Every rupee flowing into the Consolidated Fund of India, by way of revenue, to be audited by the CAG of India: Court Order

The Delhi High Court has delivered a judgement in the case of Association of Unified Telecom Service Providers of India Versus Union of India & Others on the powers of CAG to audit the revenues of Private Telecom Companies flowing to the Consolidated Fund of India under Section 16 of the CAG (DPC) Act, 1971.  The Court has held under the constitutional scheme of every rupee flowing into the Consolidated Fund of India, by way of revenue, to be audited by the CAG of India.  Full text of the judgement is attached:-

* IN THE HIGH COURT OF DELHI AT NEW DELHI 

% Judgment Reserved on: November 27, 2013

Judgment Pronounced on: January 06, 2014

+ WP(C) NO. 3673/2010

WP(C) NO. 3679/2010

1. It is now well-recognized that post second world war, some believe that influenced by the liberal features of the economic policies of the United States of America, a new economic order and a new kind of State emerged, which promoted the values and ideals of professionalism, scientific and technical expertise, administrative competence and neutrality in governance. The shift was from rowing to steering. The era of liberalization emerged all over the globe; some countries adopted it immediately after the second world war and some slowing and grudgingly, realizing that in the global economy the municipal governance had to be in sync with the current global thinking. Many believe (wrongly in our opinion) that the regulatory regime was the consequences of the new form of governance, shifting from rowing to steering. 

2. Even in the pre-liberalization era, two modes of regulation governed important enterprises for most of the twentieth century : (i) regulation of privately owned enterprises was done mainly through company law; and (ii) key industries and utilities were governed through various forms of public ownership, of which the nationalized corporations was the most important.

Privatization obviously signalled the decline of the latter.

3. What was the need to create a regulatory regime if there already existed a historic mode of regulation, in the form of company law? Accounts of every company required a mandatory audit by a Chartered Accountant who was not an employee of the company and was answerable to only the Institute of Chartered Accountants. 

4. The answer must precede by understanding the problems involved in simply subjecting the privatized utilities to traditional corporate regulation. And one needs to begin by understanding the deficiency in the established role of company law in the regulation of the corporate enterprise. 

5. Company law had to answer three questions : (i) What is the proper relationship between legal owners and those who do the daily job of running corporations? The question arose from the most important structural feature of the modern corporation : the separation of ownership from control which has been recognized as a central feature of business life. (ii) What claims, beyond legal ownership, give entitlement to a say in governing corporations? and (iii) What is the appropriate relationship between the corporation and the democratic State? 

6. Company law was unable to satisfactorily answer the three questions and thus it was not possible to assimilate all privatized concerns in the prevailing mode of company regulation as per the existing company laws. 

7. The reason why company law could not provide cogent answers to the three questions, was that the affairs of the company, as an institution, were treated as affairs concerning the shareholders and the directors (as agents of the company) answerable only to the shareholders. A company was a private entity and entitled to say that its governance was reserved for those with property rights, signified by the legal ownership, in the form of holding in equity. No doubt, with the induction of professional managers on the board of companies there was a decisive shift in the separation of ownership and control. But, what was overlooked by the company law was that the juristic entity of a company, as a distinct personality viz-a-viz its shareholders, failed to recognize that certain privileges were conferred upon the shareholders; the most important of which – privilege of incorporation – was the limited liability, a privilege not granted to other economic actors. Whereas, an individual carrying on business or two or more persons carrying on business as partners were personally liable to the third parties and their personal assets could be seized in settlement of the dues to third parties, it could not be so done against the properties of the shareholders. Company law overlooked that these privileges granted to companies and its shareholders, was by the State, because the law was enacted by the State. It did not seek a quid pro quo, in that, the conditional entitlements i.e. privileges were on the reciprocal obligation by the corporate entity to perform its public obligations or recognizing some restraints over corporate behaviour in the wider public interest. To compound the problem, in awarding contracts, which some call largesse, the State put conditions which could be satisfied only by large corporations. The anti-monopoly laws could make no impact. The creation of a nationalized sector, dominated by public corporations, which was expected to mark a break also failed. Regretfully, the government of the nationalized sector, failed in its endeavour because of evasion of public accountability because of behind the scene intervention by Ministers to shape business plans around short-term political pressure.

8. One ill of a democratic system is partisan majoritarian politics resulting in partisan political control. Policies tend to be determined by party strife and sectional interest. The governing elite ensured lack of transparency about institutional arrangements. There was a crisis of a governing order. The crisis had two facets : (i) content of the economic policy with the failure of the policy; and (ii) crisis of the system of rule itself. As the learned author Marquand D. in the book µThe Unprincipled Society : New Demands and Old Politics’ 1988 (pp1975 and 206) published by Jonathan Cape, London, opines this was the result of ‘Club Government’. Just like nobody can predict as to who would get the membership of a club; just like why nobody can figure out as to why some clubs allow children in the club premises and some for fixed duration of time; just like why nobody can figure out why some clubs prescribe a particular dress code and some don’t; similar were the attributes of club government.

9. There were thus three striking features of club government : (i) informality; (ii) reliance on knowledge acquired by insiders by virtue of their insider status; and (iii) screening from public scrutiny and accountability. 

10. The new economic order and the new kind of State which emerged had to promote the values and ideals of professionalism, scientific and technical expertise, administrative competence and neutrality in governance if the new model had to succeed. 

11. It is rightly said that crisis forges the link between the shortcomings and the evils of yesterday with the horizon and the vision of tomorrow. Thus, the crisis of the governing order had to forge the link between stagnation of the past and the innovation of the future and this would require an understanding of what sense to make of the destruction of the club system and what sense to make of the policy response required to be produced. Any analysis of the regulatory State and the regulatory laws which ignores this facet would be, in our opinion, an incomplete analysis. 

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Source: http://saiindia.gov.in