SC halts CAG audit of Delhi discoms till July 15 hearing

The Supreme Court of India stayed the CAG audit of Delhi's private power discoms and ordered status quo until July 15. The court will examine whether Delhi Electricity Regulatory Commission could legally appoint the CAG to conduct the audit

New Delhi: The Supreme Court on Friday halted a CAG audit ordered by the Delhi government of three private discoms against the backdrop of a staggering Rs 38,500 crore accumulated over the years as Regulatory Assets (RA) to be recovered from consumers.

A partial working day bench of Justices KV Viswanathan and Shree Chandrashekhar ordered a status quo, saying the legality of the power regulator Delhi Electricity Regulatory Commission’s (DERC) decision to appoint the CAG gives rise to questions for a judicial determination.

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In a setback to the BJP-led Delhi government, the top court ordered, “Till further orders, there shall be a stay of the Appellate Tribunal for Electricity (APTEL) direction on appointing any chartered accountant for audit. The CAG shall also not proceed with the audit in the meantime.” The top court was hearing the DERC’s plea against an April ruling of the APTEL, which had held that entrusting the audit to the CAG was contrary to the statutory framework and directed the regulator to appoint an independent chartered accountant for the audit.

The bench, while issuing notice to the discoms, said, “The present civil appeal concerns directly the issue whether the action of the DERC in initiating the process of audit of the distribution companies by CAG is legally permissible.” The top court said the status quo be maintained till July 15, when the DERC’s plea is taken up for hearing by a regular bench, which had pronounced the verdict last August.

At that time, a bench headed by Justice PS Narasimha had directed that the regulatory assets, worth Rs 27,200 crore, be paid within three years to Delhi’s three private discoms.

The bench then said that the Regulatory Assets (RAs), essentially deferred revenue gaps to be recovered in future tariffs, have risen sharply, reaching Rs 12,993 crore for BSES Rajdhani Power Ltd (BRPL), Rs 8,419 crore for BSES Yamuna Power Ltd (BYPL) and Rs 5,787 crore for Tata Power Delhi Distribution Ltd (TPDDL) as on March 31, 2024, totalling Rs 27,200 crore.

The 2025 verdict came on the petitions filed by three power distribution companies against the DERC’s tariff orders that led to the ballooning of regulatory assets.

At present, the RAs stand at Rs 38,500 crore. During the hearing on Friday, Solicitor General Tushar Mehta, appearing for DERC, submitted that the lieutenant governor had approved the CAG audit in compliance with the procedural requirements identified by APTEL.

He added that the government’s concern was to prevent consumers from being burdened with recovery of the regulatory assets before an audit established how such liabilities had accumulated.

“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 said.

The bench asked how the issue of liquidation of regulatory assets arose in an appeal confined to the legality of appointing the CAG as auditor.

Senior advocate Abhishek Singhvi, appearing for one of the discoms, submitted that the issues of audit and recovery of regulatory assets were two different things.

While referring to last year’s judgment, Singhvi submitted that the roadmap for liquidation of the RAs had already been settled till 2031, and the present proceedings were limited to the legality of the CAG’s appointment for audit.

On Thursday, the Delhi government ordered a CAG audit of power discoms against the backdrop of a staggering Rs 38,500 crore accumulated over the years as RAs.

The government said that the Comptroller and Auditor General (CAG) will undertake a “strict and intensive” audit of the circumstances under which the three discoms continued without recovering regulatory assets.

The government gave CAG three months from the date of the order to complete the audit, with a provision for extension. This was the first time the government ordered the CAG audit of private discoms since the privatisation of electricity distribution in 2002.

In April, the APTEL rejected a DERC application for CAG audit and directed the Commission to initiate liquidation of pending RAs within three weeks.

On August 6, 2025, the bench, while dealing with the term “regulatory asset”, said, “In the context of tariff determination for electricity utilities is an intangible asset that is created by the Regulatory Commissions in recognition of an uncovered revenue gap or revenue shortfall when a distribution licensee could not fully recover the costs reasonably incurred by it through revenue from tariff.”