The Judicial Overreach – Facts, Issues and Prospects for Harmonious Growth of Institutions in a Democracy – Part IV
According to the UN, “the Principles of Good Governance are transparency and accountability, fairness and equity, efficiency and effectiveness, respect for the rule of law, and high standards of Ethical behaviour.” Each of these is a loaded principle and suggest the need for multiple ‘oversight’ bodies for ensuring that all state activities and functions are discharged in conformity with these principles and government expenditure is incurred strictly as per rules and produced the desired outcomes. The mechanism to check whether the objects of efficiency and effectiveness in implementation have been realised and government money properly utilised is ‘internal’ as well as ‘external’ to the implementing department,; it is internal audit and performance evaluation that the department carries out to satisfy itself but public interest in a democracy demands external independent statutory scrutiny of expenditure along with an assessment of whether the expenditure was incurred according to the rules and objects of the projects or service realised in full measure and if not the reasons thereof and who was responsible for the lapses and shortfall in reaching the physical, financial and social targets fixed while sanctioning of funds.
The office of the CA & AG of India created under Article 148 and Article 149 of the constitution is the apex statutory authority under whom the Accountant Generals of the State function in the State’s is responsible under Article 150 to advice the President in what form the accounts of the Union and the States shall be kept for the President to prescribe to the States; and further under Article 151, the CA&AG is to conduct Audit reports relating to the accounts of the Union and the States and submit the same to the President and the Governors of the States respectively, who shall cause them to be laid before the Parliament and the State Legislature. Thus the CA & AG covers the first main principles of Good Governance as its reports are vital instruments of accountability as when laid before the House, the Legislature which allows taxation by laws and approves budget and hence expenditure gets an opportunity to examine how the amounts sanctioned in the budget utilized and spent by the executive and outcomes achieved were commensurate with the expenditure and physical, social, financial targets fixed at the time of sanction were actually achieved, that is, a kind of cost benefit analysis with a detailed critical review of the appropriateness of the expenditure incurred by the executive represented by the designated officials at various levels.
CA & AG will also examine and audit the measures taken, their effectiveness in collection of taxes that the legislature has voted under money taxation acts. The mandate of the CA & AG therefore includes apart from examining if the Government accounts are maintained as per the system prescribed, audit of the expenditure as well as performance audit. The scope of this duty is so vital and comprehensive that a distinguished CA & AG Shri A.K. Chanda viewed CA & AG as the important constitutional authority created under the constitution for overseeing the income and expenditure of the government both at the Centre and the States and including the Central and State government undertakings and non-government organisations and autonomous bodies which substantially receive funds from the government ie State Budget. The CA&AG therefore conducts audit of accounts of about 2,50,000 bodies annually.
It should be noted that Article 148 under which the office of the CA& AG is created does not stipulate any eligibility criteria, though Article 150 lays down that the accounts of the Union and States shall be kept in such form as the President may prescribe on the advice of the CA&AG. Thus ‘ advice’ may be interpreted to mean wide ranging experience in government enabling the person appointed as CA&AG to perform the task of ensuring that not only accounts are maintained but the expenditure incurred produce the desired outcomes and this exercise called ‘Audit’, somewhat innocuous to a layman and its scope under the authority of the CA&AG generated a lot of heat right from 1950 and especially in connection with Bofors case in the 1980’s and allotment of 2G spectrum and the coal blocks to private corporate bodies in the second term of the UPA government. The issues are still fully unresolved because a section of the political class is of the view that the scope of CA&AG audit does not extend to questioning the policy of the decision regarding allotment of a resource or a work which is the prerogative of the executive while several distinguished CAG’s had from the very inception and now continue to hold that the constitutional mandate of audit included performance audit. The justification and the acceptance of necessity of a work or acquisition for which an agreement has been entered into and hence the very policy in regard to such matters as well the outcomes of the expenditure incurred in terms of public benefits.
