The Delhi High Court’s ruling allowing the Comptroller and Auditor General of India (CAG) to audit the accounts of private telecom operators has the potential to open a legal can of worms, the ramifications of which could extend to other sectors such as power, airports, oil and gas. In reaching its conclusion, the court has taken Section 16 of the CAG Act as the starting point. This section obliges the national auditor to audit “all receipts” payable into the Consolidated Fund of India and to make for this purpose “such examination of the accounts as he thinks fit”. Since such receipts include all revenues received by the Government, it would also cover annual telecom licence fees and spectrum usage charges paid by operators, thereby leading to the conclusion: the CAG is fully empowered to conduct a revenue audit of these companies. This, notwithstanding the fact they are not bodies or authorities “substantially financed” by Government grants or loans, as public sector undertakings (PSUs) are.

If the CAG can audit every rupee earned by the Government, it stands to reason that this would apply to any company contributing a share of its income or profits to the Consolidated Fund of India. That would automatically cover production-sharing contracts in hydrocarbon blocks or highways, airports and ports projects where the concessionaires have some form of revenue-sharing arrangement with the Government. One could extend this logic further to include even taxes and duties paid by companies — since these, too, go into the Consolidated Fund of India — though the high court has clarified that its order pertains only to the income derived by the Government from any contract . In other words, it covers all public-private partnerships where the Government has entered into a licence agreement with an operator for providing services in a particular sector.

But where does all this leave the Telecom Regulatory Authority of India (TRAI) and other sector-specific regulators? Revenue sharing is ultimately only part of the licence conditions imposed on a service provider; ensuring compliance with these is fundamentally the job of the sectoral regulator. When TRAI already has the powers to scrutinise the books of accounts of operators, and the Government can also appoint special auditors if it feels that any information/statements submitted are inaccurate or misleading, why bring the CAG into the picture at all? At a time when PSUs are crying for greater operational autonomy and freedom from overly restrictive accountability requirements, beyond those mandated for private entities, the latest judgment willy-nilly makes Audit Raj a general rule for doing business. Needless to add, it will only further dampen investor sentiment.

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