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TMI Blog2015 (11) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to “body or authority” which satisfy the test of ‘State‘ within the meaning of Article 12. They extend to “private body or authority also” and would cover the DISCOMs. The direction of the Administrator of Delhi for audit of DISCOMs in exercise of power under Section 20 of the CAG Act has to be on the aid and advice of the Council of Ministers, GNCTD and not eo nomine. Though the opportunity to represent against the proposal for audit, under Section 20(3) of the CAG Act, given to the DISCOMs, cannot be faulted on the ground of insufficiency of time but was not reasonable, having been given without disclosing the public interest in which audit of accounts of DISCOMs was deemed expedient and having been given before consultation with CAG and before the terms and conditions of audit were agreed between the GNCTD and the CAG. Such consultation and agreement are essential components of the proposal for audit, opportunity to represent whereagainst is required by Section 20(3) to be given. Audit under Section 20(1), for the reasons stated i.e. for determination of tariff is not expedient in public interest as the determination of tariff is on the sole domain of DERC which is well empow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid and advice of the Council of the Ministers of GNCTD. (III) If the answer to the question no. 1 is in affirmative, whether the direction so given to the CAG in the present case has been taken in accordance with the procedure prescribed under Section 20 of the CAG Act and if not, to what effect. (IV) Whether the audit so directed can be since the date of inception of DISCOMs i.e. 1st July, 2002 and if not, for what period. (V) If it were to be held that the CAG can conduct audit of DISCOMs but the direction impugned in these proceedings is bad for the reason of having been issued without compliance with the proper procedure, whether a mandate ought to be issued to the GNCTD or to the CAG to conduct the audit of the DISCOMs 2. Writ Petition (c) No. 895/2011 was filed as a Public Interest Litigation (PIL) seeking inter alia a direction to the CAG to audit the accounts for at least three latest completed years i.e. financial years 2007-08; 2008-09 and 2009-10, of the three DISCOMs in Delhi. It is inter alia the case in the said PIL: (i) that the DISCOMs have been manipulating their records and showing huge losses; the tariff orders of the previous years were based on these man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit by the CAG every year may not be desirable but in order to respect the public sentiment it may be desirable to get an occasional CAG audit done. 5. During the pendency of the aforesaid PIL, elections were held to the Legislative Assembly of Delhi and a new Government came into power on 28th December, 2013 and which in exercise of powers under Section 20 of the CAG Act, on 7th January, 2014, asked the CAG to conduct an audit of the accounts of the DISCOMs from the date of their inception i.e. 1st July, 2002 till date. This led to the filing of the Writ Petitions (c) No. 529/2014, 539/2014 and 559/2014 by the three DISCOMs aforesaid. The said writ petitions came up as per Roster Bench before a Single Judge of this Court on 24th January, 2014 when notice thereof was issued but on the application of DISCOMs for interim relief of stay of the decision directing CAG to conduct audit, the only ad interim relief granted was that the CAG shall not submit its final report. 6. Aggrieved therefrom, LPAs No. 125/2014, 140/2014 and 141/2014 were filed by the three DISCOMs. The Division Bench which was seized of the said LPAs, on 24th March, 2014, withdrew the writ petitions pending before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), its undertaking and assets into six successor companies; the GNCTD on 20th November, 2001 notified the Transfer Scheme relating to transfer and vesting of assets liabilities, proceedings and personnel of the erstwhile DVB in the successor entities; (c) that in the meanwhile, the three DISCOMs, the Delhi Transco Limited, the two generating companies namely Indraprastha Power Generation Company Ltd. (IPGCL) and Pragati Power Corporation Ltd. (PPCL) and one holding company namely Delhi Power Supply Company Limited (DPCL) were formed by GNCTD; (d) that the International Competitive Bidding for sale of 51% equity, management and control of the three DISCOMs was held and 51% share holding of the three DISCOMs was transferred to the successful bidders; the remaining 49% share holding of the three DISCOMs was held by DPCL, a company fully owned by the GNCTD; (e) that though earlier the accounts of the DISCOMs, being Government companies, were being audited by the CAG but the CAG on 22nd August, 2002, subsequent to the transfer of 51% equity stake and management control in the DISCOMs to private entities, took a decision that the DISCOMs having ceased to be government companies, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its letter dated 22nd February, 2012 asked the GNCTD to expedite the proposal for CAG audit of the three DISCOMs at least for the previous three years; (iv) that in pursuance thereto the GNCTD had filed an additional affidavit dated 20th March, 2012 in the PIL informing that the Cabinet had taken a decision on 27th December, 2011 and approved the audit of the three DISCOMs since inception i.e. 1st July, 2002; (v) that on 1st October, 2013 a note was processed by the Department of Power, GNCTD in this regard and the arguing counsel in his opinion dated 23rd December, 2013 had opined that the GNCTD was empowered to entrust the audit of the DISCOMs to the CAG under Section 20 of the CAG Act; (vi) that acting on the aforesaid opinion, the notices dated 28th December, 2013 were issued to the DISCOMs; (vii) approval of the Administrator, Delhi was sought which was granted on 30th December, 2013; consultation with the CAG was also held; thereafter, again vide letter dated 31st December, 2013 (supra) opportunity was given to the DISCOMs; the CAG vide its letter dated 1st January, 2014 conveyed in principle agreement to conduct the audit of the three DISCOMs; (viii) after considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations, in respect of taking up Audit under Section 20 of the CAG Act, CAG during the audit is authorised to put such questions or make such observations as it may consider necessary and to call for such information as it may require for preparation of the report; (D) that accounts do not mean financial account only and includes all types of audit that is financial / compliance / performance; (E) that as per the terms of reference agreed with GNCTD, the audit is not to be financial only; (F) that since the audit has been taken up at the request of GNCTD, in public interest, scope of audit has been framed keeping in mind the said aspects, to include financial compliance performance audit; (G) that though the DISCOMs had been directed vide the interim order in the proceedings to co-operate in the audit but have been delaying the audit; (H) that the audit is being conducted in accordance with the Regulations and the Guiding Principles of auditing standards. 14. Though rejoinders to the counter-affidavits and additional affidavits have also been filed but we do not deem it necessary to record the contents thereof, as the same were not referred to during the hearing. 