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CAM, JSA, seniors (with help from SAM) save Reliance, Tata power cos from CAG audit in victory vs AAP 'political ploy' [READ JUDGMENT] [UPDATE-1]

Power distributors may keep CAG nose out of accounts
Power distributors may keep CAG nose out of accounts

In a setback to the Arvind Kejriwal government, the Delhi high court on Friday quashed the executive decision to get the books of accounts of the three private power distribution companies (discoms) in the city-capital scrutinised by the Comptroller and Auditor General of India (CAG).

A division bench of Chief Justice G Rohini and Justice RS Endlaw said: “There can be no other audit at the instance of state government” as there is already a watchdog, the Delhi Electricity Regulatory Commission (DERC), with powers to audit the accounts of discoms.

“All the power of state government relating to electricity now stand vested in DERC,” the bench said, slamming Kejriwal’s decision to audit the discoms as a “misguided exercise”.

The high court order came on pleas filed by the three discoms - Tata Power Delhi Distribution, and two Anil Dhirubhai Ambani Group companies BSES Rajdhani Power and BSES Yamuna Power - challenging the Delhi government’s 7 January, 2014 order to get the CAG to audit their accounts.

Cyril Amarchand Mangaldas partners VP Singh in Mumbai and partner Kirat Nagra in Delhi acted as legal counsel advising the Anil Dhirubhai Ambani Group (ADAG) companies.

Senior advocate Sandeep Sethi appeared for the ADAG companies. Update: Senior counsel Kapil Sibal also appeared on behalf of BSES.

Update: Now-Shardul Amarchand partner Ajit Warrier, principal associate Aashish Gupta, senior associate Dushyant Manocha and associate Paresh B Lal (who were then members of Amarchand Mangaldas’ Delhi office) had also assisted on the litigation with VP Singh until the final order was reserved. After Amarchand Mangaldas broke up on 11 May, the mandate went entirely to Cyril Amarchand, which won several subsequent orders in the matter, fighting against the leak of the audit report, obtaining a copy of the report and winning a government undertaking not to act on the report and related issues, confirmed a Cyril Amarchand spokesperson.

JSA partners Amit Kapur and Anupam Varma, and senior associate Nikhil Sharma, and associate Rahul Kinra, former associate Ameen Jauhar, and associate Abhishek Puri acted for Tata Power.

JSA instructed senior counsel Abhishek Manu Singhvi, Vikas Singh and Dhruv Mehta.

Prashant Bhushan acted for the United RWAS Joint Action PIL group.

“The Delhi government, instead of strengthening the DERC, we are constrained to observe, has undertaken a misguided exercise by issuing a direction to the CAG to audit the accounts of the discoms when the report of such audit would not have any sanctity in law for achieving the desired result,” the HC verdict reads.

“We are unable to decipher anything, which DERC cannot and which CAG can unearth. DERC is neither found to be helpless nor dependent on the balance sheet filed by the discoms,” it added.

Audit of the discoms under the prevalent legal regime cannot serve the object of bringing down power tariff, “even if were to find that the allegations (of inflating their previous losses) against the discoms to be true”, the HC said.

The bench said after reenactment of law relating to the power sector and having substituted the powers of the state government with that of the regulator, it was unable to find any purpose which a report of the official auditor will serve under direction of the NCR government.

“Once the discoms, before incurring any expenditure above a limit, are required to obtain the prior approval of the DERC, and therefore, once the DERC approves the said expenditure, we fail to see how the CAG can be allowed to arrive at a different conclusion,” the bench said in its 139-page judgment.

The discoms, which supply power to consumers in the capital, argued that they were private companies and hence not in the ambit of such an audit. They alleged that the Delhi government’s order was a “political ploy” and was passed with “malice in law” without giving them an opportunity to be heard.

A draft report in August after the CAG’s audit into their books had reportedly said they inflated their previous losses.

The three private firms had come into being in 2002 when the then Delhi government decided to privatise power distribution. Delhi discoms are a 51:49 percent joint venture between the private companies and the Delhi government.

The Arvind Kejriwal government had argued that a CAG audit of private discoms was necessary to clarify alleged anomalies in their accounts and that it was not aimed at interfering with their functioning.

Reacting to Friday’s decision, AAP legislator Saurabh Bhardwaj said the official auditor had already probed the books of these three companies and had found discrepancies.

“I think all of you know that CAG audit is already over and it came to be known that the power discoms duped the people of Delhi of around Rs 8,000 crore.”

A press release from Cyril Amarchand summarised the operative portions of the judgment as:

1.      The words “body or authority” in Article 149 of Constitution of India and in the CAG Act are of wide amplitude and not confined 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.
2.      The direction of the Administrator of Delhi for audit of DISCOMSs 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.
3.      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.
4.      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 in the sole domain of DERC which is well empowered to itself conduct the same or have the same conducted and the report of CAG of audit of DISCOMs has no place in the Regulatory Regime brought about by the Electricity Act and the Reforms Act.
5.      Thus, the impugned direction for audit of DISCOMs under Section 20(1) of the CAG Act is quashed/ set aside.
Therefore, the petitions are allowed and the impugned directives of the GNCTD are quashed and the PIL is dismissed. All actions undertaken in pursuance of the impugned directive are also rendered inoperative and to no effect. However no costs.
The Hon’ble Delhi High Court was also pleased to observe as follows:
- Not only are the DISCOMs required to be audited in accordance with the law of the land i.e. Companies Act but function under a regulatory regime, which regime has been expressly vested with the powers of audit of the accounts of the DISCOMs if so required. Therefore, the Hon’ble Delhi High Court held that audit by the CAG of the accounts of an entity under the regulatory regime even though possible owing to such entity satisfying the test of a body or authority would be a futile exercise and not be in public interest.
- Instead of strengthening the DERC, the GNCTD has undertaken a misguided exercise by issuing a direction to the CAG to audit the accounts of the DISCOMs when the report of such audit would not have any sanctity in law for achieving the desired result. The directions for audit of DISCOMs by CAG, when the report of the CAG cannot impact the tariff, would not also serve any public interest. Already four years have elapsed in the process, when what is sought to be achieved could have very well been achieved by invoking the powers of DERC under the Reforms Act and the Regulations framed thereunder and the terms and conditions of the license issued to the DISCOMs. Such 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.
- Once it is found that audit of accounts of DICOMs by CAG, even if were to find 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 provisions of the CAG Act does not arise.

Read Delhi HC CAG Judgment (PDF)

Photo by Bhuvantoo

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