National Dairy Development Board vs Union Of India & The Comptroller & ...
2010 Latest Caselaw 429 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI

+    Writ Petition (Civil) No. 4834/1998 & C.M. No.9784/1998
     In Writ Petition (Civil) No.2748 of 1998

                             Reserved on:23rd November, 2009.
     %                       Date of decision: 27th January, 2010.


National Dairy Development Board          ...... Petitioner
                      Through: Dr. A.M.Singhvi, Mr.Neeraj
                      Kishan Kaul, Senior Advocates with
                      Mr.Deepak Aggarwal, Ms.Shweta Bharti,
                      Mr.Sumer Brar, Mr.O.P.Agarwal and
                      Mr.Yogender Kumar, Advocates.

                    versus

Union of India and the Comptroller &
Auditor General                         ..... Respondents

Through: Mr. A.S.Chandhiok, Additional Solicitor General with Mr.Sachin Dutta, Mr.Ritesh Kumar, Mr.Sandeep Bajaj and Mr.Amandeep Singh, Advocates for UOI.

Mr.Muneesh Malhotra with Mr.A.Mishra and Mr. Y.D.Sharma, advocates for CAG.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether the Reporters of local papers may be allowed to see the judgment?

2. To be referred to Reporter or not? YES

3. Whether the judgment should be reported in the Digest? YES

SANJIV KHANNA, J.:

1. Writ Petition (Civil) No. 2748/1998 filed by National Dairy

Development Board-the petitioner (hereinafter referred to as

NDDB or the petitioner, for short) was disposed of on 20th August,

WPC No.4834/1998 & CM No.9784/1998 Page 1 1998 referring the disputes raised to be examined by a Committee

of Secretaries headed by the Cabinet Secretary. The disputes

pertain to the right of the Comptroller and Auditor General of India

(hereinafter referred to as CAG, for short) to conduct audit under

Section 14(2) of the Comptroller and Auditor General‟s (Duties,

Powers and Conditions of Service) Act, 1971 (hereinafter referred

to as CAG Act, for short) in terms of the letter dated 6th June, 1997.

2. The Committee of Secretaries heard NDDB and CAG and

came to the conclusion that resolution of the disputes requires

interpretation of the National Dairy Development Board Act, 1987

(hereinafter referred to as NDDB Act, for short) vis-à-vis provisions

of CAG Act and after hearing the representatives, permission was

granted to NDDB to pursue the writ jurisdiction in the High Court.

Consequent thereto, the NDDB filed Writ Petition (Civil) No.

4734/1998 as a substantive writ petition challenging CAG‟s right to

conduct audit in the case of the petitioner under Section 14(2) of

the CAG Act and the letter dated 6th June, 1997. C.M. No.

9784/1998 was filed for revival of the Writ Petition (Civil) No.

2748/1998.

3. It is the contention of NDDB that the NDDB Act is a special

Act and in view of the non obstante clause i.e. Section 47 giving

overriding effect to the said Act over any other law for the time

being in force, CAG does not have authority to invoke and exercise

WPC No.4834/1998 & CM No.9784/1998 Page 2 power under Section 14(2) of the CAG Act. It was submitted that

NDDB Act was enacted in 1987 and CAG Act was enacted in 1971

and the non obstante clause and the overriding provision in

Section 47 of the NDDB Act has to be given full play. Reference

was made to Section 28 of the NDDB Act which relates to audit by

an auditor appointed by the NDDB. It was submitted that NDDB is

an autonomous Board and cannot be subjected to audit by CAG

as this would erode their independence and would adversely affect

their functioning and autonomy. In the alternative it was submitted

that provisions of Section 14(2) of the CAG Act are not attracted. It

was submitted that there was no grant/loan from the CAG and at

best CAG is entitled to conduct limited audit under Section 15 of

the CAG Act as the grants/loans at best were specific grants/loans.

4. The contentions of the parties require interpretation of the CAG

Act and NDDB Act.

5. CAG Act was enacted in the year 1971 to prescribe conditions

of service of the CAG and also prescribe its duties and powers.

Chapter III of the CAG Act details the duties and powers of the

CAG. Section 10 deals with compiling and maintenance of the

accounts of the Union and the States. Section 11 stipulates that

accounts will be submitted to the President, Governors and the

Administrators. Sections 12 and 13 deal with the audit of accounts

of the Union government, States Territory and the Union territories.

