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The accountability of CAG

Its report on the allocation of coal blocks is marred by a major legal error

Written by G Mohan Gopal |
September 10, 2012 3:31:21 am

Its report on the allocation of coal blocks is marred by a major legal error

The legal fraternity celebrated the 50th anniversary of the Supreme Court of India in 2000 with a book,Supreme,But Not Infallible. The unusual title of the book was a powerful way for the legal fraternity to remind itself,and the public,that the highest court in the land is fallible,that it can and does make mistakes.

The ongoing controversy over the CAG report on the allocation of coal blocks is a salutary reminder to the country that the CAG,another “supreme” accountability institution,is also not infallible. The CAG audit report on the allocation of coal blocks suffers from a grievous legal error that goes to the root of the report and vitiates its conclusions.

The CAG’s argument is that the delay in introducing competitive bidding to issue mining leases could/ should have been avoided by the Centre through administrative orders,instead of amending the law. What the CAG failed to recognise is that legally the legislative amendment route could not have been avoided. Establishing “the competitive route,through administrative arrangements”,as endorsed by the CAG,would have been illegal.

The facts are straightforward. Under the law prevailing at the time,only state governments had the power to issue mining leases.

Section 10 of the Mines and Minerals (Development and Regulation) Act,1957,says that applications for permits and mining leases in respect of any land in which the minerals vest in the government shall be made to the state government. Section 10 also says that “on receipt of an application under this section,the state government may,having regard to the provisions of this Act and any rules made thereunder,grant or refuse to grant the licence or lease.” With respect to coal,the Central government can approve the decision of the state government prior to the issuance of the concession,this approval role being required precisely because the Centre did not have the power to select the allottees in the first place,through competitive bidding or otherwise. The purpose of the central approval is to ensure that requirements under Central laws were complied with,rather than to substitute the power of the state government.

In the face of this explicit statutory provision,it would have been illegal for the Centre to do what the CAG endorses — introduce competitive bidding through administrative procedures giving the Central government the power to select licencees. A statute cannot be violated by or amended through administrative procedures. Such a move would have illegally usurped the statutory right of state governments to select the licencee. Allotments could have been struck down and the entire effort at coal development would have gone for a six.

In its first opinion on the question,the ministry of law stated (erroneously) in 2006 that the Centre could make this policy change under existing law through administrative mechanisms. It has been suggested that this opinion did not consider the provisions of the Mines and Minerals Act. It was soon corrected. After full deliberation,in September 2006,the law secretary is said to have stated categorically that the amendment route was the most appropriate option available.

The CAG appears to have mistaken the Central government-chaired screening process that was introduced in 1993 to facilitate and expedite the licensing process prior to states receiving and processing applications for mining licences,for the actual selection of licencees and the grant of mining licences. The CAG failed to recognise that this screening process was merely that — a screening process of applications. It was not a substitute for the statutory process of applications to and grants by state governments of mining licences with the approval of the Centre. The screening process created no legal rights,although it did acquire an excessive and misleading bluster. It loosely used erroneous language not found in the law,such as “allotment of coal blocks” — language adopted and used in the CAG report. But that is no excuse for the CAG failing to understand its actual legal nature.

Was six years too long to make the legislative change? States have much benefit in this power to issue mining concessions — especially the leverage to extract additional concessions in return for the grant. Divesting state governments of this power and transferring it to the Centre will naturally be strongly resisted by the states,as it was. Coal and lignite bearing states strongly objected. Vasundhara Raje,then chief minister of Rajasthan,is said to have written to the prime minister opposing the move,as it would curtail the powers of the states and,as she put it,infringe on the spirit of the Sarkaria Commission. The chief secretaries of West Bengal and Chhattisgarh are also said to have opposed the move.

It is strange that a supreme audit institution would calculate losses arising from obeying the law and preferring a legislative route for amending policy.

The country is needlessly paying a high price for these errors by a “supreme” institution: political crisis and a parliamentary stalemate. This is because,separate from review by the PAC and Parliament — which are liable to be held hostage for partisan political grounds as we are now witnessing — there is no mechanism for the CAG itself to correct its own errors,as the Supreme Court does through review and curative petitions.

We need to strengthen the capacity of the office of the CAG,an institution of supreme importance. Should the constitutional auditor lack multi-disciplinary capacity,including in law,if it is to take up the complex challenges of performance auditing? Should we professionalise the CAG with chartered accountants and professional auditors rather than rely only on bureaucrats trained on the job? Should we continue to treat the CAG office as an end-of-career preserve for IAS officers who typically have no training or standing in the auditing field? Should we rethink our institutional architecture to distinguish audits from independent evaluation? Should we strengthen accountability — for example,given that a CAG report has endorsed a course of action that violates a statute,why has no one called for the resignation of the CAG?

The writer is director,Rajiv Gandhi Institute for Contemporary Studies,Delhi,and former vice-chancellor,National Law School of India University,Bangalore

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