15. Dr. Abhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COMs and not with respect to TPDDL; (XII) that though the notings also do not show any decision of the need for audit and only contain a decision that it is desirable to have the accounts of the DISCOMs audited; the same does not amount to satisfaction i.e. it is expedient to have the accounts audited by the CAG in public interest, within the meaning of Section 20(3) of the CAG Act; (XIII) that for such a satisfaction, the Administrator ought to be the originator of the decision for having the accounts so audited; (XIV) that from the file notings, it is evident that the Administrator in the present case merely acted on the aid and advise of the Council of the Ministers without recording his personal satisfaction; (XV) that if a proposal mooted by another is merely approved by the Administrator, the same does not amount to the Administrator acting in his own discretion; (XVI) that the reasons for the audit as borne out from the file notings even though approved by the Administrator, do not constitute a ground within the meaning of Section 20 of the CAG Act; (XVII) that the Administrator in the present case, as per the file notings, has merely put his signatures on the proposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of Article 12 of the Constitution of India or not are not a rigid; (XXXI) that audit under Section 20 of the CAG Act can be directed only of such bodies or authorities which have the colour of the Union or the State; (XXXII) that though Article 149 does not use the word State but since there are no judgments under the said Article, help of judgments under Article 12 of the Constitution is being taken; (XXXIII) that just because the functions of the DISCOMs are regulated under the various Electricity Statutes does not make the DISCOMs a Government entity-reliance in this regard was placed on Federal Bank Limited Vs. Sagar Thomas (2003) 10 SCC 733; (XXXIV) that wherever the Government deemed it necessary that the account of any body or authority should be audited by the CAG, a provision therefor has been made; reference in this regard was made to Section 24 of the Delhi Development Act, 1957 and Section 203 and Section 204 of the Delhi Municipal Corporation Act, 1950; (XXXV) that no such provision was made in the Electricity Laws while providing for privatisation of the DISCOMs; (XXXVI) that the recent Judgment of the Supreme Court in Association of Unified T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding Shri Mata Vaishno Devi Shrine Board to be persistly defaulting in performing its duty, dissolve the same, it was held that the Governor before doing so required to have a due enquiry conducted, after giving the Board reasonable opportunity of being heard i.e. observing principles of natural justice and after an objective consideration of the material placed before him and it was contended that no such opportunity has been given in the instant case; there is no speaking order also with respect to the objection / representation of DISCOMs; (E) that the file notings in the present case do not show the Administrator to have reached any such satisfaction; (F) that there is no mention even that the Administrator was satisfied that it was expedient in public interest to have the audit conducted; (G) that the decision, even if of the Administrator, to have the accounts of DISCOMs audited, is thus not an informed decision; (H) that even in the notice dated 28th December, 2013 supra served on DISCOMs, no public purpose was stated; (I) that it is a clear instance of a pre-meditated exercise of powers; (J) that the same is also evident from the speed with which the decision was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a of the CAG to the effect that since DISCOMs had ceased to be government companies, it was not required to audit the accounts of DISCOMs; the accounts of DISCOMs are separate from accounts of GNCTD and have no relation to CFI of the State or of the Union; (U) that the impugned direction dated 7th January, 2014 for audit of the accounts of DISCOMs from inception i.e. 1st July, 2002 i.e. for 14-15 years is even otherwise barred by limitation; (V) that even where no limitation is provided, the principle of reasonable time is applied; reliance in this regard was placed on Ram Chand Vs. Union Of India (1994) 1 SCC 44; (W) in view of the specific statutory prescription under the Electricity Act, the CAG Report and even any scrutiny of the same by Public Accounts Committee would not be of any consequence as neither the legislature of NCT of Delhi nor the GNCTD can direct any reduction of tariff charged by DISCOMs, which is determined by DERC; the legislative field of determination of tariff is occupied by Electricity Act and proposed CAG audit can in no manner affect the determination of tariff or process thereof before the DERC. 17. Mr. Sandeep Sethi, senior counsel for two other DI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dited not only as per company law but also by the Regulator i.e. DERC; attention in this regard was invited to the proviso to Sections 128, 129 and 61 of the Electricity Act; (ix) on enquiry, it was informed that in the matter of taxation for the purposes of property tax of the immovable properties of the erstwhile DVB vested in DISCOMs, it has been held that DISCOMs vis-a-vis the said properties are the licensees of the State; (x) attention was invited to Parliamentary Debates with respect to the CAG Act (Mr. Paras Kuhad, senior counsel for CAG interjected that the Supreme Court in Association of Unified Tele Services Providers supra has held the reference thereto to be irrelevant); (xi) that though the GNCTD / Administrator left the question of applicability of Section 20 to DISCOMs to be determined by the CAG, CAG also without deciding the same has proceeded with the audit; attention was invited to the counter affidavit of CAG in this regard, stating that once it had been directed to audit, has to audit; (xii) if Section 20 were to be interpreted to include private companies, it would create a situation where even though CAG would prepare a report, there would be no procedur ..... 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Rule 5 of the TRAI Rules would have been struck down; (h) that in the said judgment, the power for CAG audit of the telecom was traced to Article 149 of the Constitution of India and not to Section 13 or 16 of the CAG Act; (i) that DISCOMs enjoy the funding of more than ₹ 2400 crores from the State as is apparent from the Delhi Electricity Reform (Transfer Scheme) Rules, 2001 and if the assets vested in DISCOMs are also taken into account then the funding enjoyed by them is of over ₹ 5000 crores; attention in this regard was invited to Section 15(1) of the Reforms Act whereunder all property, interest in property, rights and liabilities of the erstwhile Delhi Vidyut Board is vested in the GNCTD and to Section 15(2) empowering GNCTD to transfer the same inter alia to DISCOMs; (j) that DISCOMs thus have nexus with the Consolidated Fund of the State; consolidated fund includes fixed assets; (k) that the transactions and the relationship of the State with DISCOMs is very wide and all encompassing; (l) that formation of opinion by the Administrator is required only for exercise of power under Section 20(2) of the CAG Act and not for exercise of power under Section 20(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CAG Act is a broad expression; reliance in this regard is placed on Doypack Systems Pvt. Ltd. Vs. Union of India (1988) 2 SCC 299; (w) that the object of Article 149 and the CAG Act is to provide Parliamentary control of executive and the public funds; the ambit of powers of CAG cannot be limited to scrutiny of accounts of Union but has to extend to all matters that relate to and are in any way connected with accounts of Union. 