WPC No.4834/1998
& CM No.9784/1998                                              Page 3
 6.   Section 14 of the CAG Act reads :

"14. Audit of receipts and expenditure of bodies or authorities substantially financed from Union of State Revenues.

1*(1) Where anybody or authority is substantially financed by grants or loans from the Consolidated Fund of India or of any State or of Union territory having a Legislative Assembly, the Comptroller Auditor-General shall, subject to the provisions of any law for being in force applicable to the body or authority, as the case audit all receipts and expenditure of that body or authority and to him port on the receipts and expenditure audited by him.

(2) Notwithstanding anything contained in sub-section the Comptroller and Auditor- General may, with the previous approval of the President or the Governor of a State or the Administrator of a Union territory having a Legislative Assembly, as the case may be, audit all receipts and expenditure of any body or authority where the grant or loan to such body or authority from the Consolidated Fund of India or of any State, or of any Union territory having a Legislative Assembly, as the case may be, in a financial year is not less than rupees one crore.

(3) Where the receipts and expenditure of any body or authority are, by virtue of the fulfillment of the conditions specified in sub- section (1) or sub-section (2), audited by the Comptroller and Auditor-

General in a financial year, he shall continue to audit the receipts and expenditure of that body or authority for a further period of two years notwithstanding that the conditions specified in sub-section (1) or sub-

section (2) are not fulfilled during any of

WPC No.4834/1998 & CM No.9784/1998 Page 4 the two subsequent years. 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. Functions of Comptroller and Auditor- General in the case of grants or loans given to other authorities or bodies."

7. Under Sub-section (1) to Section 14, CAG has power to

audit all receipts and expenditure of any body or authority which is

substantially financed by grants or loans from the Consolidated

Fund of India (hereinafter referred to as the CFI, for short), by a

State or a Union Territory having a Legislative Assembly. The term

"substantially financed" has been defined in the Explanation.

Section 14(1) of the CAG Act, however, is subject to provisions of

any other law for the time being in force applicable to the body or

authority. Section 14(1) therefore accepts that power of the CAG

under the said Sub-section can be curtailed, conditional or even

prohibited under any law for the time being in force as applicable

to the said body or authority. Right of CAG under Section 14(1) is

vulnerable and amenable to restrictions or bar under another law.

8. Section 14(2) of the CAG Act stipulates that notwithstanding WPC No.4834/1998 & CM No.9784/1998 Page 5 anything contained in Section 14(1), CAG may with a prior

previous approval of the President, Governor or the Administrator

of an Union Territory audit all receipts and expenditure of any body

or authority which has been given grant/loan from the CFI or the

State or Union Territory having a Legislative Assembly in a

financial year of not less than Rs.1 crore. Section 14(2) of the CAG

Act is a non obstante sub-section which applies even if a body or

authority cannot be subjected to audit of receipts and expenditure

under Sub-section (1). Irrespective of the prohibition or bar under

Sub-section (1) to Section 14 of the CAG Act, CAG has power and

authority to conduct audit under Section 14(2). Thus, Section

14(2) of the CAG Act is an independent Section which will apply

once the conditions mentioned in the said Section are satisfied.

Further if the conditions mentioned in Sub-section (2) of Section 14

of the CAG Act are satisfied the fact that the authority or the body

cannot be subjected to audit under Sub-section (1) of Section 14 is

irrelevant.

9. Section 15 of the CAG Act reads:

"15. (1) Where any grant or loan is given for any specific purpose from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly to any authority or body, not being a foreign State or international organisation, the Comptroller and Auditor-

General shall scrutinise the procedures by which the sanctioning authority satisfies itself as to the

WPC No.4834/1998 & CM No.9784/1998 Page 6 fulfillment of the conditions subject to which such grants or loans were given and shall for this purpose have right of access, after giving reasonable previous notice, to the books and accounts of that authority or body:

Provided that the President, the Governor of a State or the Administrator of a Union territory having a Legislative Assembly, as the case may be, may, where he is of opinion that it is necessary so to do in the public interest, by order, relieve the Comptroller and Auditor- General, after consultation with him, from making any such scrutiny in respect of any body or authority receiving such grant or loan.

