⚖️ Constitutional Audit Law — Study Notes
Comptroller & Auditor General's
(Duties, Powers & Conditions
of Service) Act, 1971
Chapter I
Preliminary
SEC. 1
Short Title & Background
- 📜Full name: Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971.
- 📅Came into force: 15 December 1971. Enacted under Articles 148(3) and 149 of the Constitution.
- 🔄Replaces the CAG (Conditions of Service) Act, 1953 and the Government of India (Audit & Accounts) Order, 1936.
- 📋Covers: (a) salary and service conditions of the CAG; (b) duties and powers in relation to accounts and audit of Union, States, UTs, and other bodies.
SEC. 2
Definitions
| Term | Meaning |
|---|---|
| Accounts | For commercial undertakings — includes trading, manufacturing, P&L accounts, balance sheets and other subsidiary accounts. |
| Appropriation Accounts | Accounts relating expenditure to specific heads as authorised by Parliament/Legislature under the Constitution or GOT Act, 1963 — for Consolidated Fund of India, a State, or a UT with Legislative Assembly. |
| CAG | Comptroller and Auditor-General of India appointed under Article 148 of the Constitution. |
| State | A State specified in the First Schedule to the Constitution. |
| Union | Includes a Union Territory — whether or not having a Legislative Assembly. |
Chapter II
Salary & Other Conditions of Service
Salary
= SC Judge
Equal to salary of a Judge of the Supreme Court
Term of Office
6 years
Or age 65 — whichever is earlier
Pension (post-1987)
= SC Judge
Equal to pension of a Judge of the Supreme Court
Resign — To
President
By writing under hand addressed to the President
SEC. 3
Salary
- 💰Salary = salary of a Judge of the Supreme Court.
- ✂️If the CAG was already drawing a pension for previous service before assuming office → salary is reduced by: (a) the amount of that pension; and (b) the commuted value of any portion of pension received in lump sum.
- 📌Disability/wound pension is excluded from the deduction.
SEC. 4
Term of Office
- 📅Term: 6 years from date of assuming office.
- 🎂If he reaches age 65 before completing 6 years → vacates on attaining 65.
- ✉️May resign at any time by writing addressed to the President.
- 📌For a CAG holding office before this Act commenced, the 6-year term is counted from the date he had originally assumed office.
SEC. 5
Leave
- 🔹Former Govt. servant: Leave as per rules of his previous service; can carry forward leave credit from that service — but only during tenure, not after.
- 🔹Any other person: Leave as per IAS rules.
- 🔑Power to grant, refuse, revoke or curtail leave vests in the President.
SEC. 6
Pension — Rules & Entitlements
- 🔹Former Govt. servant: Deemed to have retired from service on the date he enters office as CAG. His service as CAG is reckoned as continuing approved service counting for pension in his original service.
- 🔹Original provision (all categories): On demitting office, eligible to a pension of ₹15,000 p.a. — inclusive of all pensions payable and commuted portions. If service rules entitle him to a higher amount, the higher amount is payable.
- 🔹Resignation cases: Pension of ₹2,000 p.a. per completed year as CAG — subject to the ₹15,000 ceiling.
- 🔸After 1984 Amendment — Former Govt. servant: Pension as per his service rules (CAG service counted as approved service) plus a special pension of ₹700 p.a. for each completed year as CAG.
- 🔸After 1984 Amendment — Person with prior Govt. pension: Previous service pension plus a special pension of ₹700 p.a. for each completed year as CAG.
- ⭐After 1987 Amendment (demitting on or after 16 Dec 1987 — all categories): Pension equal to that of a Judge of the Supreme Court — per Part III of the Schedule to the SC Judges Act for those with prior Govt. service; per Part I for others. Also entitled to family pension, gratuity and commutation of pension on par with SC Judges.
- ⭐After 1994 Amendment — Retrospective benefit: Those who had demitted office before 16 Dec 1987 are also entitled to the SC Judge-equivalent pension — with effect from 16 Dec 1987.
📌 "Demission" — When is CAG deemed to have demitted office?
- ✅Completed 6-year term (Sec. 4)
- ✅Attained age 65
- ✅Demission medically certified as due to ill-health
- ✅Resignation (treated separately — less favourable pension)
SEC. 8
Right to Subscribe to GPF
- 💳Every person holding office as CAG is entitled to subscribe to the General Provident Fund (Central Services).
SEC. 9
Other Conditions of Service
- ⚖️Conditions relating to TA, rent-free residence, income-tax exemption on it, conveyance, sumptuary allowance, medical facilities = applicable to a Judge of the Supreme Court under Chapter IV of the Supreme Court Judges (Conditions of Service) Act, 1958 — apply to both serving and retired CAG.
- 📌Proviso: A former Govt. servant-turned-CAG cannot get less favourable terms than he would have received in his original service — treating CAG service as continuing service.
