COMPTROLLER AND AUDITOR GENERALversusKAMLESH VADILAL MEHTA

.                 COMPTROLLER AND AUDITOR GENERAL
                                 v.
                      KAMLESH VADILAL MEHTA
                                                                                     A



                               .
                               JANUARY . 21, 2003

            (V.N KHARE CJ, ASHOK BHAN AND S.B. SINHA, JJ.]                           B

         Constitution of India, 1950:

          Article 14-Clossification-Reosonab/eness of-Applications invitedfrom
    Chartered Accountants firms for empanelment for audit of government C
    companies-Advertisement stipulating only partnership firms eligible except
    in respect ofspecified States-Proprietary concern challenging rejection of its
    application-Single Judge of High Court allowing the writ petition-Division
    Bench upholding the sam~n appeal held, once Chartered Accountants are
    qualified and eligible, advertisement cannot create a sub-classification from D
    the general c/oss of eligible Chartered Accountants-Such classification is
    discriminatory, arbitrary and violative of Article 14-Also if proprietary
    concerns are inefficient, they co.uld not have been made eligible to audit in the
    specified states.

          Article 226-Judicial Review-Proprietary concern challenging its            E
    rejection ofapplication for empanelmentfor audit of government companies-
    Scope-Held, such writ petition is maintainable since the appointment ofauditor
    by Comptroller and Auditor General is a statutory function under the
    Companies Act and not an administrative function.

         Appellant-Comptroller and Auditor General invited applications F
1   from the firms of Chartered Accountant for the purpose of empanelment
    for audit of government companies. Advertisement stipulated that
    excepting certain States only the partnership firm of Charter.ed
    Accountants were eligible for enrolment of the panel'·and not the
    proprietary firms. Respondent-proprietary concern 's application was G
    rejected. Respondent filed .a writ petition challenging exclusion of
    proprietary concern from the empanelment. Single Judge of High Court
    allowed the wri! petition. Appellants then filed an appeal which was
    dismissed. Hence, the present appeal.

                                        471                                          H
    472                   SUPREME COURT REPORTS                 [2003] I S.C.R.

A       Appellant contended that the policy of empanelment of partnership
  firm of Chartered Accountants than a sole proprietary firm was on
  account of their efficiency, continuity, experience and· as such, partnership
  firm was a class in itself and a valid classification for the purposes of
  Article 14 of the Constitution; that .the classification passed the test of
  reasonableness and had a r.easonable nexus to the object sought to be
B achieved by the impugned advertisement; that empanelment of proprietary
  concern in certain States was out of necessity and exigency and, therefore,     )-
  there was no discrimination involved in empanelment of proprietary
  concern in States specified; and that appellant's decision to invite the .
  applications exclusively from·partnership firms was a matter of policy .and
C thus, beyond the scope of review.
          Dismissing the appeal, the Court

         HELD J.1. The classification between proprietary and partnership
  firms of Chartered Accountants is arbitrary and unfair, and accordingly
D falls on the anvil of Article 14 of the Constitution. (478-E)
        1.2. Chartered Accountants having qualification are eligible for being
  considered for entrustment of audit work and also for being brought on
  the panel of audit work for public sector ·undertaking or the government
  concerns. Once it is accepted that these Chartered Accountants are
E qualified and eligible, there appears no valid reason why the impugned
  advertisement has created a sub-classification from the general class of
  eligible Chartered Accountants which !"elates to a smaller group of
  Cha~tered Accountants who form partnership concerns only.
                                                       (476-G, H; 477-A-B)

F        1.3. Once a Chartered Accountant is qualified, experienced and
  efficient, he cannot be discriminated against only for the reason that he       l
  has chosen to act alone in the professional career and has not been able
  to form a partnership firm. The efficiency, springs from the personal
  ~xperience, proficiency and personal c.apacities, therefore, these
G characteristics and professional acumen cannot be linked to a person or
  persons in a firm alone. A single individual as an auditor in a proprietary
  concern can have such characteristics and professional acumen by himself
  and also through the assistance of experienced auditor who could be in
  his services as efficient as any partnership firm. In many cases some of
  the partners of the partnership firm are sleeping partners with no
H professional duties to discharge. A partnership concern is not a legal entity
                    COMPTROLLER AND AUDITOR GENERAL v. K.V. MEHTA             473
      like company; it is a group of individual partners. In a partnership firm,     A
Al(   it is the partner who will be assisted in carrying out the work but quite
      remains the eligible Chartered Accountant. It is the same situation as in
      a proprietary concern where a Chartered Accountant would be carrying
      on audit work all-in-one. Merely because some of the Chartered
      Accountants have formed a partnership firm, it cannot be assumed that
      they become more efficient for carrying out audit work than the individual     B
      Chartered Accountant who forms proprietary concern. It would be
      fallacious to attribute a greater capacity to partnership firms than to
      proprietary concerns simply on account of the nomenclature or numbers
      involved. Therefore, appellant erroneously assumed that the partnership
      firms are more efficient than the proprietary concern in the matter of audit   C
      of accounts of the public sector undertakings or of the government
      concerns. (477-C-FJ