(2) Except where he is authorised so to do by the President, the Governor of a State or the Administrator of Union territory having a Legislative Assembly, as the case may be, the Comptroller and Auditor-General shall not have, while exercising the powers conferred 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."

10. Section 15 of the CAG Act applies when a loan or grant is

made from the CFI or by a State or Union Territory having

Legislative Assembly to any authority or body for a specific

WPC No.4834/1998 & CM No.9784/1998 Page 7 purpose. In such cases, CAG is entitled to scrutinize the

procedures by which the sanctioning authority had satisfied itself

as to the fulfillment of the conditions subject to which grant or loan

was granted. The audit enquiry under Section 15 of the CAG Act is

limited to scrutiny of the procedures followed by the sanctioning

authority i.e. department of the government, to satisfy whether the

body or authority had fulfilled the requisite conditions on which the

loan or grant was granted. For this purpose, the CAG has a right to

access the books and accounts of the authority or the body to

which grant is given for a specific purpose. Under Section 15,

therefore, there is no audit of the authority or the body unlike

Section 14(2) where there is audit of receipts and expenditure of

the authority or the body. CAG under Section 15 scrutinises the

account/records of the sanctioning authority to ensure that the

proper procedures were followed by the said department to satisfy

themselves that the conditions for grant of loans were complied

with. Section 15(2) of the CAG Act further stipulates that CAG

does not have right to access books and accounts of any

corporation to which loan or grant has been granted, if under law,

accounts of the said corporation are audited by an agency other

than CAG, except when authorized by the President, the Governor

or Administrator as the case may be. The said authorisation can

be granted by the President, the Governor or the Administrator

WPC No.4834/1998 & CM No.9784/1998 Page 8 after giving reasonable opportunity to the authority or body.

Inter play between Sections 14(2) and 15 of the CAG Act :

11. Sections 14(2) and 15 of the CAG Act are independent

sections. They come into operation when the pre-conditions

mentioned in the said sections are satisfied. They may overlap or

both the provisions may become applicable in some cases but this

by itself does not mean that Section 15 overrides Section 14(2) of

the CAG Act or vice versa. They being independent provisions will

come into operation once the conditions mentioned in the said

sections are satisfied. The said provisions co-exist and are not

contradictory.

12. As held above, Section 15 does not confer right to conduct a

general audit of the books and accounts of the authority or the

body to which loan or grant is made from the CFI or by the State

Government or the Union Territory. Section 15 authorises CAG to

conduct scrutiny of the records of the sanctioning authority to

satisfy themselves that procedures were followed and the

sanctioning authority had taken care to satisfy themselves about

fulfillment of the conditions on which the loan/grants were granted.

CAG is not permitted to have access to books and accounts of any

corporation to whom loan or grant is given if otherwise CAG

cannot conduct audit of the said corporation. In such cases, CAG

can inspect the books of accounts only if it is authorized to do so

WPC No.4834/1998 & CM No.9784/1998 Page 9 by the President, Governor or the Administrator. Such

authorization can be given after consultation with the CAG and

after giving reasonable opportunity of making a representation to

the concerned corporation. Once permission is granted and

conditions of Section 14(2) are satisfied, CAG has the right to audit

receipts and expenditure of the concerned body or authority to

whom loan or grant of more than Rs. 1 crore is given from the CFI

or State Government or Union Territory in a financial year. The

audit is that of the body or authority which has been given a

grant/loan of more than Rs.1 crore. The scope of audit pertains to

the receipts and expenditure of the said body or authority and is

not limited as in the case under Section 15 where CAG is

concerned with scrutiny of the procedures followed by the

sanctioning authority and for this purpose CAG can examine the

books and accounts of the body or authority to satisfy whether the

said conditions on which the loan/grant was made were satisfied.

Section 19 of the CAG Act and its scope

13. Section 19 of the CAG Act reads:

"19. (1) The duties and powers of the Comptroller and Auditor-General in relation to the audit of the

WPC No.4834/1998 & CM No.9784/1998 Page 10 accounts of Government companies shall be performed and exercised by him in accordance with the provisions of the Companies Act, 1956 (1 of 1956).

(2) The duties and powers of the Comptroller and Auditor-General in relation to the audit of the accounts of corporations (not being companies) established by or under law made by Parliament shall be performed and exercised by him in accordance with the provisions of the respective legislations.

