gurudas Dasgupta's petition alleging that Reliance Industries Ltd and the Union petroleum ministry were hand-in-glove to give the private party 'windfall profit' causing loss to the exchequer.

Private companies have resisted the demand for scrutiny by CAG on the ground that the auditor's remit was limited to public entities.

Writing the judgment for the bench, Justice Radhakrishnan said the court was of the firm belief that CAG must audit the accounts of private firms because "instances are not rare where even the executive, at times, acts hand-in-glove with licence providers, who deal with the natural resources, hence, necessity of parliamentary control over the resources".

Dismissing petitions by Association of Unified Tele Services Providers and Cellular Operators Association of India, the bench said, "CAG's examination of the accounts of 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."

Justices Radhakrishnan and Sen said such audit by CAG was important when the executive dealt with natural resources, like spectrum, which actually belonged to the people of India.

"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 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 licence holders," the bench said.

The court rejected the telecom service providers' argument that CAG could not be given unhindered access to account books and could look into only those relating to revenue sharing. It said revenue share receivable by the Union being a receipt payable into the Consolidated Fund, the CAG was entitled to seek the records relatable to such revenue receipts.

"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," the bench said.

Clarifying that such scrutiny by CAG did not amount to statutory audit of accounts of private companies, the bench said, "Service providers are bound to provide all the records and documents called for by the CAG so as to ascertain whether the Union of India is getting its full share of revenue."