Supreme Court stays planned CAG audit of power discoms in Delhi

THe sublime margaret court on fri stayed a proposed scrutinise of new delhi’s three private power distribution companies by the Comptroller and Auditor General (CAG), observing that the legality of the Delhi Electricity Regulatory Commission’s (DERC) decision to appoint the national auditor for the task raises an arguable question that requires examination.The interim order comes as a setback for the Rekha Gupta-led Delhi government, which had made the CAG audit a key plank of its effort to scrutinise the finances of the Capital’s private discoms before allowing recovery of over ₹38,500 crore in regulatory assets (RAs) from consumers.ALSO READ | ‘Citation doesn’t exist’: The case behind SC’s AI-hallucination order & draft rules released before A bench of justices KV Viswanathan and Shree Chandrashekhar passed the order while hearing an appeal by DERC against an April ruling of the Appellate Tribunal for Electricity (APTEL), which had held that entrusting the audit to CAG was contrary to the statutory framework governing electricity distribution and had instead directed the regulator to appoint an independent chartered accountant (CA) to conduct a strict audit.“The present civil appeal concerns directly the issue whether the action of DERC in initiating the process of audit of the distribution companies by CAG is legally permissible,” noted the bench.Issuing notice on DERC’s appeal, the court stayed both the APTEL’s direction appointing a CA and the fresh CAG audit ordered by the Delhi government earlier this month.“Till further orders, there shall be a stay of the APTEL direction on appointing any CA for audit. CAG shall also not proceed with audit in the meantime,” the bench directed.The court further ordered that “status quo on all aspects” be maintained until the matter is taken up again on July 15 by the same bench which had in August 2025 settled the framework for phased liquidation of RAs till 2031, while also directing “strict and intensive audit” of the circumstances in which the discoms continued without recovery of the regulatory asset.What is the case?The dispute has assumed significance because it centres around RAs of nearly ₹38,552 crore accumulated by Delhi’s three distribution companies – BSES Rajdhani Power Ltd (BRPL), BSES Yamuna Power Ltd (BYPL) and Tata Power Delhi Distribution Ltd (TPDDL). RAs are deferred costs that arise when electricity tariffs remain lower than the actual cost of supplying power. These unrecovered costs are eventually passed on to consumers through future tariff revisions.The Delhi government has argued that before consumers are burdened with recovery of RAs, there must be a comprehensive audit into how such liabilities accumulated.Solicitor general Tushar Mehta, appearing for DERC, told the court that the Delhi lieutenant governor had recently approved the CAG audit after complying with the procedural requirements identified by APTEL. He submitted that the regulator’s concern was not merely the audit itself, but preventing recovery from consumers until the audit was completed.“The direction was to liquidate. Liquidation has been prohibited by the LG yesterday. They want recovery without the audit. Consumers should not be saddled with the cost they will have to pay if they go ahead with the liquidation,” Mehta argued.The bench, however, questioned how the issue of liquidation arose in an appeal confined to the validity of appointing the CAG as auditor. “The issue before APTEL was appointment of auditor and whether the CAG could audit or not. How is it concerned with liquidation of regulatory assets already created?” Justice Viswanathan asked.Mehta responded that the LG had already deferred liquidation of RA and that no recovery would be permitted until the audit was completed. “We are clear that no recovery can happen without the audit,” he submitted.Appearing for the discoms, senior advocate AM Singhvi and Buddy Ranganathan countered that the questions of audit and recovery of RAs were entirely distinct. Referring to the Supreme Court’s judgment of August 6, 2025, Singhvi submitted that the framework for recovery of RAs had already been settled by the apex court and remained operative until 2031. “This is not an appeal on the regulatory assets,” Singhvi argued, adding that the present proceedings were confined solely to the legality of appointing the CAG as auditor.Taking note of the rival submissions, the bench observed that the controversy over recovery of regulatory assets would require interpretation of the Supreme Court’s August 2025 judgment.“Since this aspect of the matter needs interpretation of an order of this court passed on August 6, 2025, we are of the opinion that this matter should also be heard by the members of the same bench, subject of course to the orders of the Chief Justice of India,” the court said. It directed that the papers be placed before the CJI for appropriate orders and listed the matter on July 15.A long-running disputeThe litigation marks the latest chapter in a long-running dispute over Delhi’s mounting regulatory assets.In April, APTEL had struck down DERC’s earlier decision to appoint the CAG, holding that such an audit was not permissible under the statutory framework governing power distribution. Instead, it directed DERC to appoint an independent CA to conduct a strict audit while simultaneously directing the regulator to commence liquidation of the RAs in line with the Supreme Court’s earlier directions.Following that setback, the Delhi government initiated the process afresh. Notices were issued to all three discoms, their objections were considered, and after approval from both the Delhi Cabinet and the LG, a fresh order was issued earlier this month entrusting the CAG with conducting a “strict and intensive” audit.The government has maintained that the audit is necessary to determine why the RAs ballooned despite no tariff revision since 2014-15, and whether consumers should ultimately bear the burden of those costs.With Friday’s order, however, both the CAG audit initiated by the Delhi government and the CA audit directed by APTEL have been put on hold, leaving unresolved, for now, the larger question of who is legally competent to scrutinise the accounts of Delhi’s privately run power distribution companies before consumers are asked to shoulder the accumulated regulatory assets.Delhi power minister Ashish Sood said the Supreme Court’s order is a “procedural” one, and is “not a final verdict on the merits of the case nor a clean chit to the private power distribution companies”.“The interim stay merely pauses both the proposed CAG audit as well as the appointment of a Chartered Accountant until the court finally decides the legal issue. The Court has not held that the CAG audit is illegal,” a statement from his office said.Tata Power-DDL said the company hopes that the next hearing will lead to a “positive outcome in the interest of transparency and accountability.”