(3) The Governor of a State or the Administrator of a Union territory having a Legislative Assembly may, where he is of opinion that it is necessary in the public interest so to do, request the Comptroller and Auditor-General to audit the accounts of a corporation established by law made by the Legislature 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."

14. Section 19 of the CAG Act is a clarificatory provision. It does

not confer any special or new powers on the CAG. Sub-section (1)

stipulates that CAG will carry out audit of accounts of the

Government companies in accordance with the provisions of the

Companies Act, 1956. Sub-section (2) to Section 19 stipulates that

audit of accounts of a corporation; not being companies,

WPC No.4834/1998 & CM No.9784/1998 Page 11 established by or under the law made by Parliament shall be

performed and exercised in accordance with the provisions of the

respective legislations. In so far as corporations established by the

State Governments, Union Territory are concerned, CAG can audit

the accounts of a corporation on a request made by the Governor

or the Administrator of the Union Territory having Legislative

Assembly. However, in such cases the concerned corporation has

to be given a reasonable opportunity to make a representation

when there is a proposal for audit by the CAG.

15. It is not possible to accept the contention of the petitioner

that Section 19(2) has the effect of overriding Section 14(2) and

other provisions of the CAG Act. Section 19(2) has to be read

harmoniously along with Section 14(2) of the CAG Act keeping in

mind the object and purpose behind the two provisions. Section

19(2) protects the power and the right given to the CAG to audit

accounts of the corporations under the law made by the

Parliament by which they were established. Thus, Section 19(2)

clarifies as a matter of abundant caution that CAG will continue to

exercise right to audit when the said power or right has been

conferred by any enactment of the Parliament under which the

corporation was established. This does not mean that CAG cannot

conduct any audit under Sections 14(2), 14(1) or 15 of the CAG

Act in respect of any corporation when under the respective

WPC No.4834/1998 & CM No.9784/1998 Page 12 legislation annual financial audit is not undertaken by the CAG.

Sections 14 and 15 are independent and authority of the CAG to

conduct audit depends upon the satisfaction of the conditions

mentioned in the said sections. The requirement of Section 19(2)

cannot be read into and made part and parcel or a pre-condition

for invoking Sections 14 and 15 of the CAG Act. In a given case,

audit by CAG may be permissible under Sections 14 or 19 of the

CAG Act or scrutiny may be permissible under Section 15 of the

CAG Act. If audit under Section 19(2) is to be done then of course

resort to Section 14(2) or Section 15 may not be required.

However, CAG has the right to conduct audit under Sections 14(2)

and 15 even when it does not have authority to conduct audit

under the statute by which the corporation has been established.

In case the interpretation put forward by the petitioner is accepted,

Section 14(2) would not be applicable to corporations established

by the Parliament, State Legislatures or Union Territories having

Legislative Assembly unless the conditions mentioned in Sub-

Sections (2) and (3) to Section 19 are satisfied. This will be

contrary to the language of as well as purpose and objective

behind Sections 14(2) and 15 of the CAG Act. These sections will

be rendered almost meaningless and superfluous. This is not the

intention behind section 19(2) and (3) of the CAG Act.

WPC No.4834/1998
& CM No.9784/1998                                             Page 13

Section 47 of the NDDB Act and over-riding effect

16. My attention was drawn to Section 47 of the NDDB Act which reads:

"47. Act to have overriding effect.- The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Companies Act, the Industrial Disputes Act, 1947 or any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act, or in any decree or order of any Court, tribunal or other authority."

17. Section 47 is a non obstante clause which stipulates that the

provisions of the NDDB Act will have overriding effect even if they

are inconsistent with the Companies Act, Industrial Disputes Act or

any other law for the time being in force on the date when the said

Act was enforced. However, the key to application of Section 47 is

to examine whether there is anything inconsistent between the

provisions of the NDDB Act and section 14(2) of the CAG Act. In

this regard, reference was made to Section 28 of NDDB Act which

reads:

"28. Audit. (1) The accounts of the National Dairy Development Board shall be audited by auditors duly qualified to act as auditors of companies under the Companies Act, and the appointment of auditors and remuneration payable to them shall be subject to the approval of the Central Government.

