S.B. Sinha
The petitioners herein except the Petitioner No.1 Association are licensees; licenses having been granted to them by the Dept. of Telecommunication in terms of Section 4 of the Indian Telegraph Act, 1885 (the 1885 Act).
By reason of the impugned letter dated 16.3.2010, the respondent no.1 herein directed the petitioners to produce before it documents so as to enable the Comptroller and Auditor of General to audit the books of account.
The petitioners in M/s Cellular Operators Association of India and Ors., by this application prayed inter alia for the following reliefs :-
PRAYER
(i) Set aside/ quash the impugned communication inter alia dated 16.3.2010, seeking audit of telecom companies by the CandAG and seeking information beyond the ambit and scope of the UAS license;
(ii) Pass any order (s) as the Tribunal may deem fit in the interest of justice, equity and good conscience.
AUSPI and others, however, not only questioned the legality and/or validity of the impugned order dated 16.3.2010, but also the vires of Rule 5 (b) of the TRAI Service Providers (Maintenance of Books of Accounts and Other Documents) Rules, as also the validity of the letters dated 16.3.2010 and 10.5.2010.
A preliminary question with regard to the maintainability of the aforementioned prayer came up for consideration before this Tribunal on 19.5.2010.
By an order of the said date it was held as under :-
“... Having heard the learned counsel for the parties, we are prima facie of the opinion that once the source of power is traced to the statutory rules, it may be difficult for this Tribunal to grant any interim relief to the petitioners as the power of CAG is an independent one flowing from a statutory rule and not out of a contract qua contract.
The question is as to whether this Tribunal can declare the said Rules as unconstitutional or beyond the Rule making power of the Central Government by the TRAI Act, 1997 (as amended). Although, the learned counsel for the petitioner have addressed us at great length in regard to the validity of the said rules, we are of the opinion that as rules framed by the Central Government in exercise of its Rule making power under Section 35 of the Act cannot be a subject matter of challenge before us being beyond our jurisdiction and, thus, no relief can be granted to the said effect to the petitioners herein. As we have no jurisdiction to determine the constitutionality and/or validity of the said rules, we are of the opinion, that no interim relief can be granted. The petitioners will be at liberty to question the validity of the said rules and/or other grounds connected therewith before an appropriate forum.
These petitions are, therefore, admitted only on the limited ground of legality or otherwise of the action on the part of the respondent in issuing the impugned notices. The prayer (b) made in Petition No.141 of 2010 is rejected. The prayer for ad-interim order is also declined…”
Indisputably the petitioners herein have filed a writ petition before the High Court of Delhi inter alia questioning the validity of Rule 5 of the Rules. On a prayer made by them a limited order of injunction was granted. However, a petition for grant of Special Leave Petition was filed thereagainst before the Supreme Court of India and it has restrained the Comptroller and Auditor General from proceeding with the matter of auditing of books of accounts.
The Delhi High Court was requested to hear the main matter and dispose of the same at an early date. However, as the said matters have not been heard by the Delhi High Court for a long time, we have proceeded to hear the parties on the limited question on which these petitions have been admitted. We, it is placed on record, have been assured that the questions which are being raised before us would not be raised before the Delhi High Court in the pending writ petition.
The respondent DOT, in issuing the aforementioned letter indisputably exercised its jurisdiction under Clauses 22.3 to 22.6 of the Conditions of License granted to the petitioners by it. We may at the
outset notice the said provisions. They read as under :-
22.3 (a) The LICENSOR or the TRAI, as the case may be, shall have a right to call for and the LICENSEE shall be obliged to supply and provide for examination any books of accounts that the LICENSEE may maintain in respect of the business carried on to provide the service(s) under this Licence at any time without recording any reasons thereof.
22.3 (b) LICENSEE shall invariably preserve all billing and all other accounting records (electronic as well as hard copy) for a period of THREE years from the date of publishing of duly audited and approved Accounts of the company and any dereliction thereof shall be treated as a material breach independent of any other breach, sufficient to give a cause for cancellation of the LICENCE.
