Government Company Governance And Audit
1. Meaning of Government Company
Under Section 2(45) of the Companies Act, 2013, a Government company means:
A company in which not less than 51% of paid-up share capital is held by
Central Government, or
State Government(s), or
Partly by Central and partly by State Government(s)
It includes subsidiaries of Government companies.
2. Constitutional and Public Law Character of Government Companies
Although incorporated under company law, Government companies:
Perform public functions
Use public funds
Are subject to constitutional accountability
They lie at the intersection of corporate governance and public law.
3. Governance Framework for Government Companies
A. Companies Act, 2013
Key provisions:
Section 134 – Board’s responsibility statement
Section 177 – Audit Committee
Section 178 – Nomination and Remuneration Committee
Section 184 – Disclosure of interest
Section 188 – Related party transactions
Section 197 – Managerial remuneration
Section 203 – Key managerial personnel
Many exemptions exist, but fiduciary duties remain intact.
B. Articles of Association and Government Directions
Government may issue policy directions
Board must balance autonomy with governmental control
C. Public Accountability Norms
Government companies must adhere to:
Transparency
Fairness
Non-arbitrariness
Public interest
4. Audit Framework for Government Companies
A. Statutory Audit under Section 139
Auditors appointed by Comptroller and Auditor General of India (CAG)
Appointment, re-appointment, and removal controlled by CAG
B. Role of CAG (Section 143(5) and 143(6))
CAG may:
Direct audit manner
Conduct supplementary audit
Comment on accounts
CAG reports are placed before Parliament or State Legislature.
C. Internal Audit and Audit Committee
Mandatory Audit Committee
Oversight of internal controls and risk management
Ensures compliance with statutory and governmental norms
5. Special Features of Governance in Government Companies
Reduced managerial autonomy
Heightened accountability
Dual oversight: corporate law + constitutional mechanisms
Parliamentary and legislative scrutiny
6. Duties and Liability of Directors in Government Companies
Directors must:
Act in good faith
Avoid conflict of interest
Protect public funds
Nominee directors are not immune from liability.
7. Judicial Pronouncements
1. Heavy Engineering Mazdoor Union v. State of Bihar
(Supreme Court)
Principle:
A Government company is a separate legal entity distinct from the Government.
Relevance:
Establishes corporate personality while retaining accountability.
2. R.D. Shetty v. International Airport Authority of India
(Supreme Court)
Principle:
State-controlled corporations are subject to Article 14 obligations.
Relevance:
Governance decisions must be fair and non-arbitrary.
3. Ajay Hasia v. Khalid Mujib Sehravardi
(Supreme Court)
Principle:
Test for determining whether an entity is an “instrumentality of State”.
Relevance:
Many Government companies qualify as “State” under Article 12.
4. Steel Authority of India Ltd. v. National Union Waterfront Workers
(Supreme Court)
Principle:
Government companies have operational autonomy but public obligations.
Relevance:
Clarifies governance balance between control and independence.
5. Comptroller and Auditor General of India v. K.S. Jagannathan
(Supreme Court)
Principle:
CAG has wide powers to ensure accountability of public expenditure.
Relevance:
Supports audit and oversight of Government companies.
6. ONGC v. Association of Natural Gas Consuming Industries
(Supreme Court)
Principle:
PSUs must act in public interest and not merely commercial interest.
Relevance:
Shapes governance philosophy of Government companies.
7. Balmer Lawrie & Co. Ltd. v. Partha Sarathi Sen Roy
(Supreme Court)
Principle:
Service and governance decisions of Government companies may attract public law scrutiny.
Relevance:
Reinforces accountability in corporate governance.
8. Parliamentary and Legislative Oversight
CAG audit reports are examined by:
Public Accounts Committee (PAC)
Committee on Public Undertakings (COPU)
Management must respond to audit objections
9. Exemptions and Relaxations
Government companies enjoy exemptions relating to:
Board composition
Managerial remuneration
Procedural compliances
However, audit and accountability are non-negotiable.
10. Governance Challenges in Government Companies
Political interference
Limited board independence
Delays in decision-making
Overlapping accountability
11. Best Practices for Governance and Audit
Strengthening Audit Committees
Independent directors with expertise
Robust internal control systems
Timely compliance and disclosure
Transparent financial reporting
12. Conclusion
Government Company Governance and Audit in India reflects a hybrid model:
Corporate law principles
Constitutional accountability
Parliamentary oversight
Indian courts have consistently held that:
Government companies are separate legal entities
Yet they must operate with transparency, fairness, and public accountability
In essence, efficient governance and rigorous audit are indispensable for safeguarding public resources and public trust.
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