20. Mr. Prashant Bhushan, Advocate for the PIL petitioner contended: (I) that the CAG is entitled to audit DISCOMs because: (A) of the 49% share holding of the GNCTD therein; (B) entire distribution infrastructure having been handed over thereto for free; (C) enjoying a monopolistic position within its own territory; (II) that irrespective of the direction of the GNCTD under Section 20, CAG is obliged to audit DISCOMs; (III) that the DERC had also recommended a CAG audit of DISCOMs; (IV) that DERC is to regulate tariff on the basis of cost incurred by DISCOMs-the value of the cost as potrayed by DISCOMs cannot be taken on the face of it, as by inflating the cost, DISCOMs become entitled to a higher tariff; (V) that unless the costs of distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affidavit of the GNCTD in the PIL about the non-applicability of Section 20 of the CAG Act is not binding as the Principle of Estoppel is not applicable thereto. Neither the senior counsel who addressed arguments for GNCTD nor any of the counsels briefing him were present on any of the earlier dates of hearing, when the other counsels had addressed arguments. We as such at the close of hearing apprised in a nutshell the senior counsel for GNCTD of the issues arising for adjudication and upon on his request the hearing was adjourned to enable him to address the same. During the hearing on 2nd March, 2015, he contended, (a) that DISCOMs are performing a public function; (b) that at least two of them are in grave financial crises; (c) that the writ jurisdiction under Article 226 of the Constitution extends to bodies / authorities performing public functions as well; (d) reliance was placed on Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust Vs. V.R. Rudani (1989) 2 SCC 691 holding that the jurisdiction of the High Court under Article 226 would extend to a body performing public duty; and, (e) that it is because of performance of public duty only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to; (L) that the judgments on the powers of the CAG cited on behalf of the GNCTD are general, having no relevance to the matter in controversy; (M) that the CAG is beyond the jurisdiction of the Legislative Assembly; (N) that executive power are co-terminus with the legislative power-it thus cannot be said that GNCTD could, in the exercise of its executive powers, issue directions to the CAG; (O) that a distinction was carved out between Article 163 and Article 239 AA(4); the former is not limited to the State List whereas the latter is; (P) that while there is a residuary entry i.e. Entry 97 in List I of the 7th Schedule, there is no corresponding Entry in List II; (Q) that there is no provision for laying CAG reports with respect to Municipal Corporations before the Parliament / Legislative Assembly; (R) that Article 151 also does not provide for reports of body / authority to be laid before Legislative Assembly; (S) that Section 19A of the CAG Act provides for laying of reports of CAG in relation to audit of government companies or corporations referred to in Section 19 before the Parliament / Legislature of the State but there is no provision for laying of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Trust Vs. B.S. Muddappa (1991) 4 SCC 54 to contend that the decision, whether the CAG was empowered to audit under Section 20 or not, could not have been left to the CAG. Reliance in this regard was also placed on Marathwada University Vs. Seshrao Balwant Rao Chavan (1989) 3 SCC 132 to reiterate that the language of Section 20 is peremptory; reliance was also placed on A.K. Roy Vs. State of Punjab (1986) 4 SCC 326 in this regard. 26. Before proceeding to analyse the aforesaid contentions and adjudicate the controversy, we deem it appropriate to set out herein below Articles 149 & 151 of the Constitution of India: "Article 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 commencemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the commencement of this Act, been responsible- (i) for compiling the accounts of any particular service or department of the Union or of a State, or (ii) for keeping the accounts of any particular class or character. such arrangement shall, notwithstanding anything contained in sub-section (1), continue to be in force unless, after consultation with the Comptroller and Auditor-General, it is revoked in the case referred to in clause (i), by an order of the President or the Governor of the State, as the case may be, and in the case referred to in clause (ii), by an order of the President. Section 11 - Comptroller and Auditor-General to prepare and submit accounts to the President, Governors of State and Administrators of Union territories having Legislative Assemblies The Comptroller and Auditor-General shall, from the accounts compiled by him or by the Government or by any other person responsible in that behalf, prepare in each your accounts (including, in the case of accounts complied by him, appropriation accounts) showing under the respective heads and annual receipts and disbursements for the purpose of the Union, of each State and of such Union territory having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r accounts so audited by him. Section 14 - Audit of receipts and expenditure of bodies or authorities substantially financed from Union or State Revenues (1) Where any body or authority is substantially financed by grants or loans from the Consolidated Fund of India or of any State or any Union territory having a Legislative Assembly, the Comptroller and Auditor-General shall, subject to the provisions of any law for the time being in force applicable to the body or authority, as the case may be, audit all receipts and expenditure of that body or authority and to report on the receipts and expenditure audited by him. Explanation.- Where the grant or loan to a body or authority from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly in a financial year is not less than rupees twenty-five lakhs and the amount of such grant or loan is not less than seventy-five per cent of the total expenditure of that body or authority, such body or authority shall be deemed, for the purposes of [this sub-section], to be substantially financed by such grants or loans, as the case may be. (2) Notwithstanding anything contained in sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred on him by sub-section (1), right of access to the books and accounts of any corporation to which any such grant or loan as is referred to in sub-section (1) is given if the law by or under which such corporation has been established provides for the audit of the accounts of such corporation by an agency other than the Comptroller and Auditor-General: Provided that no such authorisation shall be made except after consultation with the Comptroller and Auditor-General and except after giving the concerned corporation a reasonable opportunity of making representations with regard to the proposal to give to the Comptroller and