A former Deputy Chairman of the planning commission even went to the extent of making a distinction between performance audit and performance evaluation as the latter he argued, the CA&AGs office is not professionally competent to carry out being in the realm of socio-economic analysis and not accounts keeping.
This provoked Vinod Rai who had served as CAAG to pen down his thoughts and experience in his memoirs – ‘Not just an accountant’ which is recommended for a serious study to understand the controversy which really has not died down. At the heart of this debate is a perception that audit being a kind of post-mortem examination – an inappropriate expression, though has the benefit of hindsight and cannot therefore appreciate the facts and circumstances at that point of time when the policy decision was taken and therefore often the CA&AG calculation of avoidable loss as for instance estimated at Rs 1.70 lakh crore in 2G spectrum allocation case was wide off the mark; and more often it is argued this approach of CAAG audit inhibits bold decision making already aggravated by growing RTI activism.
While there is some strength in this line of thinking one must look from the public interest perspective that is the citizens must get value for their money and hence discretionary allocation of resources by violation of rules and procedures cannot be in the public interest because they inevitably result in wrongful gain to some and lower outcomes in terms of public service. These acts are therefore deemed ‘corrupt’ and practices also’ corrupt’ the eradication of which is what good governance is all about. One way to deal with it is to strengthen the concurrent internal audit mechanism to ensure that anomalies are detected and removed before external audit and second is to encourage ‘whistle blowers’ by providing legal and administrative cover. Even if these reforms are carried out, the institutions actual role depends critically on the quality of leadership provided by the incumbent of the office.
Hence, shri A.K. Chanda’s name comes up whenever CA&AG’s role is discussed as he gave a broad definition that included examination of the substantive decision – the acceptance of necessity to take a particular course and Shri Vinod Rai for raising a debate in public domain that discretionary allotment or acquisition of costly equipment’s or allotment of contracts ultimately impose a cost on the people which can even be measured and therefore transparency demands a visible transparent system that apart from better returns to the exchequer or the society also establishes accountability. Such a dynamic approach is essential to prevent decay of a vital institution of democracy like the CA&AG of India.
Dealing with the role of audit in chapter two Vinod Rai mentioned that the then Prime Minister wanted him to dispel the impression that the bureaucracy is dogged by 3 C’s – The CAG, The CVC and The CBI, meaning together these three institutions inhibit prompt decision making in good faith for fear of actions by these bodies much later for reasons which could not have been anticipated. It should be noted that while CA&AG has not direct vigilance role, the CVC is the premier vigilance body for all categories of Central Civil Servants and CBI which function under DSPE (Delhi Police Establishment Act, 1946) is the premier criminal investigation agency of Central Government to deal with anti-corruption vigilance cases under the Prevention of Corruption Act 1948 and other crimes under the Indian penal code. In the States these are State Vigilance Commissioners and Lok Ayuktas where the States have enacted Laws to establish the office of the Lok Ayuktas to deal with all corruption cases involving public servants. One must know that following the landmark judgement of the Apex Court in Karunanidhi’s case , the definition of Public Servants in the PCA Act include the ministers and the legislators and not only Civil Servants and personnel of Central and State government undertakings.
CVC – Central Vigilance commission
CVC was established in 1964 under a Resolution of the Ministry of Home Affairs. In 2003 the CVC Act was enacted to give a statutory basis of its functioning. Under Section 3 of the CVC Act of 2003, the constitution of CVC, the appointment of Central Vigilance Commissioner and two other vigilance Commissioners including terms and conditions of appointment are laid down.
It may be noted that the main function of the CVC is to enquire or cause enquiries to be conducted by any agency including CBI into the offences alleged to have been committed under the PCA 1988 by ‘certain categories of Public Servants’ under Central Government, corporations established under a Central Act and societies and local authorities owned and controlled by Central government. One must note that only certain categories of public servants under Central Government and not all come under the purview of the CVC which means that the members of the Central and State legislatures as well as the Ministers of the Central and State governments though covered within the definition of Public Servants as per the orders of the Supreme Court in the karunanidhi case are outside the purview of the CVC. It is also to be noted that the personnel belonging to the State Civil Service are also outside the jurisdiction of the CVC.