            1.4. The submission that there was no discrimination involved in
      empanelment of proprietary concern in States specified is inconsistent with
      the submission that proprietary concern although qualified are not suitable D
      for auditing in public sector enterprises. Either proprietary concerns are
      eligible or they are not If proprietary concerns are inefficient, they could
      not have been made eligible to audit in the specified states. Further, if there
      was a paucity of partnership firm in a given State, the services of
      partnership firm who were said to be efficient based on in other States E
      could be taken. (478-G, H(

            2. There is difference between framing of a policy which is an
      administrative function and an exercise of statutory functions. Whenever
      the Comptroller and Auditor General appoints an auditor for audit of
      government corporations and public sector undertakings under the               F
      Companies Act, he exercises statutory powers under tile Act which is a
      statutory function and not a matter of policy. Furthermore it cannot be
      urged that CAG is free to act untrammeled and unreasonably.
                                                             (475-G, H, 476-A)

              CIVIL APPELLATE JURISDICTION            Civil Appeal No. 11458/        G
      1995.

           From the Judgment and Order dated 19.1.93 of the High Court of
      Gujarat in LPA. 444/82.

              Ranjit Kumar, S. W~sim A. Qadri and Mrs. Anil Katiyar for the          H
     474                    SUPREME COURT REPORTS                     [2003) I S.C.R.

A    Appellants.

           The Judgment of the Court was delivered by

           KHARE, CJ. The respondent herein, is a sole proprietor of a Chartered
     Accountant firm in Ahmedabad, Gujarat. One of the statutory functions
B assigned to the appellant herein is to get the accounts of public sector
   undertakings and governments concerns audited by the Chartered Accountants.
   The audit work of the government and public sector undertakings is assigned
   to only those Chartered Accountant firms which are enroiled on the panel
   maintained by the appellant. In May, 1981, the appellant through an
   advertisement invi.ted applications from the ftims of the Chartered Accountants
C for the purpose of empanelment for audit of government companies. The
   aforesaid advertisement stipulated that ex~epting the States of Orissa; Jammu
  ·& Kashmir, Assam, Manipur, Meghalya, Nagaland and Tripura, only the
   partnership firm of the Chartered Accountants were eligible for enrollment
   on the· panel and the proprietary firms of the Chartered Accountants were
D made ineligible either to apply or to be empanelled for being assigned audit
   work of the government companies. However, in several States the proprietary
   firm based on those States was made eligible for being brought on the panel
   for audit work of government companies and concerns. It would be appropriate
   at this stage to extract the relevant clause 3 and sub-clause (d) of Clause 4 to
   the advertisement, which runs as under:
E
             "3. Particular reference is invited to Instructions I to 4 for filling up
             the form and the Footnote to Co. I. Proprietary Firms based in the
             States listed therein only need apply".

                 (4)d. The proforma should be signed by a partner on behalf of the
F           firm ......proprietary firms of F. C. As with registered offices in the
            following only are being considered/or audits in those States: Orissa,
             Jammu & Kashmir, Assam, Manipur, Meghalaya, Nagaland, Tripura"
             (emphasis supplied)

G The respondent herein submitted an application for enrolment on the panel,
     but the same was rejected on. account of the fact that his firm was not a
     partnership firm, but a proprietary concern'. Aggrieved, the respondent filed
     a writ petition under Article 226 of the Constitution challenging the exclusion
     of the proprietary concerns from their empanelment as being discriminatory,
     arbitrary and violative of Article 14 of the Constitution. One of the reliefs
·H   prayed for runs as under:
          COMPTROLLER AND AUDITOR GENERAL v. K. V. MEHTA [V.N KHARE.CJ.]        475
            "to. that the petitioner, therefore, prays that the Honorable Court A
            may be pleased to issue in appropriate writ, order or direction declaring
            and setting aside the policy of the respondent which excludes the
            proprietary firm of F.C.As with registered office in the States other
            than the States Orissa, Jammu & Kashmir, Assam, Manipur,
            Meghalaya, Nagaland and Tripura as mentioned in the advertisement           B
            at Annexure-B as unconstitutional, illegal, null and void and restraining
            the respondent permanently from adopting the said policy and not
            considering the firm of the petitioner for the purpose of empanelment
            as per Annexurea B"

