More Power To CAG!

Published on Sat, Jan 25,2014 | 16:27, Updated at Sat, Jan 25 at 17:12Source : CNBC-TV18 |   Watch Video :

'Every rupee flowing into the Consolidated Fund of India by way of revenue should be audited by the Comptroller and Auditor General Of India.' In reaching that conclusion for telecom service providers last week, the Delhi High Court may have opened the door for CAG to audit a wide variety of public-private projects. Payaswini Upadhyay asks experts if this is what the Constitution envisaged or has the Delhi High Court extended the CAG's brief? And what this will mean for India Inc!

Article 149 of the Constitution lays down the duties and powers of the Comptroller and Auditor General or the CAG. It mandates the CAG to perform such duties and exercise such powers in relation to the accounts of the Union, the States and of any other authority or body.

Over the last 4 years the government argued before the Delhi High Court that private telecom companies would be such bodies subject to the CAG audit. The telecom service providers argued that Article 149 does not cover private parties.

Last week, the Delhi High Court left that question open but held that the accounts of private telecom companies would be subject to CAG's audit. The High Court held that under Article 149, accounts would include a record of money received and spent by the government. It concluded that the private telecom service providers contribute to the revenue of the government by way of license fee. Since this revenue flows into the Consolidated Fund of India subject to CAG audit, the revenue of the telecom service providers can also be audited

CA Sundaram
Senior Counsel, Supreme Court
"They have not gone directly into the question as to whether these bodies would be authorities. Although there is some amount of observation in the judgment that the income of these companies is in many ways an income of the government itself because the government shares a part of the income. They have also gone into the issue of that this is more or less like a joint venture. So although, not having answered the question there are many many leads pointing in the direction that these are entities who, in a manner of speaking, are carrying out public functions and therefore there could be observation in the judgment which could- in later- case be taken to point towards defining these people as companies subject to the writ jurisdiction of the court under Article 12 as an authority."

Gopal Jain
Senior Counsel, Supreme Court
"The first laxman rekha which had to be crossed is what are constitutional boundaries and limitations. Clearly if you look at the constituent assemble debates as well as the parliamentary debates when the 1971 Act was made, they don't even include nationalized banks. They said it wouldn't apply to government companies which later became non-governmental companies. So private companies is far removed from even these two scenarios. Really that was the issue which had to be decided- what they've said is we'll allow a revenue audit but not allow to look into expenditure; that to my mind is a minor issue. The larger constitutional issue which has to be taken is what was the role of the CAG- was it to be an auditor of the government and of government departments and not of private companies."

SL Rao
Former Chairman, CERC
As I understand, the court is saying that while the CAG was primarily meant to audit State government use of central government funding and of government-owned corporations, the Court is now expanding that to say that the CAG would also be right in auditing situations where government gets substantial revenues from the operation of a particular organization because of an agreement on profit sharing or where the government has a significant equity holding in that organization.

But the Delhi High Court has carefully caveated this expansion by saying that the CAG can only audit the receipts and not inquire into aspects like faithfulness, wisdom and economy in expenditures.

SL Rao
Former Chairman, CERC
"When you come to other PPP projects – private public partnerships- there have been some suggestions that this should extend to all of them. I am not quite sure that it can apply to all of them. Let's take roads for example. There are large number of public-private partnerships in India on roads. They are first of all announced, various companies bid for them and there is what is called a viability gap funding. The person bidding for it says that I'll make this road and I'll charge a toll for let's say 30 years to recover my cost and to make some money. The one which is the lowest wins the bid and if that money is not enough, there is a small amount of funding that the government will give. Now here I don't see any scope from the government to want an audit because it's all agreed- you've got a small viability gap funding which is gone into the construction of the road; you've got the toll agreement with the government which is part of the bid and that's it. So wherever there is complete clarity; you're ok."

Gopal Jain
Senior Counsel, Supreme Court
Suppose the accounts are not joint accounts. The basis of this order is that an account is maintained on behalf of the government- that is very particular to a situation which as I said may not be factually correct. That's issue number 1. Issue two is suppose there is a nationalized bank- they will have a different case to put forward. Supposing you have NDDB- they will have a different case to put forward. So it's not easy to say that this applies to all situations.

In Aryaman Sundaram's words- CAG- in the recent past- has positioned itself as a super businessman, a super policy maker and a super finance minister. Could it be that this interpretation by the Delhi HC gives that position a super fillip? Since the telcom companies have appealed this order, hope the apex court settles the powers of the CAG to audit PPP projects super soon!

In Mumbai, Payaswini Upadhyay

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