CVC has no power to impose any penalty which is the prerogative of the concerned appointing authority of the public servants, which is the President for All-India and Central Services exercisable through the concerned ministry under the AIS and CCS ( Discipline and appeal rules) . The main role of CVC is that on receipt of a complaint either directly or on a reference made by a department or an undertaking or any authority mentioned in the Act, the CVC has the power to cause enquiry by the agencies listed under section 8 and refer its findings to the government upon completion of investigation with its recommendations.
CVC has the power under section 8 to exercise ‘superintendence‘ over the functioning of DSPE, otherwise known as CBI to cause investigation and to give direction to the DSPE/CBI with a proviso that it shall not exercise power in such a manner so as to require the DSPE/CBI to investigate or dispose any case in a particular manner. The proviso is important for ensuring autonomy of the CBI in the matters of conduct of investigations. It is also mandatory under section 19 for central government to take advice of CVC on any matters such as making of Rules and Regulations and vigilance cases involving All India Service officers.
Under section 25, CVC is to act chairperson of the committee for the appointment of the Director of Enforcement under the Ministry of Finance – a post provided under FEMA (Foreign Exchange Management Act) Act 1999. The powers of ‘superintendence’ of CVC in respect of CBI are wide and include appointment of Superintendent of Police and above in the organisation.
The CVC is the key institution to deal with corruption in the central government and may fulfil its role under Section 8 only after the institution of Lokpal will be put in place as members of Group B,C,D Services will also be brought under its purview.
It follows therefore that CVC and the CBI have to play mutually supportive role and this suggests that grant of full autonomy to the CBI in the matter of initiating enquiry or investigation against central public servants on its own volition under the PCA is not possible in the schemes under the Lokpal Act and CVC Act. There is a larger issue arising out of widening the meaning of words ‘ corrupting’ and wrongfully under the PCA ( Prevention of Corruption ) Act 1988 which exposed even bonafide decisions to charges of corruption if these resulted in pecuniary benefits to others even when the concerned official was above board and did not receive any benefit pecuniary or otherwise in any form; and what is worse, officials could even face charges of corruption for causing loss which could not have been anticipated and thus built entirely on hindsight which would inhibit decision making and thereby adversely affect delivery of public service. Considering this fact the Government has initiated steps for amending the aforesaid section of the PCA Act 1988, but the amendment is still awaited.
In this connection, the remark of the Apex Court about the CBI being ‘caged parrot’ is significant and needs appreciation. This metaphor means that just like a caged parrot twitters only the master who put the free parrot in the cage has tutored in the first place. In other words the Apex Court felt that the CBI is acting entirely at the behest of the Government that is registering cases and carrying out investigations and filing charge sheet in politically sensitive cases in a manner that suits the party in power. This was damaging because the delivery of justice and judicial system critically depend on the quality of investigation and promptness in completing the same because of the maxim that a person is presumed to be innocent till proved guilty beyond any reasonable doubt. The system of delivery of justice will be severely vitiated if the investigating agencies are allowed to be influenced and investigation manipulated by the Government as a Department or a wing of the Government might as well be a party in the matter which will be a case of institutionalising justice denial and is certain to cause trust-deficit among the general public about the judicial arm itself. The low rate of convictions in corruption cases and the fact that the ‘tainted’ politicians do not seem to suffer loss of support of their constituencies are often cited as proof of trust deficit.
