The working group set up to draft changes in the Companies Act is considering the option of doing away with the concept of government companies.
The abolition of the concept of government companies from the Companies Act will take the 250-odd public sector enterprises out of the ambit of audits by the Controller and Auditor-General of India (CAG) and the Central Vigilance Commission (CVC). This is in line with the government's move to provide public sector managements with greater freedom and autonomy.
Government companies are defined as those where government holding -- central or state government, or both -- is not less than 51 per cent, including PSU subsidiaries.
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Though the working group is divided on the issue, sources said the move has the sanction of finance minister P Chidambaram.
Since audits by CAG are mandated by the Constitution, acceptance of the group's recommendation in this regard would also require Constitutional amendments. The Constitution provides for the creation of the offices of the CAG, and company law provides for mandatory audits of PSUs by it. The rationale being that the PSUs have been set up with public money and hence their operations are subject to public scrutiny. Under the Companies Act, 1956, government companies are bound by the following requirements:
* CAG shall appoint auditors to audit PSUs;
* CAG shall comment on the auditor's report;
* the CAG's report shall be placed before the shareholders at an AGM at the same time and in the same manner as an auditor's report;
* preparation of an annual report within three months of an AGM and placing it in Parliament along with the CAG's report;
* In cases where the state government is a shareholder, the annual report along with the CAG's comment ought to be placed before both the houses of the state legislature; and
* the Union government is empowered to change any of these provision by notification.
Public sector companies have resented both the CVC investigations and CAG audits since they cause harassment, inefficiency in decision-making and delays.
The audits lay down stringent clearance procedures, which only add to the inefficiency of PSU managements particularly at a time when quick decisions could make a difference to their order book positions in a competitive market. At present, PSU brass fight shy of taking decisions for the fear of audit objections at a later date, which are raised even on minor counts.