22.4 The records of the LICENSEE will be subject to such scrutiny as may be prescribed by the LICENSOR so as to facilitate independent verification of the amount due to the LICENSOR as its share of the revenue.
22.5 The LICENSOR may, on forming an opinion that the statements or accounts submitted are inaccurate or misleading, order Audit of the accounts of the LICENSEE by appointing auditor at the cost of the LICENSEE and such auditor(s) shall have the same powers which the statutory auditors of the company enjoy under Section 227 of the Companies Act, 1956. The remuneration of the Auditors, as fixed by the LICENSOR, shall be borne by the LICENSEE.
22.6 The LICENSOR may also get conducted a 'Special Audit' of, the LICENSEE company's accounts/records by "Special Auditors,", the payment for which at a rate as fixed by the LICENSOR, shall be borne by the LICENSEE. This will be in the nature of auditing the audit described in para 22.6 above. The Special Auditors shall also be provided the same facility and have the same powers as of the companies' auditors as envisaged in the Companies Act, 1956.”
We may also notice that only in the case of Reliance, the TRAI directed the licensee as under :-
“…2. The Comptroller and Auditor General of India (through Director General of Audit, Post and Telecommunications) has decided to audit the books of accounts of your company for the period of three years commencing from 2006-2007 onwards to access the Government share out of the revenues carried by your company, in terms of the license agreements with DoT.
3. Therefore in terms of the rule 5 of the TRAI, Services Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002. It is requested that all necessary records/ books of accounts circle/ area wise, on the Maintenance of Books of Accounts and other relevant matters during the last week of January 2010 in the office of DO Audit, P and T, New Delhi, which would facilitate the audit work.
We may, however, notice that no such notice was issued by the TRAI to Vodafone or Bharti Airtel who are co-petitioners in the petition filed by the COAI.
Before us the DOT has also relied upon a letter dated 23.2.2010, which reads as under:-
“………Please refer to my DO No. :Report III/PTSP/230 dated 8th February 2010 wherein, your support was solicited for eliciting cooperation of the service providers in completing the audit of their books of accounts. Though an entry conference was proposed with the five PSPs cited in the DO letter on the 16th February 2010 I did not get any response on this.
In this connection I would like to invite your attention to Clause 22.3 (a) of the licence agreements which authorities DoT to call for any books of accounts that the Licencee may maintain in respect of the business carried on to provide their services at any time and sub rule (1) of Government of India Gazette Notification of 27th November 2002 which details the books of accounts to be maintained by service providers that can be accessed by the C and AD of India for audit under the provisions of Section 16 of the Comptroller and Auditor General’s (DPC) Act, C and AG of India as the sole auditors of the Ministry, has to ensure the correctness of the revenue share paid by operators to the Government. Hence I would request you to instruct the operators to submit their service area wise books of accounts to the respective Controller of Communications Accounts offices in all the telecom circles from where my audit team will access them.
The C and AG of India has assured the Public Accounts Committee that a report on the revenue sharing would be ready by June 2010 and hence I intend to start the audit in the first week of March 2010. Before the commencement of the work I would request you to impress all the operators to submit their books of accounts to the CCA offices in order to get the audit completed within the prescribed time frame. I would request you to instruct all the CCAs to cooperate and support the audit teams. You may also nominate a nodal officer for facilitating the audit.
I would like to call on you to discuss the proposals in detail. Please convey a convenient time and date.”
The validity and/or legality of the action of the respondent no.1 in issuing the aforementioned letters has inter alia been questioned on the following grounds:-
(i) Before directing an audit in regard to the accounts of the licensees, the DOT was required to form an opinion which in turn would require an application of mind on its part and assignment of reasons which having not been complied with, the impugned action cannot be sustained.
(ii) A special audit having been conducted in respect of the financial years 2006-2007 and 2007-2008 by a private Auditor, the impugned action on the part of the respondent must be held to be wholly illegal.
