The power of the Comptroller and Auditor General (CAG) to audit has now assumed great topical interest because of the recent judgment of the Delhi High Court allowing CAG to audit public-private partnership (PPP) projects and private projects with a clear impact on government revenue. This is more because the parties involved are telecom companies and the fear is a CAG audit could unearth things, which might confirm the scam that everybody has been apprehending. It will also make it easier for the Arvind Kejriwal-led Delhi government stand to survive, if it goes for a judicial scrutiny. There is another aspect of the audit, which is about the power of CAG to audit purely private companies. In this treatise, I shall deal with both these aspects only from the judicial point of view.
Under Section 20 of the Duties and Powers of the CAG Act 1971, the auditor can be authorised by the President or Governor to undertake audit of non-government organisations. This has been the view of CAG for quite some time that they should be allowed to be audited by CAG even without specific permission from the President or the Governor.
It has been found that under-reporting of revenue by telecom companies had significant adverse impact on revenues which go to the Consolidated Fund of India. The Department of Telecommunications has been reluctant to nominate the CAG for audit, while the private telecom companies went to the Delhi High Court, which has now ordered that it is legal for CAG to audit the account of the private telecom service, but it will be limited to the revenue and not to their business model.
The high court made it clear that CAG "should not confuse himself with its wide all-embracing power under Section 14(2) of the CAG Act, 1971". The government of Delhi also has initiated the move for the partially private sector power distribution companies in Delhi.
The justification of the order of the the Delhi High Court is clearly that substantial remittances to the Consolidated Fund of India come from private firms with public participation or from those who pay substantial money to the government due to license condition or lease of properties given to them at a cheaper price.
The argument of the private companies is that these are covered under specific Acts such as the Electricity Act or Electricity Regulatory Commission.
However, the Delhi High Court decision has widely been welcome because of the collective failure of the private sector to address consumer concern about authenticity of their accounts.
The feeling among the public that they are being fleeced by manipulation of documents or electro-mechanical devices has led to a moral justification for the high court order.
If the matter goes to Supreme Court, there is little chance of this judgment being toppled because there are two recent supporting judgments of the Supreme Court.
The first judgment is in the case of Arvind Gupta vs. UOI, in which the Supreme Court has said that the "CAG's function to carry out examinations into economy, efficiency and effectiveness with which the government has used its resources is inbuilt in the 1971 Act". The Supreme Court had also observed while delivering this judgement that the "CAG is not just a Munimji".
On November 22, 2013, the Supreme Court had delivered another judgment in the case of Pathan Mohammed Suleman Rehmatkhan vs. State of Gujarat & Ors, in which it did not objecte to the audit by CAG of a PPP project in Gujarat, but did not agree to the conclusion of the CAG to challenge the business decision,(taken in good faith but which may have gone wrong).
The Supreme Court said that it was a matter of business policy and could not be challenged by CAG. Since the court has not objected to the audit itself by CAG but only the observations of the CAG to challenge the business policy, this judgment squarely supports the decision of the Delhi High Court, which has also done the same, that is to say, allowed the audit of revenue, but not to challenge the business model, which was done in a bonafide manner.
Even for purely private business organisations, the Calcutta High Court has observed in the case of SKP Securities Ltd. Vs. Dy Director (RA-IDT) that it is legal to allow the CAG audit even if the President or the Governor does not order so, since the CAG Act has wide powers. However, the matter is before a Division Bench.
So the conclusion is that both PPP projects and private companies having direct impact on government revenue are subject to CAG audit but only for the revenue aspect and not for scrutinising the business model. For purely private companies merely paying taxes, it is still sub judice.
Under Section 20 of the Duties and Powers of the CAG Act 1971, the auditor can be authorised by the President or Governor to undertake audit of non-government organisations. This has been the view of CAG for quite some time that they should be allowed to be audited by CAG even without specific permission from the President or the Governor.
It has been found that under-reporting of revenue by telecom companies had significant adverse impact on revenues which go to the Consolidated Fund of India. The Department of Telecommunications has been reluctant to nominate the CAG for audit, while the private telecom companies went to the Delhi High Court, which has now ordered that it is legal for CAG to audit the account of the private telecom service, but it will be limited to the revenue and not to their business model.
The high court made it clear that CAG "should not confuse himself with its wide all-embracing power under Section 14(2) of the CAG Act, 1971". The government of Delhi also has initiated the move for the partially private sector power distribution companies in Delhi.
The justification of the order of the the Delhi High Court is clearly that substantial remittances to the Consolidated Fund of India come from private firms with public participation or from those who pay substantial money to the government due to license condition or lease of properties given to them at a cheaper price.
The argument of the private companies is that these are covered under specific Acts such as the Electricity Act or Electricity Regulatory Commission.
However, the Delhi High Court decision has widely been welcome because of the collective failure of the private sector to address consumer concern about authenticity of their accounts.
The feeling among the public that they are being fleeced by manipulation of documents or electro-mechanical devices has led to a moral justification for the high court order.
If the matter goes to Supreme Court, there is little chance of this judgment being toppled because there are two recent supporting judgments of the Supreme Court.
The first judgment is in the case of Arvind Gupta vs. UOI, in which the Supreme Court has said that the "CAG's function to carry out examinations into economy, efficiency and effectiveness with which the government has used its resources is inbuilt in the 1971 Act". The Supreme Court had also observed while delivering this judgement that the "CAG is not just a Munimji".
On November 22, 2013, the Supreme Court had delivered another judgment in the case of Pathan Mohammed Suleman Rehmatkhan vs. State of Gujarat & Ors, in which it did not objecte to the audit by CAG of a PPP project in Gujarat, but did not agree to the conclusion of the CAG to challenge the business decision,(taken in good faith but which may have gone wrong).
The Supreme Court said that it was a matter of business policy and could not be challenged by CAG. Since the court has not objected to the audit itself by CAG but only the observations of the CAG to challenge the business policy, this judgment squarely supports the decision of the Delhi High Court, which has also done the same, that is to say, allowed the audit of revenue, but not to challenge the business model, which was done in a bonafide manner.
Even for purely private business organisations, the Calcutta High Court has observed in the case of SKP Securities Ltd. Vs. Dy Director (RA-IDT) that it is legal to allow the CAG audit even if the President or the Governor does not order so, since the CAG Act has wide powers. However, the matter is before a Division Bench.
So the conclusion is that both PPP projects and private companies having direct impact on government revenue are subject to CAG audit but only for the revenue aspect and not for scrutinising the business model. For purely private companies merely paying taxes, it is still sub judice.
Email: smukher2000@yahoo.com