            The said writ petition came up for hearing before a Learned Single          C
     Judge of the High Court of Gujarat, who, by a judgment and orde.r on 26.4.82
     allowed the writ petition. The Learned Single Judge was of the view that the
     policy followed by the appellant was unreasonable and that such sub-
     classification had no real nexus with the objects sought to be achieved. The
     learned Single Judge while holding that the exclusion of proprietary concern       D
     from being enrolled on the panel is discriminatory issued following direction:

             " ....... Hence, it would be just and proper to direct the respondent to
             include the name of the petitioner in the pannel as stated above, It is
             also made clear that even in future as and when the respondent issues
             public notices inviting applications for empanelment in connection · E
             with entrustment of audit work of government companies, the
             respondent is enjoined to see that it does not insist in continuing the
             artificial subaclassitication of chartered accountants who are carrying
             on profession as Chartered Accountants in partnership ....... with costs."

          The appellant filed Letters Patent Appeal before the Division Bench of        F
     the High Court, but the same was dismissed. It is against the said judgment
).   and order of the High Court, the appellant is before us.

            It was first contended by learned counsel for the appellant that the
     appellant's decision to invite the applications exclusivelyJrom partnership        G
     firms was a matter of policy and, therefore, beyond the pale of review by this
     Court. This argument has no substance. It must be borne in mind that there
     is difference between framing of a po!icy which is an administrative function
     and an exercise of statutory functions. The function of the Comptroller and
     Auditor General in respect of appointment of auditors for government
     corporations and public sector undertakings is statutorily assigned under the      H
    476                    SUPREME COURT REPORTS                     [2003] I S.C.R.

A   Companies Act and it cannot then be urged that the Comptroller and Auditor
    General is free to act untrammeled and unreasonably. Whenever the CAG
    appoints an auditor for audit of government corporations and public sector
    undertakings under the Companies Act, he exercises statutory powers under
    the Companies Act and such an exercise of power manifestly is a statutory
B   function and not a matter of policy.

          It was then contended by the learned counsel for the appellant that the
    policy of empanelment of partnership firm of Chartered Accountants by the
    appellant was on account of the fact that the partnership firm of Chartered
    Accountants have been found more efficient and in better position to carry
C   out the statutory audit in view of the continuity, accumulation of experience
    and facilitating adherence to time schedule for completion of audit work than
    a sole proprietary firm of the Chartered Accountants and, as such, the
    partnership firm of the Chartered Accountants was a class in itself and a valid
    classification for the purposes of Article 14 of the Constitution. It was also
D   urged in this context that the said classification would be seen to pass the test
    ofreasonableness on account of the intelligible differentia between partnership
    firms on the one hand, and proprietary concerns on the other in terms of
    factors such as size, flexibility and continuity. It was also submitted that the
    said differentia bore a reasonable nexus to the object which was sought to be
    achieved by the impugned advertisement, namely the efficiency and effective
E   auditing of government companies.

           To substantiate the point, reference was made to such instances as the
    ability of one partner to substitute or supplement another in an exigency; the
    continuity of the partnership firm normally assured upon the demise of one
    of the partners, if not in law then in practice; the inability of a proprietary
F   concern to meet the audit deadlines stipulated by Section 210(2)(b) and 6 l 9A
    of the Companies Act; and the usual practice of private companies relying on
    partnership, largely to the exclusion of proprietary firms.

           The aforesaid argument raises the question as to whether the sub-
G   classification of partnership firms stands the test of reasonableness on the
    touchstone of Article 14.

          It is not disputed that the Chartered Accountants having qualifications
    are eligible for being considered for entrustment of audit work for public
    sector undertaking or the government concerns. Once it is accepted that these
H   Chartered Accountants are qualified and eligible for the audit work and also
    COMPTROLLER AND AUDITOR GENERAL v. K.V MEHTA (V.N KHARE.Cl.)             477

are eligible for being brought on the panel of audit work for public sector          A
undertakings and government concerns, there appears no valid reason why
the impugned advertisement has created a sub-classification from the general
class of eligible Chartered Accountants which relates to a smaller group of
Chartered Accountants who form partnership concerns only.