(2) Every auditor in the performance of his duties shall have at all reasonable times access to

WPC No.4834/1998 & CM No.9784/1998 Page 14 books, accounts and other documents of the National Dairy Development Board.

(3) The auditors shall submit their report to the Board which shall forward a copy of their report to the Central Government."

18. Section 28(1) states that accounts of NDDB will be audited

by auditors and not by the CAG by necessary implication. Anyone

authorized to work as an auditor under the Companies Act can be

appointed as an auditor of NDDB and their appointment and

remuneration is subject to approval of the Central Government.

The report of the auditors under Sub-section (3) to Section 28 is to

be forwarded to the Central Government. Section 19(2) of the CAG

Act protects audit of accounts of corporations established by law

under the respective Parliamentary enactment. In view of Section

19(2) of the CAG Act and Section 28 of the NDDB Act there is no

conflict between the two Acts.

19. However, it is not possible to accept the contention of the

petitioner that Section 47 read with Section 28 of the NDDB Act is

in conflict and overrides Section 14(2) or Section 15 of the CAG

Act. The said provisions operate in different fields and serve

different purpose or object. Section 19(1) and (2) of the CAG Act

and Section 28 of the NDDB Act deal with the normal financial

audit exercise which is undertaken each year. This audit is to be

done by a qualified auditor under the Companies Act and

WPC No.4834/1998 & CM No.9784/1998 Page 15 whose appointment is approved by the Central Government. All

companies have to get their accounts audited from an independent

auditor and this ensures transparency and enables the stake

holders to know the true and correct state of financial affairs and

whether necessary statutory compliances have been made.

20. Audit of the receipts and expenditure under Section 14(2) of

the CAG Act serves a different purpose and objective. It is different

from statutory annual financial audit under the Companies Act or

the provisions of the enactment under which the corporation has

been established. Audit and role of CAG is different from a

statutory annual audit and role of a statutory auditor. Statutory

auditor is primarily concerned with the financial position/affairs of

the company or the corporation, maintenance of accounts and

records and whether statutory compliances have been made. Role

of CAG is much wider and is not merely concerned with normal

scrutiny of accounts, fraud, misfeasance etc. but includes

enquiries into aspects like "faithfulness, wisdom and economy" in

expenditure and receipts. The CAG not only examines whether

the corporation has acted in conformity with the prescribed law,

rules and procedure but also whether there was improper,

extravagant or infructuous expenditure. Audit by CAG is in the

nature of appropriation audit in which CAG also examines whether

the expenditure was imprudent or wasteful and connected aspects.

WPC No.4834/1998
& CM No.9784/1998                                             Page 16

Examining the role of CAG, the Central Public Accounts

Committees‟ Fourth Report in Lok Sabha had observed:

"The Committee are, therefore, definitely of the view that it is the function of the Comptroller and Auditor General to satisfy himself not only that every expenditure has been incurred as per prescribed rules, regulations and laws, but also that it has been incurred with "faithfulness, wisdom and economy". If, in the course of his audit, the Comptroller and Auditor General becomes aware of facts which appear to him to indicate an improper expenditure or waste of public money, it is his duty to call the attention of Parliament to them, through his Audit Reports. At the present time when there is heavy taxation and heavy expenditure, the Committee hope that Comptroller and Auditor General will pay even greater attention than in the past to this aspect of his duties and that Government will given him every facility to perform them.‟

21. Different type of audits, which are undertaken by the CAG is

apparent when we examine Regulation on Audit and Accounts,

2007 (hereinafter referred to as, the Regulations for short) framed

under Section 23 of the CAG Act. The term "audit" has been

defined in Regulation 2(5) to mean examination of accounts,

transactions and records in performance of duties and exercise of

powers prescribed under the Constitution and the Act and includes

performance audit or any other type of audit. Under Regulation 4,

objectives of the audit have been defined as:

"4. Broad objectives of audit.

The broad objectives of audit are to ensure legality, regularity, economy, efficiency and

WPC No.4834/1998 & CM No.9784/1998 Page 17 effectiveness of financial management and public administration mainly through assessment as to:

(l) whether the financial statements are properly prepared, are complete in all respects and are presented with adequate disclosures (financial audit);

(2) whether the provisions of the Constitution, the applicable laws, rules and regulations made thereunder and various orders and instructions issued by competent authority are being complied with (compliance audit); and

(3) the extent, to which an activity, programme or organisation operates economically, efficiently and effectively (performance audit)."