(iii) Adherence to the principles of natural justice which is a sine-qua-non for exercise of the power conferred on DOT having not been complied with, the impugned letters are liable to be quashed.
(iv) The invoices and other documents supporting the books of accounts maintained by the petitioner would be voluminous keeping in view the fact that Vodafone alone has about 200 million subscribers,
(v) Exercise of power by DOT in any event was an abuse of process of the Court.
(vi) DOT cannot be permitted to do something indirectly which it cannot do directly.
The contentions of the respondents in their reply on the other hand are:-
(a) DOT has exercised its power in terms of the letter issued by TRAI as also by the Comptroller and Auditor General of India.
(b) Some of the parties, namely, Vodafone and Airtel having expressly undertaken to produce the books of accounts and co-operate with the respondent are estopped and precluded from raising the question of the jurisdiction of the Tribunal.
(c) Having regard to clause 22.4 of the conditions of license, DoT could adopt one of the three measures, namely: (i) refer the matter to the Comptroller and Auditor General which has even otherwise the requisite jurisdiction to audit the books of accounts of the petitioners for the purpose of ascertaining as to whether the revenue earned by them has correctly been shared with the DOT in terms of the conditions of license;
(ii) conduct an audit within the meaning of provisions of clause 22.5 of the license and;
(iii) conduct a special audit.
(d) The power to conduct an audit through CAG or departmentally or a special audit are independent powers in respect whereof DOT can exercise its discretion.
Before adverting to the rival contentions of the parties as noticed heretobefore we may notice the letters issued by the respondent as also the petitioners.
The impugned letters dated 10.5.2010, and 16.3.2010 read as under :-
“ 10.5.2010
Subject Audit of Telecom Service Providers by C and AG
Sl.No. Service Area License No. and Date
1
Andhra Pradesh 842-1014/2008-AS-IV dated 6.11.2008
2 Assam 20-203/2006- ESSAR/AS-I dated 5.12.2006
3 Bihar 20-204/2006 - ESSAR/AS-I dated 05.12.2006
4 Chennai 842-1015/2 008 -- AS-IV dated 06.11.2008
5 Delhi 842-1012/2008-AS IV dated 20.10.2008
6 Gujarat 842-1017/2008-AS-IV dated 20.10.2008 ---1
7 Haryana 842-1022/2008-AS-IV dated 19.11.2008
8 Himachal Pradesh 20-207/2006-ESSAR/AS-1 dated 05.12.2006
9 Jammu and Kashmir 20-208/2006-ESSAR/AS-1 dated 05.12.2006
10 Karnataka 842-1016/2008-AS-IV dated 06.11.2008
11 Kerala 842-1018/2008-AS-IV dated 06.11.2008
12 Kolkata 842-1013/2008-AS-1V dated 20.10.2008
13 Madhya Pradesh 20-211/2007-VODAFONE ESSAR/AS-1 dated 19.12.2007
14 Maharashtra 842-1014/2008- AS 1V dated 06.11.2008
15 Mumbai 842-1011/2008- AS 1V dated 20.10.2008
16 North East 20-213/2006-ESSAR/AS-I dated 05.12.2006
17 Orissa 20-214/2006-ESSAR/AS-I dated 05.12.2006
18 Punjab 842-1021/2008-AS-IV dated 06.11.2008
19 Rajasthan 842-1023/2008-AS-IV dated 19.11.2008
20 Tamilnadu 842-1020/2008-AS-IV dated 06.11.2008
21 Uttar Pradesh (East) 842-1024/2008-AS-IV dated 19.11.2008
22 Uttar Pradesh (West) 20-218/2003-HUTCH/BS III dated 13.2.2004
23 West Bengal 20-201/2004-HUTCH/BS III dated 23.3.2004
.… In exercise of powers conferred on the Licensor under clause 22.3 of Unified Access Service (UAS) Licence, it is requested to 'provide the following accounting records, fat three years commencing from 2006-07, consisting of books of accounts and other documents for all the services offered under the above referred UAS licences issued, to reflect:
(i) Total cost and breakup of original and current cost i.e. cost after depreciation under separate heads for different category of fixed assets;
(ii) Cost and breakup of operational expenses
(iii) Service wise revenue
(iv) income from other sources
(v) Supporting books of accounts / other documents as
(a) Fixed asset register
(b) Stores and spares / inventory register
(c) Register showing service-wise particulars of
subscribers
(d) Register showing deposits from customers
(e) Cash books
(f) Journals
(g) Ledger
(h) Copies of bills and counterfoils of all receipts
2. The above mentioned information should be sent directly to DDG (Accounts), Department of Telecommunications, Room No.701, Sanchar Bhavan; 20, . Ashoka Road, New Delhi-110117 within 15 days from date of issue of this letter….”