       The appellant insists that it is only a smaller group of Chartered            B
Accountants firms that would be eligible for being brought on the panel for
audit of public sector undertakings or government concerns. The audit work
of public sector undertaking, no doubt, is to be done by the qualified and
efficient Chartered Accountants. Once a person is qualified, experienced and
efficient, it is difficult to understand how he could be discriminated against       C
only for the reason that he has chosen to act alone in the professional career
and has not been able to form a partnership firm. The efficiency, as pointed
out by the High Court, springs from the personal experience, proficiency and
personal capacities. It is, therefore, not possible to link these characteristics
and professional acumen to a person or persons in a firm alone. A single
individual as an auditor in a proprietary concern can have such characteristics      D
and professional acumen by himself and also through the assistance of
experienced auditor who could be in his services as efficients as any partnership
firm. It is often seen in many cases that some of the partners of the partnership
firm are sleeping partners with no professional duties to discharge. A
partnership concern is not a legal entity like company; it is a group of             E
individual partners. In a partnership firm, it is the partner who will be assisted
in carrying out the work but quite remains the eligible Chartered Accountant.
It is the same situation as in a proprietary concern where a Chartered
Accountant would be carrying on audit work all-in-one. Merely because
some of the Chartered Accountants have formed a partnership firm, it cannot
be assumed that they become more efficient for carrying out audit work than          F
the individual Chartered Accountant who forms proprietary concern. It is,
therefore, evident that the appellant himself erroneously assumed that the
partnership firms are more efficient than the proprietary concern in the matter
of audit of accounts of the public sector undertakings or of the government
concerns.
                                                                                     G
      A useful analogy may be drawn with the experiences of the legal
profession. It could not be justifiably argued that the quality of the legal
services re~dered by a senior advocate is compromised by virtue of the fact
that he is the sole and ultimate repository of knowledge and responsibility in
a giveo matter. Nor could it reasonably be said that a client would be put to        H
     478 .                   SUPREME COURT REPORTS                     . [2003) 1. S.C.R.
                                                                  .            .
             .                .  .
A unnecessary .risk by being compelled to sink or swim with the solitary lawyer.
    Personal.experience and integrity are the essential attributes of every successful
    professional, and they are the virtues that win the day for the client, whether
  . it is a corporation seeking an audit of its accounts or an individual seeking
 . a r~medy in court. A clear line of command is also known to prevent a
B diffu~ion of responsibility. As such, Chartered Accountant cannot be
    discriminated against merely because he elected to invest his professional
    expertise in a proprietary concern, rather than to express it in the form of a
    partnership firm.    ·

             In any event it would not follow ·as a categorical imperative that a
C     partnership is bett.er placed for auditing government concerns simply because
      "two mind.s are bett.er than one". There could be several instances when a
      partnership firm, which is ostensibly an association of contri_buting individuals,
      is in actual fact found to consist of a solitary working pjrtner who may for
      the. purpose of securing tax benefits or for other reasons, choose to form an
      afliance w_ith sundry uninterested person, or "sleeping partners". In such a
D. scenario_ it would be fallacious to att.ribute a greater capacity to partnership
      firms than to proprietary concerns simply on account of the nomenclature or
 .... member.s involved.

          For the aforesaid reasons the classification between proprietary and
  · partnership firms is arbitrary and unfair, and accordingly falls' o.n the arivil of ·
·E Article ·14 of the Constihition.                .     ·

          It .was also urged that the proprietary firms. of Chartered Accountants
    have been allowed empanelment in certain States· namely, in the States· of
    Orissa, Jammu & Kashmir, Assam, Manipur, Meghalaya, Nagaland and Trlpura
    out of necessity and exigency and it. would be not in public interest to allot
F . audit work of government concerns to partnership ·firms from outside· the ·.
    State and, therefore, there was rio niscrimination involved in empanelment of
    proprietary concern in such States.

          · We find this submission inconsistent with the earlier submission that
G the proprietary concern although qualifie~ are not suitable for considerable
 · task of auditing public sector enterprises. Either proprietary concerns are
   suitable and, therefore, eligible, or they are not. If the proprietary concern of
   Chartered Accountants are really inefficient, there appears no reason why
   they have been made eligible to audit the government and public sector
   undertakings in the aforesaid states. Further, if there was a paucity of
H partnership firm of Chartered Accountants in a given State, the services of
             COMPTROLLER AND AUDITOR GENERAL v. K.V MEHTA [V.N KHARE,CJ.)      479

      partnership firm who were said to be efficient based on in other States could   A
.1l   be taken. Under such circumstances, we are of the view that the impugned
      notification does not stand the test of Article 14 of the Constitution.

             for the aforesaid reasons, we do not find any merit in the appeal. It
      fails and is accordi'ngly dismissed. There shall be no order as to costs.
                                                                                      B
      N.J.                                                     Appeal dismissed.