Chapter III
Duties & Powers of the CAG
SEC. 10
Compile Accounts of Union & States
- 📊CAG is responsible for: (a) compiling accounts of the Union and each State from initial/subsidiary accounts submitted by treasuries and offices; (b) keeping necessary related accounts.
- 🔓President may relieve CAG (after consultation) from compiling Union accounts (wholly or gradually) or accounts of any particular service/department.
- 🔓Governor may relieve CAG (with prior Presidential approval + consultation with CAG) from compiling State accounts or any particular service/department accounts.
- 🔓President may relieve CAG (after consultation) from keeping accounts of any particular class or character.
- 📌Pre-existing arrangements by others (before Act) continue unless revoked by order of President or Governor.
📋 Current Position (as of 1976 onwards)
CAG has been relieved of compiling accounts of most Union Ministries (except Indian Audit & Accounts Dept. and pension-related items). For States: compiles for all except Goa. Also relieved from maintaining PF accounts of State Govt. employees in several States.
SEC. 11
Prepare & Submit Annual Accounts
- 📋CAG prepares, each year, accounts showing annual receipts and disbursements (Finance Accounts + Appropriation Accounts) and submits to President / Governor / Administrator by agreed dates.
- 🔓President may relieve CAG (after consultation) from preparing Finance Accounts of the Union or a UT. Governor may relieve CAG (with Presidential approval + consultation) for State Finance Accounts.
- 📌Even when relieved from preparation, CAG may still be responsible for submission to President/Governor.
SEC. 12
Give Information & Render Assistance
- ℹ️CAG must provide Union/State/UT Governments such information as they require and render assistance in preparing their annual financial statements — to the extent the accounts under his charge enable him to do so.
SEC. 13
General Audit Duty — Five Types of Audit
⚖️ Sec. 13 — Core Audit Mandate
CAG must audit:
- ①All expenditure from Consolidated Fund of India, each State CF and each UT CF — to verify: (a) moneys legally available and applicable; (b) expenditure conforms to governing authority.
- ②All transactions relating to Contingency Funds and Public Accounts of Union and States.
- ③All trading, manufacturing, P&L accounts and balance sheets kept in any Union or State department.
- ④Must report on expenditure, transactions or accounts audited.
📋 Five Components of Audit under Sec. 13
- 1.Audit against provision of funds — were moneys legally available and applicable?
- 2.Regularity audit — does expenditure conform to authorising rules?
- 3.Propriety audit — examines wisdom, faithfulness, economy; flags waste, losses, extravagance beyond mere formality.
- 4.Efficiency-cum-performance audit — were social/economic objectives achieved efficiently and at what cost?
- 5.Systems audit — analyses organisational systems governing authorisation, recording, accounting and internal control.
SEC. 14
Substantially Financed Bodies — Audit of Receipts & Expenditure
- ⚖️Mandatory Audit: Where a body/authority is substantially financed by grants or loans from the Consolidated Fund, CAG shall audit all receipts and expenditure of that body — subject to any law applicable to it.
📐 Test for "Substantially Financed"
Grant/loan from the Consolidated Fund ≥ ₹25 lakhs in a financial year AND that amount is ≥ 75% of the body's total expenditure — both conditions must be satisfied simultaneously.
- 🔎Discretionary Audit (with prior approval): Even if the 75% condition is not met, CAG may audit — with the prior approval of the President / Governor / Administrator — where the grant or loan to the body is not less than ₹1 crore in a financial year.
- 🔄Continuation clause: Once a body comes under CAG's audit (under either of the above), CAG continues to audit it for two further years — even if it no longer satisfies the trigger conditions in either of those two years.
⚠️ Key points on 'Substantially Financed'
- ▪Grant/loan must come from the Consolidated Fund — not from another body that received it from Govt.
- ▪For loans: only the unutilised portion is counted, not the entire outstanding loan.
- ▪Taxes/duties assigned to local bodies = treated as grants if paid as non-returnable amounts for financing expenditure.
- ▪Audit covers all receipts and expenditure — not just the grant/loan portion.
- ▪'Body' includes: companies, corporations, societies, trusts, NGOs, local bodies, co-operative societies. 'Authority' = entity exercising power vested by Constitution or Act.
SEC. 15
Scrutiny of Grants/Loans Given for Specific Purposes
- 🔍CAG has a statutory duty to scrutinise the procedures by which the sanctioning authority satisfies itself that conditions attached to a specific-purpose grant/loan are fulfilled.
- 📂For this purpose, CAG has right of access to books and accounts of the recipient body/authority after giving reasonable prior notice.
- 🚫Does not apply to foreign States or international organisations.
- 🔓President/Governor/Administrator may, in public interest, relieve CAG from making any such scrutiny for a specific body.