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Dated 16th March, 2010
Subject Audit of Telecom Service Providers by C and AG
Sl. No. Service Area Licence No. Dated
1 Assam 20-203/2004-BHARATI/BS-III 17.9.2004
2 Bihar 20-204/2003-BHARATI/BS-III 10.2.2004
3 Jammu and Kashmir 20-208/2003-BHARATI/BS-III 10.2.2004
4 Orissa 20-214/2003-BHARATI/BS-III 10.2.2004
5 Uttar Pradesh (East) 20-219/2003-BHARATI/BS-III 10.2.2004
6 West Bengal 20-201/2003-BHARATI/BS-III 11.2.2004
7 Gujarat 842-554/2005-VAS 22.2.2005
8 Haryana 842-555/2005-VAS 22.2.2005
9 Himachal Pradesh 842-547/2005-VAS 04.2.2005
10 Kerala 842-553/2005-VAS 25.2.2005
11 Kolkata Metro 842-550/2005-VAS 22.2.2005
12 Madhya Pradesh 842-548/2005-VAS 16.3.2005
13 Maharashtra 842-546/2005-VAS 4.2.2005
14 Mumbai Metro 842-552/2005-VAS 25.2.2005
15 Tamil Nadu (including Chennai Metro) 842-549/2005-VAS 16.3.2005
16 Uttar Pradesh (West) 842-545/2005-VAS 4.2.2005
17 Delhi Metro 842-544/2005-VAS 16.3.2005
18 Andhra Pradesh 842-773/2006-VAS 7.7.2006
19 Karnataka 842-774/2006-VAS 21.7.2006
20 Punjab 842-772/2006-VAS 7.7.2006
21 Rajasthan 842-749/2006-VAS 10.4.2006
22 North East 842-68 (B)/95-VAS 1.1.1996
“…….In exercise of powers conferred on the Licensor under clause 22.3 of Unified Access Service (UAS) Licence and clause 23.3 of Cellular Mobile Telephone Service (CMTS) Licence, it is requested to provide the following accounting records, for threeyears commencing from 2006-07, consisting of books of accounts and other documents for all the services offered under the above referred UAS and CMTS licences issued to reflect:
(i) Total cost and breakup of original and current cost i.e. cost after depreciation under separate heads for different category of fixed assets;
(ii) Cost and breakup of operational expenses
(iii) Service wise revenue
(iv) income from other sources
(v) Supporting books of accounts / other documents as
(a) Fixed asset register
(b) Stores and spares / inventory register
(c) Register showing service-wise particulars of subscribers
(d) Register showing deposits from customers
(e) Cash books
(f) Journals
(g) Ledger
(h) Copies of bills and counterfoils of all receipts
2. The above mentioned information should be sent directly to DDG (Accounts), Department of Telecommunications, Room No.701, Sanchar Bhavan; 20,, Ashoka Road, New Delhi-110117 within 15 days from date of issue of this letter….”
The Comptroller and Auditor General also by a letter dated 10.5.2010 addressed to the President of Reliance Telecom Ltd., stated as under :-
“….In this connection it is requested that on 20th May 2010 a presentation may be given covering your business activities, accounting policies, Accounting, billing and financial systems and all other issues relating to revenue share, followed by brief interface meeting with my Audit team which would start the process of audit…..”
