To audit or not to: The power discom dispute in court

To audit or not to: The power discom dispute in court

Years before AAP govt’s decision, a residents’ group had moved court for CAG audit of power distributors.


Years before AAP govt’s decision, a residents’ group had moved court for CAG audit of power distributors. A look at how that case stands

On January 22, the Delhi High Court will begin hearing the final arguments on a plea seeking a compulsory CAG audit of the capital’s three power distribution companies. This comes just after the high court has ruled that the CAG can audit the accounts of telecom firms, and at a time when the newly elected Delhi government has already announced a CAG audit of the three discoms, triggering objections from the latter.
The plea for having the discoms audited is nearly three years old. It was filed in February 2011 by the United RWAs Joint Action (URJA) that sought, besides the compulsory audit, an investigation by the CBI or a similar agency into allegations of fraudulent practices and manipulation of records by the three discoms — New Delhi Power Ltd (NDPL), BSES Yamuna Power Ltd and BSES Rajdhani Power Ltd.
Incidentally, senior AAP leader Prashant Bhushan is the advocate through which URJA has filed the petition.
When the government last week decided on a CAG audit by six teams, the three discoms said the government could not take such a step when the matter is being heard in court. Chief Minister Arvind Kejriwal’s counter-argument has been that the court has not issued any stay to prevent the government from ordering an audit.
The past three years have seen the parties to the case filing affidavits and counter-affidavits. In November 2013, the court noted that all written pleadings were complete.
The previous Delhi government, whose reply was sought, told the court in November 2011 that it does not have the power to request an audit of the companies as there are no provisions in the Electricity Act 2003 or the Tariff Policy of 2000 to refer the audit of private companies to the CAG.
The government felt, however, that an “occasional CAG audit” may be done, “given the need to carry the conviction of the general public and consumers” with regard to the “authenticity and claims” of the discoms. In March 2012, the government approved a CAG audit of the BSES group of companies after the former had pushed more equity into the company to maintain a 49 per cent shareholding; it informed the court of the decision on March 22.
In its plea, URJA had said the three discoms are substantially financed by grants or loans from the Consolidated Fund of India, which it argues brings them within the jurisdiction of the CAG under Section 14 of the CAG Act. Monday’s high court order allowing CAG audits of private telecom companies was based on the ground that the payment given by the companies to the Consolidated Fund comes out of the gross annual revenue of the company.
The discoms have countered the government contention by citing article 149 of the Constitution and claiming it does not permit the CAG to audit private companies.
According to the petitioner, the companies owe installments of payment to the government until June 2014, and have been receiving subsidised power from TransCo for distribution in Delhi. The discoms argue they have paid back the entire opening loan given by the government and are not getting any benefits from the subsidised rates, as all support from the government is to ensure that the tariff remains low for the consumer.
The plea notes that the Delhi Electricity Regulatory Commission, too, had recommended that the state government should seek an audit by the CAG. The discoms have submitted that the DERC does not have the power to recommend a CAG audit.
The plea cites records of the Registrar of Companies to claim that the conversion of the companies from government-owned to private entities has not been done, and says this implies they are still government bodies. The companies have rejected this claim, saying that the Memorandum of Articles of the companies and Registrar of Companies records clearly indicate a change in the names of the companies.
The Delhi government reply, incidentally, referred to the case relating to the audit of telecom companies. The government said TRAI service providers rules have provisions allowing for CAG audits but no similar provisions exist for power discoms.
In January 2012, URJA filed fresh submissions stating that under Section 20 of the CAG Act, the government could still entrust the audit to the CAG in the “public interest”.

JURISDICTION: Petitioner cites CAG Act to says discoms come under CAG Act as they are financed substantially from Consolidated Fund of India. Discoms say article 149 of Constitution bars CAG from auditing private firms.
FUNDING: Petitioner says companies owe dues to government, receive subsidised power. Discoms say they have repaid the government, don’t benefit from the subsidies.
REGULATOR: Petitioner says Delhi Electricity Regulatory Commission recommended that government seek a CAG audit. Discoms say DERC not authorised to make that recommendation.
GOVT/PVT: Petition says records show conversion to private firms not done, discoms cite records to deny this.


2011: Delhi govt tells court it does not have the power to request an audit of private companies; no such provisions in Electricity Act or Tariff Policy. It feels, however, an “occasional CAG audit” may be done.
2012: Government approves CAG audit of BSES group of companies after pushing more equity into the company.
2013: Govt orders CAG audit of discoms, CM says High Court hasn’t stayed such an audit