- 🏢For corporations whose law provides for audit by another agency: CAG cannot access their books unless specifically authorised by President/Governor/Administrator (after consultation with CAG + opportunity to corporation).
📌 Sec. 15 vs Sec. 14 — Key Difference
Sec. 15 applies when a grant/loan is given for a specific purpose — not general grants. It scrutinises the sanctioning authority's procedures, not the recipient's full accounts. Reporting is automatic under Sec. 13 (as it is expenditure from CF). Sec. 14 covers the recipient body's full accounts when substantially financed.
SEC. 16
Audit of Receipts
- 💸CAG must audit all receipts payable into the Consolidated Fund of India, each State, and each UT with Legislative Assembly.
- ✅Must satisfy himself that rules and procedures for assessment, collection, and proper allocation of revenue are well-designed and actually being followed.
- 📋Makes such examination of accounts as he thinks fit — and reports thereon.
SEC. 17
Audit of Stores & Stock
- 📦CAG has authority to audit and report on accounts of stores and stock kept in any office or department of the Union or a State.
SEC. 18
Powers in Connection with Audit
- 🔎Inspect any office of accounts under Union/State control — including treasuries and offices keeping initial/subsidiary accounts.
- 📁Requisition any accounts, books, papers and documents relevant to his audit duties — to be sent to the place he appoints for inspection.
- ❓Ask questions and call for information from the person in charge — for preparation of any account or report.
- 🤝The person in charge of any audited office/dept. must afford all facilities for inspection and comply with information requests in as complete a form as possible and with all reasonable expedition.
SEC. 19
Audit of Government Companies & Corporations
| Type | Governing Provision | CAG's Role |
|---|---|---|
| Govt. Companies (≥51% paid-up capital held by Central/State Govt.) | Sec. 19(1) read with Companies Act 2013 (Secs. 139, 143, 394, 395) | Appoints auditor; directs manner of audit; receives audit report; conducts supplementary/test audit; comments or supplements audit report. Comments placed before AGM and laid before Parliament. |
| Corporations by Parliament (established under law made by Parliament) | Sec. 19(2) | Duties/powers as per the respective legislation establishing the corporation. |
| Corporations by State Legislatures | Sec. 19(3) | Governor/Administrator may request CAG to audit (only after consulting CAG + opportunity to corporation). CAG then has right of access to books. State Legislature cannot prescribe CAG audit directly. |
📋 Companies Act 2013 — Key CAG Powers
- ▪Appoints auditor within 180 days of start of financial year (Sec. 139(5)).
- ▪First auditor appointed within 60 days of company registration (Sec. 139(7)).
- ▪CAG has 60 days from receipt of audit report to conduct supplementary audit or comment (Sec. 143(6)).
- ▪May order test audit under Sec. 143(7) — report provisions of Sec. 19A apply.
- ▪Govt. to prepare annual report within 3 months of AGM and lay before Parliament (Sec. 394).
SEC. 19A
Laying of Reports — Govt. Companies & Corporations
- 🏛️CAG's reports on Govt. Companies/Corporations → submitted to the concerned Government(s).
- 🏛️Central Govt. → causes report to be laid before each House of Parliament as soon as possible.
- 🏛️State Govt. → causes report to be laid before State Legislature as soon as possible.
SEC. 20
Audit of Other Bodies — Discretionary / On Request
- 📩On request by President / Governor / Administrator: CAG undertakes audit of any body/authority whose audit has not been entrusted to him by law — on mutually agreed terms and conditions. Must be in public interest; body/authority given reasonable opportunity to make representations before entrustment.
- 💡On CAG's own proposal: CAG may propose to President / Governor / Administrator to authorise him to audit any body/authority not otherwise entrusted to him — where he believes a substantial amount has been invested in or advanced to it by the Central/State/UT Government. The President/Governor/Administrator may then empower him accordingly.
- 🔒Pre-condition for both routes: Entrustment is permissible only where it is expedient in the public interest and only after giving the concerned body/authority a reasonable opportunity to make representations against the proposed audit.
Chapter IV
Miscellaneous
SEC. 21
Delegation of Powers
- 🔽CAG may delegate any of his powers to any officer of his department — by general or special order. This is how the Indian Audit & Accounts Department operates.
- 🚫Exception: No officer can be authorised to submit reports required to be submitted by CAG under the Constitution (to President/Governor/Administrator) — except when CAG is absent on leave or otherwise.
SEC. 22
Power to Make Rules — Central Government
- 🏛️Central Govt. may make rules (after consulting CAG) for maintenance of accounts: manner of keeping initial/subsidiary accounts; manner of compiling accounts; stores/stock accounts; any other prescribed matter.
- 🏛️Every rule must be laid before each House of Parliament for 30 days (in one or more sessions). Both Houses may modify or annul — without prejudice to prior actions under the rule.