22. Thus the audit can be financial, compliance audit and

performance audit. Financial audit is normally undertaken by the

auditors under the provisions of the Companies Act or the relevant

enactment. Auditors can deal with some aspects of compliance

audit when they submit audit report under the Income Tax Act,

1961 and when they report compliance of the provisions of the

Companies Act or other statutory enactments. However, statutory

or annual auditor normally does not perform duties and functions

of a performance audit unless specifically asked for or required.

The scope and purpose of performance audit is different.

23. This is apparent when we examine the Regulations, which

separately deal with financial, compliance and performance audit.

Chapter V of the Regulations deals with financial audit. Chapter VI

deals with compliance audit and has two separate headings

WPC No.4834/1998 & CM No.9784/1998 Page 18 relating to audit of expenditure and audit of receipts. There is also

a separate heading under Chapter VI relating to audit of grant in

aids and loans. Regulation 69 in Chapter VII deals with

performance audit and explains the three objectives of

performance audit; economy, efficiency and effectiveness and

reads:-

"69. Three Es of performance audit.

Performance audit assesses:

(a) Economy - Economy is minimising the cost of resources used for an activity, having regard to appropriate quality. Economy issues focus on the cost of the inputs and processes. Economy occurs where equal-quality resources are acquired at least cost.

(b) Efficiency - Efficiency is the relationship between the output, in terms of goods, services or other results and the resources used to produce them. Efficiency exists where the use of financial, human, physical and information resources is such that output is maximised for any given set of resource inputs, or input is minimised for any given quantity and quality of output.

(c) Effectiveness - Effectiveness is the extent to which objectives are achieved and the relationship between the intended impact and the actual impact of an activity. Effectiveness addresses the issue of whether the scheme, programme or organisation has achieved its objectives."

WPC No.4834/1998 & CM No.9784/1998 Page 19

24. Chapter VIII of the Regulations deals with audit of body and

authority other than Government establishments and companies.

The term "body and authority" has been defined as:

"79. Meaning of the expression 'body' and 'authority'

The expression „authority‟ means a person or body exercising power or command vested in it by virtue of the Constitution or any law made by the legislature. The expression „body‟ means an aggregate of persons, whether incorporated or unincorporated, and includes an institution or organisation set up as an autonomous organisation under a specific statute or as a society registered under the Societies Registration Act, 1860 or Indian Trusts Act, 1882 or any other statute, voluntary organisation or non-Government organisation, urban or rural local self Government institution, co-operative society, society or club, etc."

25. Regulation 82 thereafter deals with audit under Section 14(1)

and (2) and Regulation 88 deals with audit under Section 15 of the

CAG Act.

26. Part (d) of Chapter VIII deals with audit of corporation set up

by or under the law made by the Parliament as stipulated in

Section 19(2) of the CAG Act. Part (e) deals with audit under

Section 19(3) of the CAG Act and Regulation 107 deals with

conditions of audit under Section 20(1) of the CAG Act. Chapter IX

of the Regulation deals with audit of the Government companies

under Section 19(1) of the CAG Act and defines the role of CAG

WPC No.4834/1998 & CM No.9784/1998 Page 20 with regard to audit by a statutory auditor. The regulations

therefore draw a clear distinction between audit under Sections 14,

15 and 19(1) and (2) of the CAG Act. These are separate types of

audits.

27. Under Section 20 of the CAG Act, on request made by the

President, Governor of a State or Administrator of a Union territory

having Legislative Assembly, CAG can conduct audit of accounts

of a body or authority even when he is not entrusted and required

under Section 19 of the CAG Act to conduct audit. The request for

conducting audit in such cases can be made after consultation with

CAG. Under Section 20(2) of the CAG Act, the CAG can also

submit a proposal to the President, Governor of a State or the

Administrator of a Union territory having a Legislative Assembly

that they may be authorized to undertake the audit of accounts of

any body or authority, the audit of the account of which has not

been entrusted to them by law, if CAG is of the opinion that

substantial amount has been invested in, or advanced to, such

body or authority. Thus, under Section 20 of the CAG Act, CAG

can conduct audit even if under Section 19, CAG does not have

authority to conduct statutory audit.

