In an order that could have a far-reaching impact on businesses, the Supreme Court on Thursday ruled that the Comptroller and Auditor General (CAG) can examine the accounts of private telecom companies.

The apex court passed the order on a batch of petitions filed by telecom companies challenging the Delhi High Court’s green signal for CAG audits of their accounts. It held that the CAG can conduct an audit to ensure the Government is getting its legitimate share of revenue from natural resources allocated to them, such as spectrum.

Wider impact Though the ruling was in the context of the telecom operators’ appeal, experts say the CAG can interpret it to look into the books of any company that uses natural resources, such as coal and gas.

“This ruling will 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, airlines, banking, manufacturing, services companies and even individuals,” said Hemant Joshi, Partner, Deloitte Haskins & Sells.

Industry representatives said they were worried the CAG would even question decisions taken by private companies. For instance, the CAG had recently concluded that telecom operators’ inefficient spectrum use was causing huge losses to the government. According to the auditor, as of December 31, 2012, Bharti Airtel was catering to 90.28 lakh customers in Delhi with 10 MHz spectrum and its revenue for 2011-12 was ₹2,621.62 crore. Four other operators had a total spectrum of 29.2 MHz but their total revenue for the same period was only ₹1,757.16 crore.

Rajan Mathews, Director-General, Cellular Operators Association of India, said that if the CAG starts questioning operators’ investment decisions and rollout strategy, then it would lead to higher costs and time wastage for companies.

“There are already multiple audits being done by multiple agencies such as the Department of Telecom, the Telecom Regulatory Authority of India (TRAI) and the Securities and Exchange Board of India. By the logic of the court, every taxpayer should also be subject to audit by the CAG, in addition to the I-T Department. This ruling will become a larger issue for Corporate India and not just mobile operators,” said Mathews.

Under-reporting income The CAG had initiated an audit after TRAI found that some telecom operators were under-reporting income to avoid paying the government its revenue share. The telecom companies moved the Delhi High Court for a stay on the CAG’s decision.

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

While the apex court upheld this order, a Bench comprising justices KS Radhakrishnan and Vikramajit Sen modified the Delhi High Court order, which had granted a right of statutory audit to the CAG. The Supreme Court said that the audit would not be a statutory or special audit but would confine itself to examining the statements of account, to make sure there is no loss to the exchequer.

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