SEC. 23
Power to Make Regulations — CAG
SEC. 24
Power to Dispense with Detailed Audit
- ⚙️CAG may dispense with any part of detailed audit and apply only limited checks — when circumstances warrant. Basis for Memorandum of Secret Instructions and other circulars on quantum/extent of audit.
SEC. 25 & 26
Repeal & Removal of Doubts
- 📜Sec. 25: Repeals the CAG (Conditions of Service) Act, 1953.
- 📜Sec. 26: On commencement of this Act, the GOI (Audit & Accounts) Order, 1936 (as adapted by the India Provisional Constitution Order, 1947) ceases to be in force — except for anything done thereunder.
Amendments
Four Amendments to the CAG (DPC) Act
| Amendment | Year / Act No. | Key Changes |
|---|---|---|
| Amendment I | 1976 — No. 45-F (retrospective from 1 March 1976) |
|
| Amendment II | 1984 — No. 2 (16 March 1984) |
|
| Amendment III | 1987 — No. 50 (16 December 1987) |
|
| Amendment IV | 1994 — No. 51 (26 August 1994) |
|
Case Law
Key Judgements
Supreme Court of India
Arvind Gupta v. Union of India
WP(C) 393/2012 · Decided 1 Oct 2012
Issue: Does CAG have power to conduct Performance Audit? Are the Regulations on Audit & Accounts, 2007 empowering performance audit unconstitutional?
Held: CAG's function to examine economy, efficiency and effectiveness in use of Govt. resources is inbuilt in the 1971 Act (especially Sec. 16). Performance audit is lawful. No unconstitutionality in the Regulations. CAG reports are subject to parliamentary scrutiny under Article 151.
High Court of Bombay
Reghu Nath Kelkar v. Union of India & Others
PIL No. 40/2008 · Decided 24 Mar 2009
Issue: Allegation that CAG failed to conduct comprehensive audit of Market Stabilization Scheme.
Held: Under Sec. 23, the time, scope and extent of audit are entirely within CAG's jurisdiction — the Court will not direct CAG on when and how to audit. No constitutional or statutory dereliction found.
Delhi High Court
NDDB v. CAG of India
WP(C) 4834/1998 · Decided 27 Jan 2010
Issue: Can CAG audit NDDB under Sec. 14(2) despite the NDDB Act having overriding effect and its own audit provisions?
Held: (i) CAG Act is a Special Act. (ii) Sec. 14(1) audit can be restricted/prohibited by applicable law but Sec. 14(2) is an independent section. (iii) Secs. 14(2) and 15 operate independently. (iv) Sec. 19(2) does not override Sec. 14(2). A Company/Corporation can be audited under Secs. 14(1), 14(2) or 15 even if Sec. 19 annual audit is not by CAG.
Supreme Court of India
Arun Kumar Aggarwal v. Union of India
WP(C) 469/2012 · Decided 9 May 2013
Issue: Can a court grant relief solely on the basis of a CAG Audit Report?
Held: CAG report is a constitutional document — it commands respect. But it is always subject to parliamentary scrutiny; the PAC may accept or reject the CAG's findings. The Court cannot grant reliefs merely relying on the CAG report without considering the Ministry's response. The report is a basis for scrutiny, not an autonomous basis for judicial relief.
Supreme Court of India
S. Subramaniam Balaji v. Govt. of Tamil Nadu
CA 5130/2013 · Decided 25 Jul 2013
Issue: Does CAG have a duty to examine expenditures before they are deployed?
Held: CAG is a constitutional functionary (Article 148) whose duty arises only after the expenditure has been incurred. CAG examines propriety, legality and validity of expenses post-implementation. CAG exercises effective control over Govt. accounts and expenditure on schemes only after implementation.
Ministry of Finance Instruction · 13 June 2006
Performance Audit — Govt. Clarification
F.No. 6(5)-B(R)/99, Budget Division
Issue: Clarification sought whether Performance Audit falls within scope of CAG audit under the DPC Act.
Clarification: Under Sec. 23, CAG has power to make regulations on scope and extent of audit. Performance audit (audit of economy, efficiency and effectiveness in receipt and application of public funds) is deemed to be within the scope of CAG audit. All Ministries to facilitate performance audits and provide access to documents.
📌 Article 148–151 — Constitutional Anchors
- 148Creates the office of CAG; removal only like a SC Judge; salary/service conditions by Parliament.
- 149Parliament may prescribe CAG's duties and powers in relation to accounts of Union, States and other authorities/bodies.
- 150Accounts of Union and States shall be kept in such form as the President may, on advice of CAG, prescribe.
- 151CAG's reports on Union accounts → to President → laid before each House of Parliament. State reports → to Governor → laid before State Legislature.