Association of Unified Tele Services Providers & Others v. Union of India - CAG Audit of Private Sector

Recently, a Supreme Court judgment came that held that CAG can audit private companies that share their revenue with the government. It has been widely regarded as a landmark verdict by all corners of the society. The court held that in such cases (Cases of Revenue Sharing) CAG is not carrying out any statutory audit of the accounts of the service providers, but for the limited purpose of ascertaining whether the Union is getting its legitimate share by way of “Revenue Sharing”.

One of the main contentions before the court was regarding the interpretation of Article 149 of the Constitution of India.

“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 India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively.”

The Counsel for the private companies relied on the Constituent Assembly Debates to interpret Article 149 and submitted that the term “any other authority or body” was only meant to cover the entities that perform State functions/or entities financed or controlled by the State, as opposed to local bodies and other miscellaneous corporations and organizations.

However, the court thought otherwise. The court held that Constitution is a living and organic document and therefore, is not bound to be understood or accepted to the original understanding of the constitutional economics. Parliamentary Debates may not be the sole criteria to be adopted by a court while examining the meaning and content of Article 149, since its content and significance has to vary from age to age. They are just like Fundamental Rights which have no fixed content and most of them are empty vessels into which each generation has to pour its content in the light of its experience.

Also, the power of the CAG under Section 16 of the 1971 Act was disputed primarily on the ground that Article 149 of the Constitution confers powers on the CAG to conduct audit of accounts only of the Union and the States or any other authority or body prescribed by or under any law made by Parliament, not private entities or their underlying accounts and records maintained by them in the absence of law made by the Parliament.

In this regard, the court said that when the executive deals with the natural resources, like spectrum, Parliament should know how the nation’s wealth has been dealt with by the executive and even the persons to whom the executive gave license to use the spectrum. The quantum of the Revenue generated out of the use of the spectrum must be properly assessed, collected and accounted for by the Union and the License Holders. When nation’s wealth, like spectrum, is being dealt with either by the Union, State or its instrumentalities or even the private parties, they are accountable to the people and to the Parliament. Parliamentary democracy also envisages, inter alia, the accountability of the Council of Ministers to the Legislature.

Another reason given by the court was that “the Section 16 of the CAG Act makes it clear that the expression “to audit all transactions” so also “audit of all receipts”, payable into Consolidated Fund of India would take in not only the accounts of the Union and of the State and of any other authority or body as may be prescribed or under any law made by the Parliament but also to audit all transactions which Union and State have entered into which has a nexus with Consolidated Fund, especially when the receipts have direct connection with Revenue Sharing.”

If we go by this logic, every taxpayer should be subjected to CAG Audit since tax receipts also go into the Consolidated Fund of India. In order to ascertain whether a taxpayer has unlawfully withheld tax, by this interpretation, the CAG can definitely conduct an Audit on any taxpayer.

I strongly feel that the line of reasoning adopted by the honourable court in this case is highly erroneous. The Court should have applied the principle of “noscitur a sociis” here. “Noscitur a sociis” is basically a tool for statutory interpretation according to which “the meaning of an unclear word or phrase should be determined by the words immediately surrounding it”.

The phrase “accounts of the Union and States and any other authority or body” requires to be interpreted in the light of the principle of “noscitur a sociis” and in a composite manner. Such an interpretation would reveal that the term “body” is to be construed in the light of the continuing term “union”, “states” and “authority”, all of which connote some form of state control. Hence, under Article 149, only those bodies would be included that have some form of state control. Rest would be excluded. Now, merely because spectrum is an important natural resource and there is a need to ascertain whether the Union is getting its legitimate share by way of “Revenue Sharing”, it is not prudent to extend the scope of a constitutional provision where the words of that particular constitutional provision clearly imply a restricted interpretation. The provisions of the Constitution must be interpreted in a very careful manner. Where the words as well as the intention of the drafters suggest otherwise, I do not think the courts should over-read a constitutional provision and expand its ambit in a whimsical manner.

Companies definitely have a responsibility to use the natural resources in an efficient, just and prudent manner and any irregularity in this regard must not be tolerated. However, using a pious constitutional provision like Article 149 to reach to this conclusion does not seem correct at all. I agree that Constitution is a living and organic document and it must be interpreted according to the needs of the time. But, resorting to an interpretation that by no stretch of imagination could be said to include private bodies or private companies is clearly an erroneous one and uncalled for.