Auditor-General right of access to its books and accounts. Section 16 - Audit of receipts of Union or of States It shall be the duty of the Comptroller and Auditor-General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make for this purpose su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts of a corporation established by law made by the Legislative Assembly of the State or of the Union territory, as the case may be, and where such request has been made, the Comptroller and Auditor-General shall audit the accounts of such corporation and shall have, for the purposes of such audit, right of access to the books and accounts of such corporation: Provided that no such request shall be made except after consultation with the Comptroller and Auditor-General and except after giving reasonable opportunity to the corporation to make representations with regard to the proposal for such audit. Section 19A - Laying of reports in relation to accounts of Government Companies and Corporations (1) The reports of the Comptroller and Auditor-General, in relation to the accounts of a Government company or a corporation referred to in section 19, shall be submitted to the Government or Governments concerned. (2) The Central Government shall cause ever report received by it under sub-section (1) to be laid, as soon as may be after it is received, before each House of Parliament. (3) The State Government shall cause every report received by it under sub-section (1) to be lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposal for such audit." 27. A question which arises for consideration is, whether in Article 149 of the Constitution the words 'as may be prescribed by or under any law made by Parliament' are with reference to the words 'any other authority or body' i.e. whether a law made by Parliament is to specify the authority or body qua which CAG can exercise powers. The said question, in our view arises more so because of the observation of the Supreme Court in para 59 of T.N. Godavarman Thirumulpad Vs. Union of India (2006) 1 SCC 1: "Section 20 is in the nature of a residuary provision providing that CAG, if requested by the President of India or the Governor of a State or the Administrator of a Union Territory having a Legislative Assembly to undertake the audit of the accounts of such other body or authority of which audit has been entrusted to CAG, the CAG shall undertake such audit." (emphasis added) 28. In our view, to answer the aforesaid question, the language of Article 149 has to be broken down as under: a) the CAG shall perform such duties and exercise such powers b) in relation to the accounts of the Union and of the States and of any other authority or body c) as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be performed and powers to be exercised by the CAG in relation to the accounts of the Union and the States, CAG has also been vested with certain duties and powers to be exercised not with respect to any particular body or authority but in respect of any body or authority which satisfies the criteria laid down therein. Viz., (i) Section 14 empowers the CAG to audit all receipts and expenditure of a body or authority which is substantially financed by grants or loans from the CFI or of any State, subject however to the provisions of any law applicable to that body or authority; (ii) Section 15 empowers the CAG to scrutinize the procedures by which the authority which has given a grant or loan for any specific purpose from the CFI or of any State to any body or authority, satisfies itself as to the fulfilment of the conditions subject to which such grant or loan has been given and for this purpose gives the CAG a right to access the books and accounts of the body or authority which has received the loan or grant; however if the law by or under which such body or authority which has received the grant or loan has been established provides for the audit of accounts of such body or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon to the said Sections as well as to Section 20 subject matter of the present controversy. 33. Section 20 as aforesaid, empowers the CAG, a) if requested so by the President / Governor / Administrator b) to undertake audit of the accounts of such a body or authority, audit of accounts whereof has not been entrusted to the CAG by or under any law made by Parliament c) on such terms and conditions as may be agreed upon between the CAG and the concerned government and d) gives right of access to the CAG to the books of accounts of that body or authority. Section 20, followings Sections 14 to 16 and 19, in the Scheme of the CAG Act is in the nature of a residuary provision. 34. Though Article 149 requires the Parliament to by law specify the duties and powers which CAG may exercise in relation to accounts of Union / state / any body or authority, and which the Parliament has inter alia done by enacting the CAG specifying the duties and powers to be performed / exercised by CAG with respect to accounts of Union, States as well as certain bodies and authorities which satisfy the parameters of Sections 14 to 16 and 19 but the Parliament by same law i.e. the CAG Act (Section 20) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CAG with the duties and powers, though to a limited extent, in relation to accounts of i) a body or authority which has been substantially financed or ii) a body or authority which has been given a grant or loan for any specific purpose or iii) a body or authority by which any amounts are payable into CFI or of any State. Such body or authority may or may not satisfy the test of a State within the meaning of Article 12. To hold, that only that body or authority which satisfies test of Article 12 is in the domain of Article 149, would axiomatically mean only that body or authority which besides satisfying the parameters of Sections 14, 15 and 16 of the CAG Act additionally also satisfies the requirement of being a State within the meaning of Article 12 can be audited under Sections 14 to 16. Axiomatically, such an interpretation would exclude from the ambit of Sections 14 to 16 a body or authority which though satisfies parameters thereof but does not satisfy the requirement of being a 'State', even though Sections 14 to 16 do not contain any such limitation, rendering the said provisions of the CAG otiose to that extent. Thus, from making of such a law by Parliament vesting CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Article 148 is to be found in Chapter-V of Part-5 of the Constitution, titled the "Union", Chapter-1 whereof is titled "The Executive", Chapter-2 whereof is titled "Parliament", Chapter-3 whereof is titled "Legislative Powers of the President" and Chapter-4 whereof is titled "the Union Judiciary". CAG has thus been constituted as one of the four limbs of the Union under the Constitution and has been recognized so and been held to be part of the basic structure of the Constitution. I. Supreme Court in Arvind Gupta Vs. Union of India (2013) 1 SCC 393, faced with a contention that the CAG has no power to give Performance Audit Report and a challenge to the Regulations on Audit and Accounts, 2007 framed under the CAG Act empowering the CAG to conduct performance audit on the ground of the same being violative of the Constitution of India held 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 and the Performance Audit Reports have to be viewed accordingly and hence negatived the challenge. Again, in