28. NDDB Act is a special Act and the same was enacted in

1987, subsequent to CAG Act, which was enacted in 1971. CAG

Act is also a special Act, which deals with power and functions of

WPC No.4834/1998 & CM No.9784/1998 Page 21 CAG and stipulates their powers, functions and contours. It is not

possible to accept the contention of the petitioner that CAG Act is

a general Act in relation to NDDB Act. Both Acts are special Acts

and, therefore, ordinary principle that a special law overrides a

general law cannot afford any solution to the legal questions

raised.

29. NDDB Act was enacted to constitute a body corporate and

have NDDB as an institution of national importance with regard to

milk, milk products and other commodities. Assets and all properties

belonging to Indian Dairy Corporation were vested with NDDB. The

said board is to discharge functions and act on sound business

principles with due regard to public interest. NDDB has been

granted fair decree of autonomy and freedom and is not treated

and regarded as a department of the government. NDDB Act

ensures that the Board‟s autonomy is safeguarded and that Board

does not suffer from disadvantages and problems associated with

and faced by the government departments. At the same time,

NDDB does serve the public purpose and to this extent, the NDDB

Act does provide for regulatory supervision/control. Section 25 of

the NDDB Act prescribes restriction on receipt of gifts, grants and

donation from foreign government or any other source outside

India without the prior Central Government approval. Section 27

deals with appointment of Auditor and his remuneration and

WPC No.4834/1998 & CM No.9784/1998 Page 22 requirement to submit audit report to the Central Government.

Section 29 provides that report of the Auditor will be placed before

the Parliament as soon as may be after such report is received by

the Central Government. Section 23 states that the Board with

previous approval of the Central Government or in accordance

with the terms of any general or special authority given to it by the

Central Government can borrow money from sources. Section 24

stipulates that the Central Government after due appropriation

made by the Parliament by law can give grants or loan to NDDB.

Section 16 (4) & (5) also authorize the Central Government or the

State Government to entrust NDDB with activity other than those

specified and need for approval of the Central Government in case

NDDB wants to participate in any organization in financial manner

or in any other manner. The contention that if CAG conducts audit

under section 14(2) of the CAG Act, autonomy and freedom of the

NDDB will be compromised contrary to the provisions of the NDDB

Act, is rejected.

30. While determining the question of overriding effect of the

NDDB Act or the CAG Act, I have considered the purpose and

policy underlying the two Acts and the intendment conveyed by the

language of the provisions of the two enactments. This principle of

interpretation was approved by the Supreme Court in Shri Ram

Narain Vs. Simla Banking and Industrial Co. Ltd. AIR 1956 SC

WPC No.4834/1998 & CM No.9784/1998 Page 23 614 and Sarwan Singh Vs. Kasturi Lal AIR 1977 SC 265. In

Sarwan Singh‟s case (supra) it was held that fair meaning has to

be given to the language of a provision. Keeping in view the

language of the provisions of the two enactments, the test that the

later enactment must prevail over the earlier one cannot be

applied. In the present case, the two enactments can be

interpreted and so called "conflict" resolved by reference to

purpose, objective and policy in the two enactments and

intendment conveyed by the language of the relevant provisions.

This principle was approved by the Supreme Court in Ashoka

Marketing Ltd. Vs. Punjab National Bank (1990) 4 SCC 406 . In

the said case, the Supreme Court was examining the effect of the

overriding provision of the Public Premises (Eviction of

Unauthorized Occupants) Act, 1971 and the Delhi Rent Control

Act, 1958 and the resultant conflict. In the said judgment, it was

observed as under:-

"61. The principle which emerges from these decisions is that in the case of inconsistency between the provisions of two enactments, both of which can be regarded as Special in nature, the conflict has to be resolved by reference to the purpose and policy underlying the two enactments and the clear intendment conveyed by the language of the relevant provisions therein. We propose to consider this matter in the light of this principle".

