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Business News/ Industry / Telecom/  CAG can audit accounts of private telecom firms: SC
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CAG can audit accounts of private telecom firms: SC

Apex court order applies to telcos that share revenue with government for use of spectrum, raises investor concerns

The apex court modified an earlier verdict of the Delhi high court that allowed the CAG to conduct statutory audit of only the telcos’ revenue. Photo: MintPremium
The apex court modified an earlier verdict of the Delhi high court that allowed the CAG to conduct statutory audit of only the telcos’ revenue. Photo: Mint

New Delhi: The Supreme Court ruled on Thursday that the Comptroller and Auditor General (CAG) of India has the right to audit the receipts of telecom operators that share revenue with the government for use of spectrum.

Scrutiny by the government auditor is necessary to ensure that the exchequer gets a legitimate share of the revenue generated from public resources, justices K.S. Radhakrishnan and Vikramajit Sen said.

The ruling raises concerns that the order could potentially be extended to other sectors in which companies pay the government to use national resources, and fuels investors’ worries about the complexity of doing business in India.

“The Supreme Court verdict to allow CAG to audit telcos to ascertain whether the government is getting its due share is likely to add to the complexity of the operating environment of the telcos," said Hemant Joshi, a partner at consulting firm Deloitte and Sells.

“The country is 4-5 years behind in technology in telecom and needs about $100 billion to catch up with the world. This ruling would add to the perception that India is a difficult country to do business in and there is more government than warranted. It could then extend to mining, power, airline, banking, manufacturing, services companies and individuals etc.," he added.

CAG has already conducted or is in the process of conducting audits on some private companies that contribute to the exchequer.

CAG is looking at auditing power companies, having already inspected the books of some privatized airports.

GMR Infrastructure Ltd-run Delhi International Airport Pvt. Ltd and GVK Power and Infrastructure Ltd-run Mumbai International Airport Ltd have been audited by CAG.

Both airports function under the so-called public-private partnership model in which the government-owned Airports Authority of India holds a 26% stake, having leased out the two airports for a period of 30 years, extendable by another 30 years, on a revenue-sharing model.

CAG is auditing two Anil Ambani-controlled distribution companies (discoms)—BSES Rajdhani Power Ltd and BSES Yamuna Power Ltd —and Tata Power Delhi Distribution Ltd that provide electricity to Delhi.

The distribution firms are joint ventures with Delhi Power Co. Ltd, which owns a 49% stake in them.

“The verdict is disappointing. Our member telecom companies will now have to assign additional manpower and managerial hours towards this," said Ashok Sud, secretary general at the Association of Unified Telecom Service Providers of India that represents dual technology telecom licence holding companies.

The Department of Telecommunications (DoT) already has the power to conduct audits “and one more audit was not required", Sud said.

“There are wider implications of the verdict as well. And not just for telecom. This sets a precedent for all companies that contribute funds towards the exchequer to be audited by the CAG. It also means that the CAG would have to invest public funds towards expanding exponentially to do this," he said.

Individual telecom firms declined to comment immediately on the court ruling saying that they hadn’t read the order.

The Supreme court order upheld a 6 January verdict by the Delhi high court that had allowed CAG to conduct an audit of the revenue receipts of telecom firms.

Telecom services firms moved the Supreme Court in January on grounds that they were private companies and not under the jurisdiction of CAG.

The government had argued that in private-public partnership ventures, the revenue generated by the licence holders is required to be shared with the Union government in line with the licensing agreements.

The case first went to the Telecom Disputes Settlement and Appellate Tribunal and then on appeal to the Supreme Court, which sent the case to the high court. It came back to the apex court again

DoT in 2009 hired CAG-empanelled auditors to look into the books of the five biggest telecom firms—Bharti Airtel Ltd, Vodafone India Ltd, Idea Cellular Ltd, Tata Teleservices Ltd and Reliance Communications Ltd—for the fiscal years 2006-07 and 2007-08.

These audits found that the operators were underpaying for radio spectrum and telecom permits as they were under-reporting revenue.

DoT then issued notices to recover almost 1,600 crore in unpaid dues from the five telcos in June 2012. The firms have been opposing this in the courts.

The telcos argue that the revenue that was not accounted for was not from their telecom business directly but from allied businesses.

Utpal Bhaskar and Tarun Shukla contributed to this story.

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Published: 17 Apr 2014, 02:43 PM IST
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