S. Subramaniam Balaji Vs. The Government of Tamil Nadu (2013) 9 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary Financial Control and it is directed towards discovering waste, extravagance and disallow any expenditure violating the Constitution or any law. L. The Constitution of India, as of any other country, though capable of amendment is not expected to be amended as per the exigency of the time from time to time and is to be interpreted as a living document to satisfy the needs and requirements of the changing and evolving times. Once CAG is found to be the fourth pillar of the Union of States that is India, constituted to perform duties and exercise powers in relation to the accounts of the Union and of the States and of any other authority or body, the expanse of its powers cannot be stifled and limited. Mode and manner in which the governments govern and administer the State is ever evolving. Soon after the framing of the Constitution of India, it was felt that the government, for proper governance, needs to have its hand and control in each and every major industry and business. The same, over the times has not found favour and we today have transformed to public-private partnerships where the government works in partnership with private persons, with the extent of participatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are to be as per mutual agreement of the concerned government and the CAG. P. The power of the President / Governor / Administrator to direct so is further circumscribed by the requirement of Sub-Section (3), of the same being expedient in public interest and has to be preceded by an opportunity to such body or authority to represent against such audit. The same, again in our view provides sufficient safeguard and we see no reason to restrict the powers of the CAG only to body or authority which satisfies the test of being a State when need in public interest for having its accounts so audited may arise as per exigencies of the time. Q. Supreme Court in S.P. Gupta Vs. Union of India 1981 Supp. SCC 87 held that interpretation of every statutory provision must keep pace with changing concepts and values and it must, to the extent to which its language permits or rather does not prohibit, suffer adjustments through judicial interpretation so as to accord with the requirements of the fast changing society which is undergoing rapid social and economic transformation. It was further held that law does not operate in a vacuum and is intended to serve a social purpose and it cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons and which, as well as the transactions of such entities, may not be capable of knowing without an audit by the CAG. U. We refuse to interpret Article 149 of the Constitution in a manner, to restrict the powers of the CAG for all times to come when the fears expressed arising from such interpretation are found to be capable of being addressed otherwise. 39. Before parting with the topic, we may also record that during the hearing we had felt that Section 20 of the CAG Act merely extends the duties and powers of CAG from that of, limited audit of bodies and authorities referred to in Sections 14 to 16 of the CAG Act, to a full audit of accounts under Section 20, of the said bodies, and had put so to the counsels. What had made us think so, are the words "Save as otherwise provided in Section 19" in the beginning of Section 20. It was felt that since Sections 14 to 16 lay down the parameters of body or authority with respect to accounts of which CAG may exercise powers as prescribed therein, the purport of Section 20 was only to permit, under the conditions mentioned therein, exercise of powers by CAG beyond the restrictions in Sections 14 to 16. It was further felt that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistrator of Delhi and the direction, though under his signatures, being at the instance of GNCTD. 45. In our opinion, there is no merit in the said challenge also. The reasons which prevail with us to hold so are as under: (A) The contention, that since the functions and powers of CAG are to be prescribed by a law made by the Parliament, the Administrator of Delhi in exercise of powers under Section 20 is not to act on the aid and advise of GNCTD and / or its Council of Ministers and the contention that under Entry 76 in List I of the 7th Schedule, the power to make law with respect to audit of accounts of Union and States is with the Parliament and not with the Legislature of State of Delhi, is misconceived. (B) The decision to be taken by the Administrator i.e. the Lt. Governor of Delhi under Section 20 is the need for directing CAG to audit the accounts of a body or authority and not a decision whether a law should be made in relation to the audit of the accounts of Union of India or of Delhi. The question, whether such decision is to be taken by the Administrator as Lieutenant Governor of Delhi, which by virtue of Article 239AA has a hybrid position, is dependent upon wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason of peril to democracy or democratic principles an action may be compelled which from its nature is not amenable to Ministerial advice; such a situation may be where bias is inherent and or manifest in the advice of the Council of Ministers. (F) Certainly, a direction for audit of acts of any body or authority, under Section 20 of CAG Act, does not fall in category (iv) or (v) aforesaid. (G) The language of Section 20(1) leaves no manner of doubt that the exercise of power by the Administrator, Delhi is to be on advice of Council of Ministers. The same provides for audit thereunder on such terms and conditions as may be agreed between the CAG and the 'concerned Government'. Had the power to be exercised eo nomine, the question of empowering the concerned Government to agree to terms and conditions of audit would not have arisen. (H) The action of the Administrator under Section 20, though required to be taken after giving an opportunity to the body or authority proposed to be audited to represent thereagainst, cannot be said to be adjudicatory. Supreme Court in Subramanian Swamy Vs. Arun Shourie (2014) 12 SCC 344 held that merely because a body is required to follow procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable opportunity under Section 20(3) of the Act. (V) Over the ground urged, of the direction for audit being a pre- decided one, being a poll promise, we need only observe that the Courts are flooded with petitions for fulfilment of promise on the plank whereof election is won. Certainly no grievance can be made of such promise having been fulfilled. (VI) However, we find favour with the contention, of the opportunity granted being not reasonable, but for the reason of being not preceded by a 'proposal for such audit'. (VII) Sub-section (3) of Section 20 of the CAG Act prohibits entrustment of audit of accounts of any body or authority to the CAG in exercise of power under sub-section (1) "except after giving a reasonable opportunity to the concerned body or authority to make representation with regard to the proposal for such audit". The words 'proposal for such audit' in sub-section (3) of Section 20 have to be understood in the context of sub-section (1). Sub-section (1) requires the President / Governor / Administrator to direct CAG to undertake audit of account of such body or authority, 'after consultation' with CAG and on such terms and conditions