To improve matters, grant of ’autonomy’ to the CBI in the matters of initiating actions under the PCA Act 1988 against any public servant unfettered by restrictions such as prior sanction of the Central Government for initiating action against an officer of the rank of Joint Secretary and above. And more importantly to initiate action suo-moto or on its own volition without any reference made to it by the government or the CVC. Both these demands have not been viewed favourably by the government till date for a basic reason that ‘ executive action’ cannot be as a matter of practice be subject to “police oversight” in any democratic polity as it upsets the delicate balance maintained in practice in the Constitutional arrangement under the separation of Powers, because any such power exercisable by the CBI will convert it into a National Police Station for receipt of complaints and since all CBI investigation reports are to be placed before the designated courts which all are supervised by the High Courts and the Supreme Courts. There is a distinct possibility of large increase in what is called “Court monitored” cases which are ‘aberrations’ and developments which if not restrained, might as well divert the attention of the courts from their substantive duty of adjudication of disputes and cause further increase in pendency’s of cases.
There is thus strength in these arguments against full autonomy to the CBI and this involves a more basic issue of institutional integrity which is not achievable simply by more autonomy as what would enable an institution to deliver is not autonomy or more powers but the quality of leadership of the institution and the competence and integrity and dedication to duty of its personnel. Regrettably this aspect has not received its due attention as press reports suggest falling standards and willingness of the leadership to succumb to various pressures. One must recall the singular achievements of Shri T.N.Sheshan and Shri vinod Rai in restoring the institutional strength and integrity of the office of the CEC and CA&AG, that they had headed respectively. If these are taken as role models by other key institutions, quality of democratic governance and governance per se will improve because in the final analysis, the democracy succeeds not because of periodic elections held regularly but by the strength of institutions and their actual functioning and the strength of its institutions depends on a mature perception of the citizens of what kind of institutions they must have for ensuring the operations of the ‘checks and balances’ mechanism.
We will briefly discuss the institutions created by the State to deal with corporate fraud viz The Serious Fraud Investigation office (SFIO) established in 2003 on the lines of such bodies in UK and US following several instances of corporate fraud causing loss to the share holders and the exchequer. Globalisation and increasingly complex and sophisticated forms of trading in hedge fund, derivatives and such other future trade speculative financial products, instant transfer of funds and facilities provided in global “tax havens” have created a fertile ground for operation of corporate fraudsters.
To understand the magnitude of the problem, the landmark judgement of the SC in Sahara Vs SEBI may be useful. Briefly stated Sahara India Real Estate Corporation (SIREC) Ltd and Sahara Housing Investment Corporation Ltd sold Optionally Fully Convertible Debentures (OFCD) to about 30 million subscribers and collected Rs 17,656 crore and the legality of this sale came up before the court after the Sahara were prohibited from offering OFCD upon rejection of the claim of the OFCD’s being in the nature of private placement. The Court held that the power of SEBI to adjudicate and investigate includes issue and transfers of security and OFCD is a security, not private placement and in fact ‘marketable securities’ which are to be listed on recognised stock exchange. The Apex Court there upon ordered to Sahara’s to refund nearly Rs. 24,000 crore to 30 million investors by depositing the amount with the SEBI. This is facilitated by inadequate regulations by SEBI and lack of any provision as in US for initiating ‘class action’ suit against corporate entity.
What is a Class action suit?
Simply put, US law allows a share holder of a company to file a class action suit before a court of law if he or the lawyer representing him is in a position to prima facie establish that the company in which he holds some shares has committed a fraud causing loss to him. The scope of class action is very wide covering consumer interest, discrimination in employment (which is rampant in India), merger and acquisition etc. There is however, no thinking in India at present to introduce the law of class action suit.
In this background and the official estimate that about one third of the top 500 companies of India are “managing” their books, the decision of the government to accept the recommendations of Naresh Chandra Committee on Corporate governance made in 2002 to set up a SFIO on the lines of SFIO in UK was an important step. However, its impact was modest for a decade as it lacked the necessary ‘ teeth’ in terms of legal power and technical capacity to deal with highly complex cases of corporate fraud; and only after SFIO was incorporated in the new Companies Act 2013 that the organisation acquired powers to investigate, arrest and prosecute the offenders.