We may now notice the letters issued by M/s Vodafone and BPL:-
“…We note that the CandAG audit also comes with a similar mandate to the DoT special audit, and before the DoT special audit is even complete. The DoT special audit which also continues to require substantial time and effort from our finance and audit teams and is expected to conclude in the week commencing 22 March. We are therefore continuing to spend substantial time and effort on these two pre-existing audit processes.
The Level of detail sought in the CandAG audit is also different from either the regular annual audit or the DoT special audit. The information requested is also not available in the form requested since the accounting systems are fully computerized.
However, in order to demonstrate our willingness to work with the CandAG to ensure it is able to complete its audit at the earliest possible time, we would like to meet with you to present to you VEL's financial and audit systems and processes, the information that is readily available as opposed to information which will take significant time to compile, and to answer any specific questions that you may have.”
xxx
“You would appreciate that, for a company of our size to get all physical documents like Cash Book, Journals, Registers, Ledger, copies of bills and Counterfoil of all receipt will be extremely voluminous and difficult to compile and provide. .Thus, we would request DoT to please seek specific queries/information which we can explore to provide from the data available from the previous audit itself.
Also, the information being sought not only relates to revenues and adjusted gross revenue which can have an impact on the revenue share being paid by the company to the exchequer but also the data in relation to the fixed assets, store. spares, inventory, operational expenses, which are no where related to the computation of either license fee or the spectrum charges.
In view of the above submissions, we would request the Department to seek only the information related to the revenue/AGR of the company and would also request DoT to seek the specific information/data so that we can provide the same in a timely manner.”
The petitioners in paragraph 11 of the petition stated as under:-
“….In light of the above, the recent communication by DoT asking the Petitioners to provide the accounting records for a period of 3 years commencing 2006-07 for an audit by the CandAG is a matter of both surprise and concern. A fresh audit following so closely after the completion of the first is not only unwarranted but will also result in duplication of effort, time and manpower besides the same being against the provisions of law more particularly the provisions of the CandAG Act, 1971,. The said Act sets out the duties and powers of the CandAG and a perusal of the same clearly demonstrates that the jurisdiction of C and AG is confined only to the audit of accounts of the Union or the States or Govt. companies or corporations. The audit of accounts of private companies such as the Petitioners is not a part of the duties and powers of the CandAG. The rule making powers under the CandAG Act cannot confer any power on the CandAG which is beyond the powers conferred under the Act itself (the CandAG being a creation of statute). While DoT can call for the books of accounts of the petitioners for audit purposes but the audit of the same does not fall within the purview of the CandAG. It is a matter of great concern that extensive details and the nature of information being sought (operational expenses, total cost and break up of original and current cost, etc.) in the DoT Communication dated 16.03.2010 is not only sensitive from the competitive point of view but also falls beyond the obligation of the Petitioners under the license agreement.
The exercise of power by the DoT vide its communication issued in March, 2010 therefore is unreasonable and an abuse of its power since it has been issued without proper application of mind. DoT while issuing this communication has thus not exercised its powers in a fair and reasonable manner. Copies of the reply sent by the petitioners to the DoT communication dated 16.03.2010 is marked and annexed as Annexure-C. “
We may also notice that the petitioners in Ground `J’ contended:-
“In 2009, the members of the Petitioner received a communication from DoT for appointment of a special auditor under clause 22.5 and 22.6 of the license to conduct independent verification of accounts. Pursuant to this, a special audit was carried out by DoT which went on for almost 8 months. Members of the Petitioner fully cooperated in the special audit and had furnished information sought for. The audit was conducted to the satisfaction of DoT. The members of the petitioner were therefore surprised to receive a communication from the DoT dated March 16, 2010 , the subject of which is ' Audit of telecom service providers by CandAG'. This communication states that the DoT as licensor in exercise of powers under the license was seeking accounting records for 3 years commencing 2006-07. It is submitted that without stating any grounds or reasons whatsoever as mandated by clause 22.5 of the license and within days of the successful completion of the comprehensive (8 month long) audit of the Petitioner conducted by the Licensor through an auditor of its own choice, the demand in the impugned letters by the Licensor for another comprehensive audit to be conducted by the Comptroller and Auditor General of India is an unreasonable and arbitrary exercise of its powers under the License.”
