People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 02

January 12, 2014




Stop Private Loot of Public Resources


READERS will recall that during the Rajya Sabha discussions when it finally adopted the Lokpal legislation, the CPI(M) had moved a concrete amendment to bring into the ambit of the Lokpal investigation those private companies, particularly in public-private-partnership (PPP) projects, that use public resources or have a financial arrangement with the government.  Though there were eleven Left parties’ MPs present at the time of voting, this received 19 votes, meaning that some other well-meaning MPs supported this amendment.  However, this was overwhelmingly defeated as both the Congress-led UPA and the BJP-led NDA opposed any such check on private companies, possibly, misusing or misappropriating people’s resources or revenue that should legitimately accrue to the public exchequer. 


In this context, the recent judgment of the Delhi High Court bringing the private telecom companies in the ambit of a CAG audit is, indeed, seminal. The judgment invoked the Supreme Court’s ruling in the 2G spectrum scam case and discussed the need of utilisation of resources by a private entity being regulated.  The Delhi HC Bench of Justice Nandrajog and V K Rao relied upon the doctrine of `res communes’  that says, natural resources are vested with the State in trust for the people and it is the duty of the State to ensure proper regulation if a resource is transferred to the private domain.  Thus, the Delhi HC ordered that the CAG will limit itself to a revenue audit of the receipts of the five private telecom companies who have a revenue sharing arrangement with the government, under which they pay the national exchequer more than Rs 20,000 crore annually. It is the correctness of this amount that the CAG audit will establish.


This is entirely legitimate.  The power of the CAG to audit private firms using public resources, as the CPI(M) argued in the parliament, need not be seen as an interference in the functioning of any private firm or violating of Article 149 of the constitution that  bars CAG from auditing private firms. This is because the private telecom companies pay between 1 to 8 per cent as spectrum usage charge apart from an annual license fee. Besides ensuring that the government receives its legitimate earnings from the private telecom companies, the audit will enable the government and the people to see that the telecom operators are not under reporting revenues, part of which accrue to the public exchequer. 


In this context, the Delhi HC noted with lament how “large corporations”  indulge in a battle of circumvention.  It noted: “in critical areas of regulation, a battle of wits is constantly fought between regulators and the regulated, intent on evading compliance altogether or in producing only `creative’ compliance”.  The HC went on to say: “One only wishes that large corporates realise that the battle of wits produces perversity – a whole variety of unintended consequences which, in turn, frustrate the object of the regulation”.


Another aspect of the judgement that has a bearing on the private companies is its emphasis of “fiduciary principle of every contract”.  Any contract, the court said: “implied covenant of good faith and fair dealing because in every contract each party reposes trust and confidence in the other, that each would refrain from doing anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of contract”. 


Common sense should inform everybody that such a logic, based on the principles of natural justice, cannot be objected to.  Yet, the telecom industry bodies filed objections against a CAG audit which were rejected by the court. The president of the FICCI says that: “There is no place for CAG interfering in private companies books”, according to media reports. 


Similar are the objections to the recent decision of the Delhi government asking for an audit of the three private power distribution companies in the country’s capital.  Reliance Infrastructure holds a 51 per cent stake in BSES Rajdhani and BSES Yamuna which cater to 75 per cent of the city’s population. Tata Power holds 51 per cent in Tata Power Delhi Distribution Ltd which provides power to the rest. The Delhi government holds the remaining 49 per cent through its holding firm, Delhi Power Company Ltd, in each of these three companies. 


The plea for having these companies audited by the CAG is nearly three years old when a petition was filed in February 2011. Apart from seeking a CAG audit, this petition also sought for an investigation by the CBI or a similar agency into allegations of fraudulent practices and manipulation of records. In March 2012, the then Delhi government approved a CAG audit of the BSES group of companies. The new Delhi government has now ordered a CAG audit of all three. The Delhi HC will begin hearing the final arguments on the 2011 plea on January 22.


Since 49 per cent of these companies is owned by the Delhi government, i.e., public finances, it is only appropriate that these accounts be audited by the CAG. Yet, there is a strong opposition.  In fact, some spokesmen of India Inc. have gone to the extent of threatening that in the background of a general economic slowdown in the country, such moves of a CAG audit check of private companies will further regress the economy!


This only amounts to suggesting that the existing overwhelming prevalence of `crony capitalism’ that permits profit maximisation through means other than legitimate must remain unregulated and unchecked. Recollect the media reports that following the global financial meltdown in 2008, executives of corporate automobile giants in the USA flew in their private jets seeking bailout packages from the US president! Today, in India, lakhs of crores of rupees are declared as unreturnable loans to public sector banks, couched under a respectable term, “non-performing assets” (NPAs), yet  the corporate owners  criss cross the world in their private jets. 


For how long can the country afford such `crony capitalism’ that permits private gains at public expense?  It can only be hoped that after these significant developments, greater wisdom prevails and both the Congress and the BJP are forced in the parliament to stop patronising such `crony capitalism’ and accept the CPI(M)’s amendment in the interest of both our country and our people.  This is essential to ensure that public resources are used to improve the quality of life of our people and not placed at the disposal of private loot.

(January 8, 2014)