Delhi High Court rejects BSES plea challenging State notice calling for CAG audit

The Delhi High Court on Monday dismissed a petition filed by power distribution companies (Discoms) BSES Rajdhani Power and BSES Yamuna Power against the Delhi government notice proposing an audit by the Comptroller and Auditor General (CAG).

Justice Tejas Karia held that the June 6 notice issued by the government was merely a show-cause notice and did not constitute an adverse order warranting judicial intervention at this stage and that the petition was premature. 

“The Impugned Notice merely affords the Petitioners an opportunity to submit their representation and to appear for hearing within the timelines stipulated therein. The Impugned Notice does not record any adverse finding against the Petitioners warranting any interference on merits at this stage in exercise of writ jurisdiction. The present Petition is, therefore, premature,” the Court said. 

The dispute arose after the Delhi government initiated proceedings under Section 20(3) of the CAG Act, seeking an audit of the two power distribution companies by the CAG. The companies argued that the move violated earlier judicial decisions and the orders of the Appellate Tribunal for Electricity (APTEL).

BSES contended that the proposed audit was an attempt to reopen settled tariff issues and delay the liquidation of regulatory assets (RA) - unrecovered costs accumulated over the years. The companies also argued that the Supreme Court’s 2025 judgment on regulatory assets required an audit of the circumstances leading to the prolonged non-recovery of RA, rather than a direct audit of the distribution companies themselves.

However, the Delhi government argued that the proposed CAG audit was necessary in the public interest to examine how distribution companies accumulated large regulatory assets without recovery. It said consumers ultimately bear these costs through tariffs, making transparency essential. The government also cited concerns over financial transactions and possible diversion of funds.

After hearing the arguments, Justice Karia concluded that the Supreme Court’s directions for a “strict and intensive audit” were broad enough and does not exclude examination of the records, conduct, accounts, or financial position of the discoms. 

It further observed that the judgment did not prohibit the CAG from conducting such an audit, provided the process complied with the provisions of the CAG Act.

Therefore, the Bench dismissed the petition but clarified that the authority must still consider BSES’s objections and provide a hearing before taking any final decision on entrusting the audit to the CAG.

Senior Advocate Sandeep Sethi and Buddy Ranganathan with advocates Amit Kapur, Alok Kumar, Anupam Varma, Gauhar Mirza, Varun Chandiok, Aditya Gupta, Aditya Ajay, Yash Srivastava, Shreya Sethi, Krishna Gambir, Adamya Ojha  and Mahima Kaur appeared for BSES Rajdhani and BSES Yamuna. 

Additional Solicitor General (ASG) SV Raju, with advocates Annam Venkatesh, Shaurya Sarin and Aditi Andley, represented the Delhi government. 

Senior Advocate Sanjeev Kumar Dubey, with advocates Anirudh and Shah Rukh Khan, represented the DERC. 

Advocates Dr SS Hooda, Aditya Hooda and Rashmi Rawat represented the CAG. 

[Read Judgement]