The respondent does not deny or dispute that special audit has been conducted for the years 2006-2007 and 2007-2008.
By reason of the impugned letters, however, the petitioners have been asked to produce books of accounts for three years which would include the financial year 2008-2009.
Although, we are not much concerned with the validity or otherwise of the jurisdiction of the Comptroller and Auditor General of India purported to have being exercised in terms of the Comptroller and Auditor General (Duties, Powers and Conditions of Service), Act 1971 and the Rules framed thereunder, we may notice the relevant provision, namely, Section 16 of the Act, which reads as under:-
16 Audit of Receipts of Union or of States
It shall be the duty of the Comptroller and Auditor-General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection 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.
We have also noticed heretobefore that the Parliament enacted the TRAI Act, 1997; Section 35 whereof empowers the Central Government to make Rules inter alia for giving effect to the provisions of the Act. In exercise of the said power, the Central Government has made Rules in terms of a notification bearing no.GSR/782/E dated 27.11.2002; Rule 5 whereof read 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) 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 nay 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 1970)”
We may furthermore notice Section 11 (1) (ii) and 11 (1) (b) (i) of the TRAI Act, 1997 which read as under :-
Section 11 - Functions of Authority
(1) Notwithstanding anything contained in the Indian Telegraph Act, 1885 (13 of 1885), the functions of the Authority shall be to-
xxx
(ii) terms and conditions of licence to a service provider;
xxx
(b) discharge the following functions, namely:-
(i) ensure compliance of terms and conditions of licence;
It is on the aforementioned factual backdrop, we are required to interpret the relevant provisions of the conditions of license vis-a-vis the justifiability of the action of the respondent herein.
It is not in dispute that the revenue earned by all the licensees are required to be shared with the Government of India on percentage basis as mentioned in each of the licenses granted to them by the respondent herein. It is also not in dispute that for the purpose of ascertaining the quantum of revenue share, the respondent would be entitled to carry out such exercise in respect whereof provisions have been made in the respective licenses granted to the operators. It is also beyond any controversy that apart from the provisions of license to which we have referred heretobefore and save and except the provisions of the CAG Act and Rule 5 of TRAI Rules, that no other provision in relation thereto exists.
Clause 22.3 of the license confers a right upon the licensor to ask the licensee to supply and provide for examination any books of account; wherefor no reason is required to be recorded. For the said purpose the licensees are required to preserve all billing and other accounting records for a period of 3 years. Clause 22.4 of the license enables the licensor to scrutinize the said books of account so as to facilitate independent verification thereof for the purpose of ascertaining the amount due to it as its share of revenue. Only when such a scrutiny is made, recourse to clause 22.5 may be taken for the purpose whereof an opinion has to be formed that the statement of accounts submitted by the licensee were inaccurate or misleading.
On that premise the licensor may cause an auditing of the accounts of the licensee carried out by appointing an Auditor at the cost of the licensee. Apart therefrom the licensor may get an audit conducted in the nature of special audit as described in clause 22.5 of the license, wherefor the auditors are required to be provided the same facilities and enjoy the same powers as envisaged in the Companies Act, 1956.
Indisputably, a special audit has been conducted by an Auditor, S.K. Mehta and Company. Respondent does not state that the auditing made by the said Auditor was in any way faulty and, thus, any further audit was required to be carried out.
A plain reading of the aforementioned clauses of the license leave no manner of doubt whatsoever that the contention of learned counsel for the respondent that the provisions of each clause confer independent power upon the licensor to take recourse to one of the three methods referred to heretobefore without reference to the other is not correct.