as may be agreed upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ministrator for, after completion of consultation with CAG and finalization of terms and conditions of audit, request CAG to under Section 20(1) conduct audit of DISCOMs since inception; viii) the Chief Minister consented to the said decision observing that there is no reason for DISCOMs to resist audit; ix) the Administrator gave his approval, reasoning that audit is necessary for detecting the truth and in the larger interest of public; x) on 9th January, 2014 the issue of framing terms of reference for proposed audit were finalized by GNCTD and discussed with CAG; xi) on 16th January, 2014 an entry conference was held between officials of CAG and GNCTD to discuss issues related to the "audit of three private DISCOMs of Delhi" and to finalize the terms of reference for audit; xii) CAG clarified that the issue relating to unbundling of DVB would not be audited as it had already been reviewed and reported in the CAG audit report for the year ended March, 2003 and which report had been discussed in several Public Accounts Committee (PAC) meetings held in 2005 and in 2006 and the third and final report of PAC been presented to Delhi Legislative Assembly on 2nd March, 2006. (IX) GNCT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the action bad. (XVIII) We say so because Article 149, as aforesaid, empowers CAG to perform such duties and exercise such power in relation to accounts of any body or authority which may be prescribed by Parliament by law; thus the concerned body or authority, from such law would know what duties / powers CAG is to exercise in relation to its accounts; however Parliament, by law contained in Section 20 of the CAG Act has left it to the Executive to in consultation and agreement with CAG assign such duties / powers to CAG; when the Constitution of India has deemed it appropriate for such duties and powers of CAG to be prescribed by law and making whereof has all the implicit safeguards, even if it were permissible for Parliament to delegate what is required to be done by law, to the Executive, to be done not by subordinate delegation but by Executive fiat, the conditions imposed by Parliament in exercise of such executive fiat assume significance. (XIX) Thus, before the body or authority proposed to be audited under Section 20 is given an opportunity to represent against the proposal, there must be a consultation with the CAG and upon CAG agreeing to the audit, terms and condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultation and / or whether there was sufficient consultation; (ix) that the meaning of consultation varies from case to case depending upon its fact, situation and the context of the statute as well as the object it seeks to achieve and no straight-jacket formula can be laid down; (x) ordinarily consultation means a free and fair discussion on a particular subject, revealing all material that the parties possess in relation to each other and then arriving at a decision, where one of the consultees has primacy of opinion under the statute, either specifically contained in a statutory provision or by way of implication, consultation may mean concurrence; (xi) the Court must examine the fact situation in a given case to determine, whether the process of consultation as required in a particular situation did in fact stand completed. (XXIII) The mere fact that CAG accepted the terms and conditions of audit contained in the directive issued under Section 20(1) cannot be a substitute for the legislative requirement of arriving of an agreement between the concerned government and CAG and which agreement has to be arrived at before an opportunity to represent thereagainst is given to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we agree with the contention noted above of DISCOMs that to non-compliance of statutory requirement of reasonable opportunity to represent against, the reasoning of no prejudice having been suffered therefrom does not apply. We may in this context also refer to Municipal Committee, Hoshiarpur Vs. Punjab State Electricity Board (2010) 13 SCC 216 laying down that in case there is a non-compliance of a statutory requirement of law, such non-compliance may itself be prejudicial to a party and in such an eventuality it is not required that a party has to satisfy the Court that his cause has been prejudiced for non-compliance of statutory requirement or principles of natural justice. Hence, it has but to be held that the action of the respondents being in non-compliance of Section 20(3) has to be struck down. 49. The last ground of challenge to the action under Section 20 is on the ground of the action being not in public interest. In our view, the decision to direct audit under Section 20 on the ground of the same being in public interest would be subject to judicial review. However having held hereinabove that DISCOMs were not given reasonable opportunity to make representation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it has to follow that the Report of CAG in pursuance to direction under Section 20 of the CAG Act also has to be placed before the Legislative Assembly of Delhi. 52. We have wondered even if the CAG Report is to find truth in the allegations against the DISCOMs leading to the impugned direction of their audit by CAG and the said Report is to be accepted by the Legislative Assembly of Delhi and direction issued to GNCTD to take action in accordance therewith, what action will GNCTD take. 53. In our opinion, the question, whether it is possible for the concerned government to take any action against a body or authority on the basis of the report of CAG, under the laws otherwise applicable to such body or authority and / or under the agreement, if any of the concerned government with such body or authority, would be a relevant consideration, whether it is expedient in public interest to direct such audit or not. Needless to state that if under the law applicable and / or the agreement, the concerned government is unable to take any action against the body or authority of which audit is sought to be directed in exercise of powers under Section 20, the audit cannot be said to be exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the consumers being determined at a higher rate and DERC not having the wherewithal to catch such overpricing by DISCOMs in their balance-sheet of the purchase price and the operational cost. We highlight that the CAG refused to go into the question of unbundling of DVB, with respect whereto it had already submitted a report and which had been considered by PAC. Thus, the purpose of audit was / is not whether privatisation has served any purpose or whether the terms of transfer Scheme were in the interest of GNCTD. The sole purpose / purport of audit thus is tariff determination. 59. We have combed the provisions of the Electricity Act and the Reforms Act to find out the justification if any for the aforesaid reason, including the power if any of GNCTD to, if the said allegation against DISCOMs is supported by the report of CAG, take appropriate action thereon. 