TaxTMI 
TaxTMI 
2014 (1) TMI 661
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....e. The shift was from rowing to steering. The era of liberalization emerged all over the globe; some countries adopted it immediately after the second world war and some slowing and grudgingly, realizing that in the global economy the municipal governance had to be in sync with the current global thinking. Many believe (wrongly in our opinion) that the regulatory regime was the consequences of the new form of governance, shifting from rowing to steering. 2. Even in the pre-liberalization era, two modes of regulation governed important enterprises for most of the twentieth century : (i) regulation of privately owned enterprises was done mainly through company law; and (ii) key industries and utilities were governed through various forms of public ownership, of which the nationalized corporations was the most important. Privatization obviously signalled the decline of the latter. 3. What was the need to create a regulatory regime if there already existed a historic mode of regulation, in the form of company law? Accounts of every company required a mandatory audit by a Chartered Accountant who was not an employee of the company and was answerable to only the Institute of Charte....
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....anted to companies and its shareholders, was by the State, because the law was enacted by the State. It did not seek a quid pro quo, in that, the conditional entitlements i.e. privileges were on the reciprocal obligation by the corporate entity to perform its public obligations or recognizing some restraints over corporate behaviour in the wider public interest. To compound the problem, in awarding contracts, which some call largesse, the State put conditions which could be satisfied only by large corporations. The anti-monopoly laws could make no impact. The creation of a nationalized sector, dominated by public corporations, which was expected to mark a break also failed. Regretfully, the government of the nationalized sector, failed in its endeavour because of evasion of public accountability because of behind the scene intervention by Ministers to shape business plans around short-term political pressure. 8. One ill of a democratic system is partisan majoritarian politics resulting in partisan political control. Policies tend to be determined by party strife and sectional interest. The governing elite ensured lack of transparency about institutional arrangements. There was a....
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....o redefine the boundaries between the public and the private. The new economic order had to grow along six dimensions : (i) privatization, (ii) marketization, (iii) decentralization, (iv) output orientation, (v) quality systems, and (vi) intensity of implementation. 14. Regulatories had to fill the void. 15. The new regulatory State had not only to cope with the crisis of the economic policies and the crisis of the system of rule itself. It had to reconstruct institutions on the ruins of the club government. This involved displacing key features of club government. 16. The three features of the club governance : (i) informality; (ii) reliance on knowledge acquired by insiders by virtue of their insider status; and (iii) screening from public scrutiny and accountability, had to be replaced or displaced by : (i) standardization and formality; (ii) the provision of systematic information accessible both to insiders and outsiders; and (iii) strengthening the control mechanism and public reporting. 17. Thus, the expansion of audit into ambitious systems of surveillance are not therefore unexpected consequences of the development of the new regulatory State. They are central ....
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....me Court observed:- "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 sub-serve 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. x x x 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 distribution of natural resources. In this regard,....
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....ng the power of the Comptroller and Auditor General of India, to conduct a revenue audit of telecommunication companies who have entered into licence agreements to provide cellular/unified access service, in the respective area, as per the licence agreement. As pleaded by the writ petitioner No.1 of W.P.(C) No.3673/2010, it is an association of private telecom companies, cellular licensees/unified access service licensees are members whereof. The writ petitioner No.1 of W.P.(C) No.3679/2010, also claims to be the representative of cellular licensees/unified access service licensees. As pleaded in the two writ petitions, the members of the petitioners No.1 are licensees under the Central Government. In the respective area of service they hold a right to establish, maintain and operate cellular mobile telephone services/UASL. The petitioners claim that their members have been issued licences by the Central Government under Section 4 of the Indian Telegraph Act, 1885, a fact which is not in dispute. 25. Counsel had agreed that the commercial terms of the licence held by each licensee are the same, and for facility of reference we may refer to the licence agreement dated March 03, 2....
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....y 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 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 formal 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 s....
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....ted to be used by a private entity i.e. the licensee under the licence agreement and the consideration for the use of the national resource is the payment of the licence fee, having major component, a percentage (6% in the case of the licence in favour of M/s.Tata Teleservices Ltd.) of the Adjusted Gross Revenue. The definition of Gross Revenue as per clause 19.1 is wide and embraces every source of revenue inflow. Per necessity, maintenance of accounts would be of utmost relevance, for therefrom would be determined as to what has to be paid by the licensee to the licensor i.e. by the telecom service provider to the Union of India. 29. Commenting upon the licence agreement, we would not be wrong to state that as per the same, the parties (M/s.Tata Teleservices Ltd. and Union of India) are allied in an enterprise for mutual gain; which enterprise is similar to a joint venture. Under the licence agreement the Central Government has reposed confidence in the integrity of the licensee, because the revenue which would be generated, and its source, are in the exclusive knowledge and control of the licensee; who would thus be duty bound to act with the utmost good faith. The Central Go....