Under Section 211 (2) of the Companies Act, the SFIO will be headed by a Director with ability , integrity and experience in related fields such as corporate affairs, banking, taxation, capital market and under Section 212, the central Government has the power to cause the investigation into the affairs of a company by SFIO. To give teeth to the SFIO, the offences under Section 447 of the Companies Act shall be “cognizable”, meaning that the offenders can be arrested by the SFIO without bail. However, under sub-section 14 of Section 212, SFIO is to submit its report to the Ministry of Company Affairs which is the final authority to order prosecution.
Thus, SFIO does not enjoy any autonomy or authority to act on its investigation reports to prosecute by submitting the case before the court. This prerogative of the central government is derived from Section 210 which implies that SFIO on its own suo-moto cannot initiate any investigation into allegations of corporate fraud before placing the matters before the government and obtaining orders for initiating the same. Though the task is huge, the SFIO is reportedly understaffed as it is functioning with half of its sanctioned posts for want of finalisation of recruitment rules and consequently its capacity to undertake investigation on a significant scale. Thus a section of the media holds the view that SFIO as an institution is a low key body unable to register its presence even after 13 years of its existence. No wonder than SFIO could secure conviction only in 6 out of 878 cases filed so far. (SFIO of UK has 78% conviction rate to its credit).
The SFIO case holds important lessons in building institutions of governance. First, the States response to deal with cases of corporate fraud which hit the electronic as well as print media like the diversion of funds by Kingfisher was kneejerk as the SFIO was neither equipped nor empowered to effectively address the complex problem, which eventually turned SFIO into a moribund organisation. And, even after SFIO was made a part of the company law, it suffers from constraints which do not allow it to play the role of strong ‘watchdog ‘. Considering also the well known nexus between the big corporate and industrial houses with the political class it is unlikely than the powers to order investigation and sanction of prosecution exercisable only by the Ministry will not be subject to political interference. Its consequence, i.e. low key functioning SFIO will not be in ‘public interest’ as corporate fraud, erodes investors confidence which does immense harm to country’s economic growth prospects.
We will now briefly look at the revamped Panchayati Raj Institutions after 73rd amendment to the Constitution to enable the PRI to serve as instruments of decentralised local self government, deepening of democracy through participatory governance with mandated women participation in PRI’s by reservation of seats and transfer of 29 development subjects to the PRI for implementation. To put these into practice the Panchayats were accorded Constitutional Status and States were to devolve funds, functions and functionaries (3 F’s ) to the PRIs. On this basis the district panchayat bodies were given under the Constitution the task of preparing a District plan and implementing the same.
However, these initiatives met with an obstacle ; under the Constitution. Local Self Government is in the State list and in pursuance of the Directive Principles of State Policy of the Constitution; every State, except those areas under the Sixth Schedule of the Constitution viz had enacted State specific Panchayat Raj Act and all such States were required to amend their Panchayati Raj Acts in conformity with the provisions of the 73rd Amendment to devolve the 3 F’s mentioned above and constitute the State Election Commission to hold periodic elections to the Panchayats.
In practice, this did not happen in a systematic manner as States did not enact conformity legislation in the true spirit of the 73rd amendment, as for instance, some States did not transfer all of 29 subjects, while some others did transfer funds or functions only partially and some did not transfer the functionaries at all. As a result the preparation of District Plans by the Zila Panchayat did not materialize in most states though the motion of preparing the same was initiated. In some States, 30% reservation of seats for women has not been implemented and in some the khap panchayats continue to dominate the rural socio-economic will.
The real cause of this uneven progress has been the lack of political will, that is the political class being unwilling to share power with grass roots level bodies and politician which might indirectly empower the local bureaucracy freed from demands of MLAs who would usually represent a merger are. Second, panchayat elections based electorate rolls prepared for holding general elections supervised by the State Election Commission have the consequence of ‘politicisation of panchayats’ that brought party politics and divisive politics especially to the grass roots – something that Gandhian’s never thought and which they abhorred.