60. We first deal with the Electricity Act, 2003 i) Section 12 to 14 and 16 thereof bar any person from transmitting or distributing or undertaking trading in electricity save under a licence issued by an appropriate Commission (i.e. either the Central Electricity Regulatory Commission (CERC)) or the SERC) and on su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been given to the State Government though Sub-Section (4) thereof requires the appropriate Commission to send a copy of the order on such application including to the appropriate government). xii) Sections 70 and 73 provide for the constitution of a Central Electricity Authority with the function and duty inter alia of advising the Central Government on optimum utilization of resources to provide affordable electricity for all consumers and to carry out studies relating to cost efficiency, competitiveness and such like matters and to make public from time to time the information secured. xiii) Section 74 imposes a duty on the licensees to furnish to the Central Electricity Authority such statistics, returns or other information relating inter alia to distribution of electricity as the Central Electricity Authority may require from time to time and in such form and manner as may be prescribed by the Central Electricity Authority. xiv) Section 76 provides for constitution of a CERC and Section 82 provides for the constitution of SERC. xv) Section 84 requires the Chairperson and the members of the SERC to have adequate knowledge inter alia of finance, commerce and economics with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired as may be specified or described in the requisition being the documents relating to any matter concerning inter alia transmission, distribution and supply of electricity and the functioning of any undertaking involved in the same, as the Commission may require for proper discharge of its functions as well as with a power of search and seizure. iii) Sub-Section (6) of Section 10 specifically empowers the DERC to by a general or special order, call upon any person including the licensees to furnish to the DERC, periodically or as and when required, any information concerned with the activities carried on by such person relating inter alia to distribution and supply of electricity, the connection between such person and any other person or undertaking including such other information related to the organisation, business, cost of production, conducts, etc. as may be prescribed to enable the DERC to carry out its functions; sub-section (8) of Section 10 empowers DERC to at any time call for and examine, information, details, books, accounts and other documents from any person including a licencee for the purpose of providing the same to Central Electricity Authority, CERC, the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m charges which it is permitted to recover pursuant to the terms of its licence and in designing tariffs to collect those revenues. xiv) Sub-Section (2) of Section 28 entitles the DERC to prescribe the terms and conditions for determination of the licensee's revenues and tariffs by regulations prescribed and mandates the DERC to in doing so be guided by the financial principles and their application provided in the Sixth Schedule to the Electricity (Supply) Act, 1948 and the factors which would encourage efficiency, economic use of resources, good performance, optimum investments etc. as well as the interest of the consumers. xv) Sub-Section (5) of Section 28 requires the licensees to provide to the DERC at least three months before the ensuing financial year full details of its calculation for that financial year of the expected aggregate revenue from the charges which it believes it is permitted to recover pursuant to the terms of its licence and empowers the DERC to seek such further information which it may require to assess the licensee's calculation. xvi) Sub-Section (7) of Section 28 provides that the tariff implemented shall be just and reasonable so as to promote economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the purposes of this Act, apply to the undertaking authorised by the licence in relation to its activities in the National Capital Territory of Delhi: Provided that where a supply licence is granted by the Commission for the supply of energy to other licensees for distribution by them, then in so far as such licence relates to such supply, the provisions of clauses IV, V, VI, VII, VIII and XII of the said Schedule shall not be deemed to be incorporated within the supply licence." (emphasis added) 64. The Schedule to the Indian Electricity Act, 1910 referred to hereinabove is found, in Clauses II and III thereof, to contain the following condition: "II. Audit of Accounts of licensee not being local authority. - Where the licensee is not a local authority, the following provisions as to the audit of accounts shall apply, namely: (a) The annual statement of accounts of the undertaking shall, before being rendered under Section 11 of the Indian Electricity Act, 1910, be examined and audited by such person as the [State Government] may appoint or approve in this behalf and the remuneration of the auditor shall be such as the [State Government] may direct, and his remunerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. 7.2 Accounting Principles The Licensee shall, in respect of the Licensed Business and any Other Business: a. keep such accounting records as would be required to be kept in respect of each such business so that the revenues, costs, assets, liabilities, reserves and provisions of, or reasonably attributable to the Licensed Business are separately identifiable in the books of the Licensee, from those of Other Business in which the Licensee may be engaged; b. prepare on a consistent basis from such accounting records and deliver to the Commission: i. the Accounting Statements; ii. in respect of the first six months of each financial year, an interim unaudited profit and loss account, cash flow statement, funds flow statement and provisional balance sheet; iii. in respect of the Accounting Statements prepared in accordance with this Clause 7, an Auditor's report for each financial year stating whether in their opinion, these statements have been properly prepared in accordance with this Clause 7 and give a true and fair view of the revenues, costs, assets, liabilities, reserves and provisions of, or reasonably attributable to such businesses to which the statements rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich direction the DISCOMs will be bound to comply. 67. Thus, the distribution licence itself provides for the accounting principles and the audit of the accounts of the DISCOMs and empowers the DERC to, if so deems fit, require the DISCOMs to submit a report prepared by an independent auditor and does not provide for an audit by the CAG. It may also be noticed that though the provisions of the Schedule to the Indian Electricity Act, 1910 which have been incorporated in the licences vide Section 20(6) of the Reforms Act provided for the audit of a licensee which is not a local authority by such person as the State Government may appoint or approve in this behalf, DERC in the exercise of its powers, also under Section 20(6), has modified the same to what is reproduced hereinabove. The licence aforesaid in Clause 10 is also found to providing as under: "10. Capital Investments and Project Implementation 10.1 The Licensee shall not make any investment under any scheme or schemes except in an economical and efficient manner and it terms of this Licence and in accordance with the Regulations, Guidelines, Directions and Orders, the Commission may issue from time to time. 10.2 The Lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisitions (if any) forming part of the same overall transaction, equals or exceeds ₹ 2,00,00,000.00 (Rupees two crore only) or such other amount as may be notified by the Commission from time to time. 10.7 The Licensee shall submit to the Commission, along with the "Expected Revenue Calculation" filed in terms of Clause 24, an Annual Investment Plan - consisting of those schemes that have been approved by the Commission; schemes submitted before the Commission for approval; and all schemes not requiring approval of the Commission planned for the ensuing financial year - and shall make investment in the said financial year in accordance with the said investment plan: Provided that the aggregate cost of all schemes not requiring an approval from the Commission shall not exceed ₹ 20,00,00,000.00 (Rupees twenty crore only) in any financial year or such other amount as may be notified by the Commission from time to time: Further provided that if any unforeseen contingencies require reallocation of funds within the schemes listed in the annual investment plan, the Licensee may do so after intimating the Commission. However, such reallocation in respect of individual pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chieve the balance required to be maintained in regard to the competitiveness and efficiency on the one part and the social objective of ensuring a fair deal to the consumer on the other; though the State Government has been empowered to issue policy directions on matters concerning electricity in the State including the overall planning and co-ordination but such directions have to be consistent with the objects sought to be achieved by the Act and accordingly to not adversely affect or interfere with the functions and powers of the Regulatory Commission including, but not limited to, determination of the structure of tariffs for supply of electricity to various classes of consumers. The State Government was held to be expected to consult the Regulatory Commission in regard to the proposed legislation or rules concerning any policy direction and to duly take into account the recommendations by the Regulatory Commission on all such matters. It was held that the scheme of the provisions of the various statutes is to grant supremacy to the Regulatory Commission and the State is not expected to take any policy decision or planning which would adversely affect the functioning of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board Vs. Laxmi Business & Cement Co. P. Ltd. (2014) 5 SCC 236 it was held that the State Electricity Boards, after the Electricity Act were left with no power whatsoever to frame tariff which is under the exclusive domain of the State Electricity Regulatory Commissions. The same view, in our opinion, would apply to the State Government also. Thus, the State Government after having the accounts of DISCOMs audited and which we have held it is entitled to do under Section 20 of the CAG Act and even if finding anything as is alleged therein, would on the basis thereof not be able to lower the tariff and with which motive the entire exercise has been undertaken. 73. Supreme Court as far back as in Ram Jawaya Kapur Vs. State of Punjab (1955) 2 SCR 225 held that though it is not necessary that there must be a law already in existence before the Executive is enabled to function and that the powers of the Executive are limited merely to the carrying out of those laws but if there is a statutory Rule or an Act on the matter, the Executive must abide by that Act and cannot in exercise of executive power ignore or act contrary to that Rule or Act. Following the said principle, a Division Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme court in judgment dated 24th March, 2015 in B&B Hardware, Inc. Vs. Hargis Industries, Inc. would also be attracted. It was held that when the Trademark Trial and Appeal Board refuses federal registration of a trademark because it is likely to be confused with an already registered mark this determination will preclude the same parties in a later District Court infringement suit involving the same marks from re-litigating the likelihood of confusion question. It was reasoned that even though the Board is not a Court created under Article 3 of the American Constitution, the principle of issue preclusion would apply because congress' creation of an elaborate registration scheme with many important rights attached and backed up by plenary review confirms that registration decisions can be weighty enough to ground issue preclusion. It was reiterated that issue preclusion is not limited to those situations in which the same issue is before two Courts because the issue preclusion is so well established at common law that when an administrative agency is acting in a judicial capacity and resolving disputed issues of fact by it which the parties have had an adequate opportunity to ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not equipped itself with the wherewithal to exercise the powers which have been vested in it under the laws, rules, regulations licence aforesaid is no reason to fall back to the procedures and modalities prescribed in the pre-regulator regime. Such an exercise under the powers under the earlier state of affairs, would today be a useless exercise. It is also not as if DERC is not capable of equipping itself with the wherewithal for digging into the accounts, particularly expenses of DISCOMs which the DISCOMs are accused of inflating. We find DERC to have, in exercise of its Regulation making power, framed the DERC (Appointment of Consultants) Regulations, 2001. DERC thus, if does not have an internal mechanism in this regard, though is required to have, can appoint appropriate accountants as consultants to investigate the allegations against the DISCOMs. 79. We may notice that a Single Judge of this Court in National Dairy Development Board Vs. Union of India MANU/DE/0224/2010 was also concerned with a challenge by the National Dairy Development Board (NDDB) to the audit by the CAG under Section 14(2) of the CAG Act of DISCOMs inter alia on the ground that NDDB Act, 1987 establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h populist measures, without considering the ultimate advantage thereof, not only end up being contrary to public interest but also put unnecessary burden on the Courts. 82. Once it is found that audit of accounts of DISCOMs by CAG, even if were to find the allegations against the DISCOMs to be true, cannot under the prevalent legal regime serve the avowed object of bringing down the tariff, the question of this Court, in the PIL issuing a direction for such audit, whether under Section 20 or under any other provision of the CAG Act does not arise. 83. In the light of the view taken by us, need for going into the correctness of the direction to CAG to audit accounts of DISCOMs since inception, does not arise. 84. We clarify that we have not considered the matter from the perspective of Sections 13 to 16 of the CAG Act. Though the Supreme Court in Association of Unified Tele Services Providers supra after noticing the provisions of the TRAI Act, the rules / regulations framed thereunder and the terms of licences issued to the Tele Services Providers found therein also a power in TRAI to seek all information relating to the accounts as may be required and a provision as to the man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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