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....erpretation of a regulatory law must keep in mind that primacy needs to be given to the fiduciary principles of good faith in dealing by the regulated especially when the regulated is the beneficiary of a natural resource and has to pay to the custodian of the natural resource money determined as a percentage of the revenue generated from the licensed activities by the regulated. 36. The petitioners do not dispute liability to maintain the books of accounts required to be maintained as per 'The Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002'. The petitioners also do not dispute their liability to furnish a 'Statement of Revenue and licence fee for each quarter of the year' as per Appendix-II to Annexure-II to the licence agreement. They do not dispute that the revenue generated by the licensees are required to be shared with the Central Government on percentage basis as mentioned in the licences granted to them. They also do not dispute that for purpose of ascertaining the quantum of revenue share the Central Government would be entitled to carry out such exercise in respect whereof provisions have been....
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....ed as (1987) 1 SCC 424 RBI Vs. UOI. The petitioners challenge the vires of Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002 alleging the same to be ultra vires Section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 read with Article 149 of the Constitution of India. We may note that during arguments it was urged by learned senior counsel for the petitioners that if Section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 is read as suggested by the respondents, the same be declared ultra vires Article 149 of the Constitution of India. Relying upon the law declared by the Supreme Court in the decision reported as (1997) 5 SCC 516 Agricultural Marketing Committee Vs. Shalimar Chemical Works Ltd. it is urged that if a constitutional provision (Article 149) imposes restrictions on the power of a constitutional authority, no law made by Parliament can widen the said power. 39. The factual basis for the writ petitions to be filed are three letters dated January 28, 2010, May 10, 2010 and May 21, 2010; the....
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....he 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 offices 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. Yours faithfully Sd/ (Manoj Kr. Misra)" x x x "Director General of Audit, Post & Telecommunications Sham Nath Marg, (Near Old Secretariat), Delhi - 110402 R.P.Singh Director General Date - 10-5-2010 Sub: Audit or 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.31-03-2010. Dear Sir, 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 account in physical form as they are being maintained in electronic form in SAP R3. Further, it has been stated that the same could be viewed in the concerned IT Syste....
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..... In view of 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 28th 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 noncompliance 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)" 40. Our journey must therefore begin by noting Article 149 of the Constitution of India. It 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 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 I....
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....ay be, and in the case referred to in clause(ii), by an order of the President. x x x 13. General provisions relating to audit.- 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 expenditure conforms to the authority which governs it: (b) to audit all transactions of the Union and of the States relating to Contingency Funds and Public Accounts, (c) to audit all trading, manufacturing, profit and loss accounts and balance sheet 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. x x x 14. Audit of receipts and expenditure of bodies or authorities substantially financed from Union or State Revenues.- (1) Where any body or authority is substantially financed by grants or loans from the....
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....ion 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." 42. Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002 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)." 43. A plain reading of Article 149 of the Constitution of India would reveal that it is the constitutional duty of the Comptroller and Auditor General of India to perform such dut....
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....nity." 45. We therefore do not note the quotes from the Constituent Assembly debates which were copiously read to us, but would be failing not to observe that no debate on a point of law can be construed so as to render the law anachronistic. Indeed, law has to be interpreted meaningfully, in pace with the development in society. In a modern progressive society it would be unreasonable to confine the intention of the legislature to the meaning attributed to the words used at the time when the law was made unless a contrary intention appears. Law has to be interpreted in the given new facts and situations and the existing words of the law have to be read as capable of comprehending new facts and situations. 46. Article 266 of the Constitution of India reads as under:- "266. Consolidated Funds and public accounts of India and of the States. - (1) Subject to the provisions of Article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means....
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....counts. As per Section 13 thereof, the Comptroller and Auditor General is charged with the duty to audit all expenditure from the Consolidated Fund of India. As per Section 14 thereof, bodies or authorities substantially financed from the Union or State revenues are subject to the audit by the Comptroller and Auditor General and as per Section 16 thereof, the Comptroller and Auditor General has to audit all receipts which are payable into the Consolidated Fund of India and Article 266 of the Constitution of India, to which we have adverted to hereinbefore and in respect whereof we have already explained what would the expression 'revenues' mean to be kept in mind. And needless to state, would include any income of the nation derived from any source, to be credited into the Consolidated Fund of India. 50. The legal position could be stated in simple language as follows : The Constitution (Article 149) mandates the Comptroller and Auditor General to perform such duties and exercise such powers in relation to the accounts of the Union. Accounts would include a record of money received and spent by the Union. Power in relation to the account envisaged under Article 149 would be as p....