Recourse to Clause 22.6 can be taken only after the accounts of the licensee have been audited by an Auditor. A special audit can be undertaken only for auditing the audited accounts and not for any other purpose. The petitioners, however, did not question the said action on the part of the respondent. We therefore, do not intend to make out further comments thereupon.
We, however, keeping in view the fact that the validity of Rule 5 (b) of the Rules and/or action on the part of the CAG is independently being considered by the Delhi High Court, need not go into any other question apart from the action on the part of the respondent.
An audit or a special audit within the meaning of clauses 22.5 and 22.6 envisages some special actions. For the purpose of taking recourse to clause 22.5 the respondent was required to form an opinion which would mean an honest and bonafide one. The respondent as a `State’ within the meaning of Article 12 of the Constitution of India is also required to act reasonably and fairly.
It has been so held by this Tribunal in petition no.8/2003 BPL Mobile Cellular Ltd. and Anr. vs. Dept of Telecommunication disposed of on 11.2.2010, in the following terms :-
“….the conduct of the State cannot be arbitrary or capricious. Its conduct even in the matters involving contract qua contract should be just and proper. It should not take undue advantage of its superior position as a licensor.”
In Willer vs. Leceister Citi Counsel 1985 Appeal Cases, Page 1054, the House of Lords also stated that a public authority has no unfiltered discretion and it has to perform all its acts reasonably and in good faith and upon lawful and relevant terms of public interest.
The books of accounts are audited by the licensee’s Auditors independently. They have to do the same in terms of the provisions of the Companies Act, 1956 as also the Income Tax Act, 1961.
The Auditors who have a statutory role to play in terms of the provisions of the said Act have solemn duties to perform.
An audit in terms of Clause 22.5 of the license, therefore, can be directed, provided a misstatement or a mis-declaration is noticed. The opinion can be formed only if the statement of accounts is found to be inaccurate or misleading. The licensees are also required to bear the costs of the Auditors. In terms of the aforementioned provisions, not only the same would require assignment of reasons but also compliance of the principles of natural justice.
The Supreme Court of India in the matter of appointment of Special Auditor for the purpose of Section 142 (2) (A) of the Income Tax Act, 1961 in Rajesh Kumar and Ors.vs. Deputy CI and Ors 2007 (2) SCC 181 noticed :-
27. K.J. Shetty, J. in Swadeshi Cotton Mills Company Limited v. Commissioner of Income-Tax and Anr. [1988] 171 ITR 634 (All) succinctly laid down the import of the said provision in the following terms:
“The exercise of power to direct special audit depends upon the satisfaction of the Income-tax Officer with the added approval of the Commissioner. But he must be satisfied that the accounts of the assessee are of a complex nature, and, in the interests of the Revenue, the accounts should be audited by a special auditor. The special auditor is also an auditor like the company's auditor, but he has to be nominated by the Commissioner and not by the company. The accounts are again to be audited at the cost of the company.
This is the substance of the statutory provisions. The power thereunder cannot, in our opinion, be lightly exercised. The satisfaction of the authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to the nature of the accounts. The nature of the accounts must indeed be of a complex nature. That is the primary requirement for directing a special audit. But the word " complexity " used in Sub-section (2A) is a nebulous word. Its dictionary meaning is:
The state or quality of being intricate or complex ' or ' that is difficult to understand.
However, all that are difficult to understand should not be regarded as complex What is complex to one may be simple to another. It depends upon one's level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Therefore, special audit should not be directed on a cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee.
53 The factors enumerated in Section 142(2A) of the Act, thus, are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. The principles of natural justice are required to be applied inter alia to minimize arbitrariness.
54 It is trite, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance of principles of natural justice would be required. [See R. v. Kensington and Chelsea Rent Tribunal, ex p. MacFarlane (1974) 1 WLR 1486]
55 Justice, as is well known, is not only be done but manifestly seem to be done. If the assessee is put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the assessing officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue.“
Correctness or otherwise of the decision in Rajesh Kumar (supra) was doubted by another Division Bench of the Supreme Court in Sahara India (Firm Lucknow) vs. Commissioner of Income Tax (2008) 14 SCC 151 and thus, the matter was referred to a three Judge Bench.
