Contrary to its assertion that it was ready for an audit by the CAG), RIL had sought to lay down conditions on an audit of the KG-D6 block, including one that the report should not be tabled in Parliament, making it virtually impossible for a “proper or transparent” audit to be conducted by the CAG.

In fact, it was a letter to the Joint Secretary (Exploration), A. Giridhar, written by RIL president and COO (Business), B. Ganguly on October 18 that triggered a strong response from the CAG against the conditions sought to be imposed by RIL.

In the letter, RIL said it was willing to proceed on the basis of the assurance provided by the Petroleum Ministry and agreed to the conduct of any audit by the CAG under Section 1.9 of the accounting procedure of the production sharing contract: “We request that the Petroleum Ministry/CAG inform us if their understanding of the procedure for the conduct of its audit under Section 1.9 of the PSC is at variance from that set below:”

Listing its conditions, Mr. Ganguly states: (i) Article 25.1 of PSC requires books and records to be maintained at the Contractor’s office and, therefore, audit will be carried out from the premises of the Contractor; (ii) the Contractor will not be asked or required to provide documents, information or any clarification of matters which go beyond the scope of audit under Section 1.9 of the accounting procedure of PSC; (iii) there have been no exceptional circumstances (within the meaning of Section 1.9.1 of the accounting procedure), which would entitle the Ministry to exercise its audit rights outside the period permitted by Section 1.9.1 and the Contractor has not failed to comply with any of the provisions of the PSC as alleged in the Petroleum Ministry letter dated October 3, 2012.

An audit of the years that are time-barred can be conducted if the contractor parties consent and that will be without prejudice to their rights under the PSC; (iv) the audit report of the audit conduct will be submitted to the party seeking the audit, i.e., Petroleum Ministry, for further action strictly in accordance with the procedures set under the PSC. Accordingly, as per the procedure laid down in the PSC, exceptions shall be communicated and any adjustments in the books shall be made after the contractor’s agreeing to such adjustments — consequently, they will be resolved as prescribed by the provisions of the PSC; (v) the CAG may separately also be conducting an annual audit or special performance audit of the Petroleum Ministry; however, the audit by the CAG of the contractor’s accounting books and records under Section 1.9 of the accounting procedure to the PSC will be an independent standalone audit, as contemplated by the PSC and subject to confidentiality arrangements between the parties to the PSC which includes the government.

Last, the letter states that as such, any information, data or knowledge acquired during an audit under Section 1.9 cannot be used for or associated with any other audit that may be performed by the CAG under its powers under the CAG (DPC) Act. The exercise of such performance audits grants the CAG the authority to access the books and records of the government only and not of third parties with whom the government has entered into transactions or any financial relations.

“Subject to the above understanding, we are willing for an audit under Section 1.9 of the PSC and [will] cooperate with such audit without prejudice to any of our rights and contentions as stated to date.”

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