Delhi HC Dismisses BSES Challenge to CAG Audit Notice, Distinguishes Earlier Division Bench Ruling
Justice Tejas Karia held the GNCTD's show-cause notice proposing a CAG audit of BSES distribution companies was premature to challenge and materially distinguishable from the 2015 URJA Judgment.
The High Court of Delhi, on 22 June 2026, dismissed a writ petition filed by BSES Rajdhani Power Ltd. (“BRPL”) and BSES Yamuna Power Ltd. (“BYPL”) challenging a notice dated 06.06.2026 issued by the Government of NCT of Delhi (“GNCTD”) under Section 20(3) of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 (“CAG Act”). The notice proposed entrustment of a CAG audit of the two distribution companies. Justice Tejas Karia, sitting as Vacation Judge, found the petition premature because the notice merely afforded the petitioners an opportunity to be heard before any entrustment order was made. The court also held that the 2015 Division Bench ruling in the URJA Judgment, which had previously quashed a CAG audit direction against the same companies, was not attracted on the present facts.
The Dispute Before the High Court
BRPL and BYPL are electricity distribution companies licensed by the Delhi Electricity Regulatory Commission (“DERC”) under the Delhi Electricity Reforms Act, 2000. They came into existence on 01.07.2002 when the erstwhile Delhi Vidyut Board was unbundled and privatised. Since that date, their accounts have not been subject to CAG audit; in October 2002, the CAG itself declined to audit them on the ground that they had ceased to be Government companies.
Over the years, the petitioners accumulated a substantial Regulatory Asset (“RA”) — representing unrecovered costs — which stood at ₹562.97 crores at the end of the Policy Direction Period (2002–2007). On 06.08.2025, the Supreme Court delivered judgment in the BSES Writs (the “RA Judgment”), directing that existing RA be liquidated within a maximum period of seven years from 01.04.2024 and that Regulatory Commissions undertake a “strict and intensive audit of the circumstances” in which distribution companies continued without recovery of RA.
Following that direction, the DERC wrote to the CAG in September 2025 requesting it to conduct the intensive audit. The CAG gave in-principle approval in January 2026, subject to a valid entrustment under Section 20(1) of the CAG Act from the Lieutenant Governor. GNCTD communicated entrustment on 05.03.2026. The Appellate Tribunal for Electricity (“APTEL”), which was monitoring implementation of the RA Judgment, quashed that entrustment by order dated 20.04.2026, holding that the DERC had contravened Section 20 of the CAG Act. APTEL directed the DERC to appoint a Chartered Accountant instead, and by orders dated 27.05.2026 directed commencement of RA liquidation by 16.06.2026. The DERC challenged those APTEL orders before the Supreme Court on 30.05.2026.
On 06.06.2026 — while the DERC's Supreme Court appeal was pending — GNCTD issued the impugned notice under Section 20(3) of the CAG Act, calling upon the petitioners to submit a written representation and appear for a hearing on 22.06.2026 regarding the proposed CAG audit. The petitioners sought withdrawal of the notice on 12.06.2026, received no response, and filed W.P.(C) 8283/2026.
The Legal Issues
Three issues arose for the court's consideration. First, whether a writ petition challenging a show-cause notice at the pre-entrustment stage was maintainable at all. Second, whether the impugned notice mischaracterised the audit directed by the RA Judgment and whether it could have been issued given the subsisting APTEL orders of 20.04.2026 and 27.05.2026. Third, whether the impugned notice was barred by the Division Bench's 2015 ruling in the URJA Judgment.
The petitioners, represented by Senior Advocates Mr. Sandeep Sethi and Mr. Buddy Ranganathan, pressed all three grounds. They argued that the RA Judgment directed an audit of the DERC's regulatory conduct, not an audit of the distribution companies themselves, and that the APTEL had already quashed the CAG audit on merits. They further contended that Section 20(3) of the CAG Act is merely procedural and does not create an independent source of power separate from Section 20(1), so the URJA Judgment's bar on a CAG audit remained operative.
Mr. S.V. Raju, Additional Solicitor General, appearing for GNCTD, countered that the petition was premature because no adverse order had been passed. He submitted that the RA Judgment required a strict and intensive audit in public interest, that the CAG was the appropriate body given the scale of public funds involved, and that the URJA Judgment was distinguishable because the petitioners had now been afforded a hearing opportunity.
How the Bench Reasoned
On maintainability. Justice Karia applied the settled position that writ courts do not ordinarily interfere with show-cause notices. Relying on Union of India v. Kunisetty Satyanarayana, (2006) 12 SCC 28, and Secretary, Ministry of Defence v. Prabhash Chandra Mridha, (2012) 11 SCC 565, the court held that a show-cause notice does not record any adverse finding, does not determine any right or liability, and does not give rise to a cause of action. The impugned notice merely called upon the petitioners to submit a representation and fixed a hearing date; it was not an entrustment order. The petition was therefore ordinarily not maintainable. The court nonetheless proceeded to examine the substantive objections because they were founded on binding judicial pronouncements.
On the scope of the RA Judgment audit. The petitioners argued that the Supreme Court's direction in paragraph 71(vi) of the RA Judgment was directed at examining regulatory failure by the DERC, not at auditing the distribution companies. Justice Karia rejected this reading. The RA Judgment directed a strict and intensive audit of the circumstances in which the distribution companies continued without recovery of RA. That direction, the court held, does not exclude examination of the records, conduct, accounts, or financial position of the distribution companies. The scope is broad enough to cover all relevant circumstances explaining the accumulation of RA.
On the APTEL orders, the court noted that the APTEL had quashed the earlier entrustment of 05.03.2026 on the ground that the DERC had contravened Section 20 of the CAG Act by directing the audit without following the prescribed procedure. The impugned notice of 06.06.2026 was issued under Section 20(3), which requires an opportunity of hearing before entrustment. The court found that the impugned notice was issued precisely to cure the procedural deficiency identified by the APTEL. It was not a revival of the quashed entrustment but a fresh initiation of the statutory process with the required hearing step. The APTEL orders therefore did not bar issuance of the impugned notice.
On the URJA Judgment. The 2015 Division Bench had quashed a GNCTD direction for a CAG audit of the same companies, holding that the powers of the State Government in the electricity domain stood vested in the DERC, that a parallel audit could not be directed at the instance of GNCTD, and that such an audit would be a futile exercise serving no public interest in the context of the Electricity Act.
Justice Karia identified five material distinctions. The proposed audit now arises from the RA Judgment of the Supreme Court, not from any independent initiative under the Electricity Act. The audit process was initiated by the DERC for compliance with the RA Judgment, not by GNCTD seeking to usurp regulatory functions. An opportunity of hearing has been afforded by the impugned notice, which was absent in the URJA proceedings. The scope and object of the present audit — examining circumstances of RA accumulation — differ from the audit considered in the URJA Judgment. And the proposed audit is prima facie in public interest because the outcome on RA directly affects consumers.
The court held that the URJA Judgment cannot be read as excluding, in all circumstances, the possibility of a CAG audit under the CAG Act. That ruling held only that such an audit would be futile in the specific context of the Electricity Act provisions then under consideration. In the present case, the audit is sought for compliance with the RA Judgment, a materially different context.
Outcome
The writ petition was dismissed as premature. The court clarified that its observations were confined to adjudicating the validity of the impugned notice and would not influence the competent authority when it considers the petitioners' submissions on merits under Section 20(3) of the CAG Act. All rights and contentions of the parties regarding compliance with the timelines in the RA Judgment and the APTEL orders were kept open, subject to the outcome of the proceedings pending before the Supreme Court. All pending applications were disposed of.