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24. Chapter - III of the 1971 Act specifies the duties and powers of the CAG.

25. Section 10 of the 1971 Act mandates that the CAG is required to compile the accounts of the Union and the States, and Section 11 of the said Act envisages that the CAG should prepare and submit accounts to the President or the Governor of a State or Administrator of the Union Territory having a Legislative Assembly.

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28. As could be seen from the above provision, it is the duty of the CAG to audit all expenditure from the Consolidated Fund of India and of each State, and to ascertain whether the moneys shown in the accounts as having been disbursed were legally available for and applicable to the services for the purposes to which they had been applied or charged. The CAG is also required to ascertain whether the expenditure conforms to the authority which governs it.

29. A statutory duty is cast on the CAG to audit all transactions of the Union and of the States relating to Contingency Funds and Public Accounts. The CAG is also required to audit all trading, manufacturing, profit and loss accounts and balance sheets along with other subsidiary accounts kept in any department of the Union or States and submit a report on the expenditure, transactions or accounts so audited by him.

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30. Section 19 of the 1971 Act also enables the CAG to audit Government Companies and Corporations. Sub- section (2) of Section 19 states that the duties and powers of the CAG in relation to the audit of the accounts of Corporations established by or under law made by the Parliament should be performed and exercised by him in accordance with the provisions of the respective legislations. Sub-section (3) of Section 19 enables the Governor of a State, if he is of the opinion that it is necessary in the public interest to request the CAG, to audit the accounts of the Corporation established by law made by the Legislature of the State and if such request had been made, the CAG should audit the accounts of such Corporation, and for this purpose, he will have the right of access to the books and accounts of such Corporation.

46. The CAG can, no doubt, make observations, say, if appointments were made in respect of the posts, which were not sanctioned or if they were over-paid or under- paid contrary to the pay-scales fixed by the requisite regulations. In the guise of auditing the expenditure, the CAG, in my view, the CAG cannot sit in judgment over the selection of candidates made by a Board of Appointment comprising of domain experts.
47. The State Government, without noticing these aspects of the matter and merely placing reliance on the observations, has fundamentally overreacted, and rather disproportionately so, in assuming that the observations made by the CAG were final and binding on it. It may be