WPC No.4834/1998 & CM No.9784/1998 Page 24

31. As noticed above, both CAG Act and the NDDB Act contain

non obstante clauses. The ordinary rule of construction is that later

enactment with non obstante clause will prevail but application of

this rule depends upon the context of the statute incorporating the

non obstante clause. Each non-obstante clause is to be given

effect to but can be confined and restricted keeping in mind the

legislative policy. In A.G. Vardarajulu and Another Vs. State of

Tamil Nadu and Others (1998) 4 SCC 231 , the Supreme Court

has observed:-

"16. It is well settled that while dealing with a non-obstante clause under which the legislature wants to give overriding effect to a section, the court must try to find out the extent to which the legislature had intended to give one provision overriding effect over another provision. Such intention of the legislature in this behalf is to be gathered from the enacting part of the section. The Court has referred to Aswini Kumar Ghose v Arabinda Bose AIR 1952 SC369, "The enacting part of a statute must, where it is clear, be taken to control the non obstante clause where both cannot be read harmoniously."

32. A non obstante clause is no doubt a very potent clause and

is intend to exclude every consideration arising from other

provisions of the same statute or other statute, as the case may

be, and therefore has to be strictly construed, specially, when it

WPC No.4834/1998 & CM No.9784/1998 Page 25 does not refer to any specific provisions of the statute but refers

generally to all enactments in existence. CAG Act is not

specifically referred to in Section 47 of the NDDB Act. Search in

the present case has to be made with a view to determine the

scope of the non-obstante clause and decide, whether and which

provision, aspects and description are covered by the non-obstante

clause. Legislative intention, scheme and the context in which the

non-obstante clause is enacted is required to be examined on

reading the whole statue. Contextual interpretation may be required

and has been made, without ignoring the textual language. In R.S.

Raghunath Vs. State of Karnataka 1992 1 SCC 335 reference was

made to earlier decision of the Supreme Court in Reserve Bank of

India Vs. Peerless General Finance and Investment Co. Ltd.

(1987)1 SCC 424 and it was observed as under:-

"Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and WPC No.4834/1998 & CM No.9784/1998 Page 26 appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place."

"11. ... the non obstante clause is appended to a provision with a view to give the enacting part of the provision an overriding effect in case of a conflict. But the non obstante clause need not necessarily and always be coextensive with the operative part so as to have the effect of cutting down the clear terms of an enactment and if the words of the enactment are clear and are capable of a clear interpretation on a plain and grammatical construction of the words the non obstante clause cannot cut down the construction and restrict the scope of its operation. In such cases the non obstante clause has to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the legislature by way of abundant caution and not by way of limiting the ambit and scope of the Special Rules."

33. It was submitted that the petitioner does not receive any loan

or grant from CFI and the grants received by the petitioner were

pursuant to the tripartite agreement between the World Bank, the

Central Government and the NDDB. This contention has no merit

WPC No.4834/1998 & CM No.9784/1998 Page 27 as in this case there was no disbursal of available funds from the

World Bank under Section 25 of the NDDB Act. There is difference

between loans and grants given by the Central Government under

Section 24 and gifts and grants received directly from private

parties under section 25 of the NDDB Act. The World Bank

disbursed and made funds available to the Central Government

and thereafter grants were made by the Central Government from

the CFI to the petitioner. The immediate source of the funds was

the CFI though funds may have originated from and could be

traced to the World Bank. As per the tripartite agreement accepted

by the NDDB, the funds/grants had come and were made available

from the CFI. These loans/grants were under section 24 of the

NDDB Act. In these circumstances, Section 14 (2) of the CAG Act

would be applicable, if the total amount of grant from loan from the

CFI exceeded Rs. 1 crore. Admitted position is that total

disbursements made to NDDB from the CFI exceeded Rs.1 crore.

34. In the light of the aforesaid, I do not find any merit in the

contentions raised by the petitioner. The writ petition and the

application are liable to be dismissed. However, during the course

of hearing counsel for the CAG had produced before me letter

dated 20th November, 2009, stating inter alia, that no useful

purpose would be served in auditing old accounts for the period

1987 to 1994 at this stage, and therefore, CAG is not any more

WPC No.4834/1998 & CM No.9784/1998 Page 28 interested in the said audit. CAG made a request that as question

of law had arisen for consideration, the same should be decided.

The said letter has been taken on record and question of laws

relating to the provisions of the CAG Act and NDDB Act have been

decided. No costs.

(SANJIV KHANNA) JUDGE JANUARY 27, 2010.

P/NA




WPC No.4834/1998
& CM No.9784/1998                                         Page 29