Experience suggests that ‘politicisation’ produces the same set of problems that obstruct good governance as the State level, of which building up party strength and not allowing the institutions to function by influencing matters like settlement of contracts are most common; and these unless restrained by strong action create dissensions in the rural society on party lines as in W.Bengal during the rule of the left from which are totally opposed to the philosophy of the Panchayati Raj as it led to ‘decentralisation of corruption’ even when some good infrastructural work was done.
Another unfortunate fallout is ‘lumpenisation of politics’ as the grassroots level which in a ‘bottom up’ way has reached State level politics which is seen in the abusive dialogue on political issues – a kind of ‘no holds barred’ attitude. That has damaged the quality of public debate on ‘public issues’. One must appreciate lessons from this experience as it has created an environment which is not conducive to growth of strong institutions. In the final analysis, institution provide the ‘content’ of democracy while ‘election & electoral politics’ only its ‘form’. The conclusion is that while the PR institutions were restructured with Constitutional Status, thus this performance widely varied due to divergent perceptions of states which are in Aristotle’s work “Political Societies” governed by area specific compulsions arising out of socio-economic situations.
This brief review of institutions establishes the fact that it is easy to set up an institution of governance and even to make laws for the purpose, but it is an all together difficult task to make them competent enough to discharge these assigned functions substantively. For this to achieve there is a need for a political will which again is formed and conditioned by how the political society wants them to function. Take the case of the RBI, our Central Bank has largely lost its autonomy as it has been known to act on the ‘advice’ of the Government. Though autonomy of the central bank is viewed inseparable from the idea of a modern state, there is a close relation between institutional integrity and autonomy and the basis of autonomy is not only competence but ethical conduct and concern for public interest .Thus institutional weakness is unavoidable at same stage but if the state and political society are conscious about the need to improve and perceive their autonomy and integrity as imperative in the larger scheme of democracy functioning in the spirit of checks and balances implicit in the Separation of Powers, then only the weaknesses could be removed and integrity established and sustained.
However, this conclusion may not appeal to the youth seeking rapid progress to fulfil her/his aspirations and may suggest a total over-hauling of the system and the institutions associated with governance. The answer to such proposition is that the idea of modern state and the institutions of the governance are the outcomes of the European enlightenment, growth of science and technology, French and Industrial revolutions that which put the tax paying citizens in the core power structure of the State; and this came to be known as democracy founded on inalienable rights of citizens. Thus accountability of the executives to the legislature and the judicial review of executive action and legislation became the core institutions. This system, albeit in an imperfect form was transplanted in India without any conscious effort or design when the British Parliament enacted the Regulating Act 1773, to make the administration of territories accountable held by East India Company accountable to the Parliament in London.
This set in motion creation of institutions of governance first in Bengal Presidency which were later replicated in British India than from the Government of India Act 1861, 1919 and 1935 granting provincial autonomy to India Independence Act 1947 and the Constitution in 1950– one would notice continuity with change. Since the rise of the Indian Republic, administration narrative may be summed up as efforts to make India a ‘developed’ modern state with appropriately constituted and run institutions of governance. Civil Service is one such ‘core’ institution in the Parliamentary form of democracy. However, every political system requires a matching political culture and elections are a necessary condition of democracy but not a sufficient condition. The shortcomings of our institutions reflect the gaps in our political culture. It is thus time to recall what Thomas Carlyle, the great historian of the French revolution said “in the long run, every government is the exact symbol of the people, with their wisdom and un-wisdom”. It would be wise to recall a statement by Cassius in Shakespeare’s Julius Caesar, “The fault, dear Brutus, is not in our stars. But in ourselves “and this holds good to bring out the stark reality of the institutions in Indian set up and also world over. Therefore effort to improve institutions is a never ending process as the challenges of government are also always emerging and taking new forms.
This completes the series on Judicial Overreach and Institutional decay, that is seen and not only seen but becoming institutionalised in India. So in this regard, reader could frame his/her own perspective required for MAIN EXAMINATION.