Audit Under Judicial Lens: From Coal Rejects to Wheat Stocks
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Ambedkar called the CAG the Constitution’s most vital officer—yet without a voice in court, neutrality risks sliding into irrelevance.
By P SESH KUMAR
NEW DELHI, September 14, 2025 — The Jammu & Kashmir and Ladakh High Court’s decision last week in Mahajan Roller Flour Mills v. Food Corporation of India is the latest judicial word on the limited legal force of Comptroller and Auditor General’s (CAG) audit remarks.
In quashing recovery proceedings against flour mills based solely on an audit report, the Court emphasised that CAG is not an investigative or executive authority and cannot assume the role of a technical certifier of grain quality. This ruling builds on the Supreme Court’s August 2024 pronouncement in the coal rejects case of Karnataka, where the apex court had ruled that a CAG report is only a preliminary opinion until tabled before Parliament and scrutinised by the Public Accounts Committee.
Read together, these decisions highlight the shrinking legal finality of CAG’s work, raising the question of whether India’s constitutional auditor should press the Supreme Court to revisit and reinforce the value of its reports.
The Flour Mill Dispute: Audit After the Fact
The Mahajan Roller saga began in March 2016, when the Food Corporation of India (FCI) auctioned wheat under the Open Market Sale Scheme. The flour mill bid successfully, paid up, and collected its allotted wheat. FCI officials supervised, certified and loaded the stocks, which left the warehouses duly documented. For the bidder, the transaction was closed.
But years later (unfortunately as happens usually with CAG audits), the CAG in its finding/report suggested that instead of the cheaper URS wheat (Under Relaxed Specifications), the mill had carted away higher-priced FAQ wheat (Fair Average Quality).
On the strength of this solitary observation, FCI in September 2021 slapped a recovery demand of about ₹2.7 lakh and barred the mill from future tenders. The mills protested: how could they be faulted for what FCI staff themselves had certified? And how could a remote audit remark replace scientific grain testing done at the time of delivery?
The High Court agreed. Justice Wasim Sadiq Nargal ruled that classification of wheat was a technical matter for FCI’s own quality control staff, not the constitutional auditor. The CAG’s job was to audit finances, not to inspect grain.
More importantly, the Court held that audit reports are not binding decrees. They are advisory and cannot be the sole basis for punitive action without an independent adjudicatory process. The recovery was quashed, and the mills allowed back into FCI tenders.
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The Supreme Court’s Earlier Word: Coal Rejects and Audit’s Status
This reasoning was not born in isolation. Just a year earlier, in August 2024, the Supreme Court had settled a crucial point in a very different context — the case of alleged illegal sale of coal rejects. The CBI had tried to frame charges on the basis of a CAG audit report that had not yet been tabled in Parliament/Legislature or examined by the Public Accounts Committee. The Court refused to allow it.
The bench held that CAG’s reports may be constitutionally important but remain opinions until they pass through the constitutional pipeline: submission to the President, laying before Parliament, scrutiny by the PAC, response from the executive and finally the recommendation of PAC to accept CAG’s findings or not.
Only after this journey can an audit report acquire political weight and possibly legal effect. Until then, it is not a substitute for evidence and cannot by itself sustain criminal charges or punitive sanctions.
This doctrine of “audit report as opinion” has now been extended from the criminal domain in the coal rejects case to the contractual and civil field in Mahajan Roller. In both situations, courts are drawing the same line: audit is oversight, not adjudication; its findings are recommendations, not verdicts.
Implications for Audit and Governance
The combined effect of the Supreme Court’s 2024 ruling and the High Court’s 2025 decision is to clip the wings of executive bodies eager to treat audit remarks as gospel. Ministries, corporations, and state entities can no longer justify recovery proceedings, debarments, or prosecutions merely by pointing to a CAG report. They must independently investigate, substantiate, and follow due process.
For the CAG, these judgments pose a dilemma. On one hand, they underline the auditor’s constitutional neutrality — CAG is not prosecutor, judge, or investigator. On the other, they dilute the practical impact of audit reports, reducing them to advisory notes unless picked up by Parliament or a competent forum. The moral authority of audit remains intact, but its enforceability has been judicially pared down.
The Silent Bystander
The CAG, once described by Dr. B.R. Ambedkar in the Constituent Assembly as “the most important officer of the Constitution,” is thus today reduced to a silent bystander when courts decide on the scope of its powers. In Mahajan Roller, the dispute was between private millers and the Food Corporation of India.
The High Court drew boundaries around CAG’s jurisdiction, declaring that it cannot assess the quality of grain and that its reports are advisory in nature. Yet the CAG was not even represented in court. Similarly, in the coal rejects case, the Supreme Court diluted the finality of CAG reports by holding that they are only opinions until scrutinized by the PAC, again without the auditor’s voice being heard.
Why This Matters
This is not a mere technicality. When the judiciary redraws the contours of the constitutional auditor’s authority without its participation, the result is a one-sided discourse. The CAG’s office is left to read judgments from the sidelines, even when those judgments directly affect its institutional standing and credibility. That undermines not just the dignity of the office but also the balance of accountability that Ambedkar and the framers envisioned.
The absence of the CAG’s arguments in these cases means courts are relying only on the submissions of litigants who may have every reason to paint audit as overreaching, intrusive, or irrelevant. There is no counter-narrative explaining why audit observations matter, how they serve Parliament, and what harm might result if they are dismissed as “mere opinions.”
A Sad Commentary
In that sense, it is indeed a sad commentary. Ambedkar’s words in the Constituent Assembly were meant to highlight that the CAG is a sentinel of public finance, a constitutional conscience-keeper meant to stand outside the executive and keep Parliament informed. Yet today, as judgments progressively prune the legal bite of audit, the CAG is treated less like a sentinel and more like a scribe — recording facts, but with no voice in how those facts are to be valued in law.
Should the CAG Go Back to the Supreme Court?
This raises the inevitable question: should the CAG challenge or seek review of the August 2024 judgment that has become the touchstone for High Courts like J&K to sideline audit reports? There is an argument that by branding audit reports as “mere opinions” until Parliament acts, the courts have weakened a vital accountability tool. If the watchdog’s bark has no immediate bite, will executive agencies take its findings seriously?
Yet there is also risk in further litigation. If the Supreme Court reaffirms, or even narrows audit authority further, the CAG’s standing could be permanently diminished. The safer course may lie outside the courtroom. The CAG could work with Parliament and the PAC to ensure faster scrutiny, clearer timelines, and stronger follow-through.
Legislative reform could explicitly allow certain categories of audit findings — particularly quantifiable financial losses — to trigger provisional action, subject to adjudication. That would restore teeth without violating due process.
The Mahajan Roller judgment is more than a local dispute over wheat stocks. It is the judicial echo of a broader constitutional philosophy articulated by the Supreme Court in the coal rejects case of 2024: audit is essential, but not final; reports are respected but not binding; accountability requires process, not presumption. Whether the CAG seeks to overturn or live with this new reality is the question. For now, the courts have spoken with clarity — audit findings alone cannot condemn, recover, or prosecute. The lesson is simple: Parliament and due process must bridge the gap between audit opinion and legal consequence.
The solution may lie in the CAG asserting its locus when such cases arise, either by seeking to intervene or by moving the Supreme Court under its own standing when judgments diminish its mandate. Silence may preserve neutrality, but it also risks irrelevance. If Ambedkar called the CAG the most important officer of the Constitution, the judiciary must at least afford that officer the courtesy of being heard before pronouncing on his authority.
(This is an opinion piece, and views expressed are those of the author only)
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