In answer to the said reference a three Judge Bench in the aforementioned case since reported in 2008 14 SCC 151 opined that Rajesh Kumar (supra) has correctly been decided, stating
29 In Rajesh Kumar (supra) it has been held that in view of Section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act, stipulates that any proceeding before an Income Tax Authority shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228 of Indian Penal Code, 1860 and also for the purpose of Section 196 of I.P.C. and every Income Tax Authority is a court for the purpose of Section 195 of Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case (supra), but having held that when civil consequences ensue, no distinction between quasi judicial and administrative order survives, we deem it unnecessary to dilate on the scope of Section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see: Mrs. Maneka Gandhi v. Union of India and Anr. : [1978] 2 SCR 621
30 As already noted above, the expression "civil consequences" encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. Accordingly, we reject the argument and hold that since an order under Section 142(2A) does entail civil consequences, the rule audi alteram partem is required to be observed.
31. We are also unable to persuade ourselves to agree with the proposition canvassed by learned Counsel for the revenue that since a post-decisional hearing in terms of Sub-section (3) of Section 142 is contemplated, the requirement of natural justice is fully met. Apart from the fact that ordinarily a post- decisional hearing is no substitute for pre-decisional hearing, even from the language of the said provision it is plain that the opportunity of being heard is only in respect of the material gathered on the basis of the audit report submitted under Sub-section (2A) and not on the validity of the original order directing the special audit. It is well settled that the principle audi alteram partem can be excluded only when a statute contemplates a post decisional hearing amounting to a full review of the original order on merit, which, as explained above, is not the case here.
Application of mind on the part of the licensor, thus, should have been an independent one and not on the basis of any communication received by it from TRAI or otherwise. Prima facie, even in terms of Rule 5 (without going into the parameters of action of TRAI in terms thereof and/or the interpretation of the Rules vis-Ã -vis the provisions of the Act and provisions of 1997 Act) the question could be referred to CAG by TRAI directly and not to the DOT.
The issue of `Estoppel’ raised by learned counsel for the respondent, in our opinion, cannot have any application in a case of this nature. If conditions precedent for passing an order are not complied with, the same not be held to be without jurisdiction.
When an authority commits a jurisdictional error, while exercising its jurisdiction in view of the decision in Anisminic Ltd. vs. Foreign Compensation Commission 1969 (1) All England Reporter 208, the same principle would apply.
In a case of this nature where even otherwise the principles of natural justice were required to be complied with, in view of the decision of the Supreme Court of India, the decision of the DOT would be a nullity. Estoppel or other forms of procedural bar like res judicita cannot be supported in law where the action is found to be wholly without jurisdiction and thus a nullity. (See Chief Justice, Andhra Pradesh vs. LVA Dixitulu (1979) 2 SCC 34 and Petition No.221 (C)/2009 decided on 11.2.2010 and (2008) 6 SCC 789 entitled Fatma Bibi Ahmed Patel vs. State of Gujarat). Furthermore, a pure question of law which requires to be interpreted by a Court of law would not attract the procedural hurdle like `estoppel’ or `res judicita’.
Furthermore after a special audit has been conducted, the question of having another audit in terms of Clause 22.5 of the condition of license would not arise.
The process cannot be reversed having regard to the statutory scheme noticed heretobefore.
In that view of the matter, the impugned orders passed by the DOT cannot be sustained, which are set aside accordingly.
However, sofar as the financial year 2008-009 is concerned, recourse to audit or special audit having not been resorted to by the DOT, it may take suitable action upon assigning adequate reasons in relations whereto it has to form an opinion within the meaning of clause 22.5 of the license.
The petitions are allowed. The respondent shall pay and bear the costs of the petitioner. Advocate’s fee assumed at Rs.50,000/-.