The Supreme Court stayed the CAG-led audit of Delhi’s three private power discoms and ordered status quo, holding that the legality of DERC’s decision to appoint the constitutional auditor raises an arguable issue requiring judicial review.
The Supreme Court put on hold the Comptroller and Auditor General (CAG)-led audit of Delhi’s three private electricity distribution companies and ordered that the existing situation remain unchanged.
The Court reasoned that the legality of the Delhi Electricity Regulatory Commission’s (DERC) decision to appoint the constitutional auditor involves an arguable issue that calls for judicial review.
A Bench comprising Justice K.V. Viswanathan and Justice Shree Chandrashekhar issued the interim order while hearing DERC’s appeal against an April 2026 judgment of the Appellate Tribunal for Electricity (APTEL).
APTEL had ruled that appointing the CAG to conduct the audit ran counter to the statutory scheme governing electricity regulation.
The Bench observed while issuing notice,
“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 Court stayed two things in particular:
- APTEL’s direction requiring the appointment of an independent chartered accountant to carry out the audit, and
- A fresh CAG audit that the Delhi Government had begun earlier this month.
Until further orders, the Supreme Court directed,
“The CAG shall also not proceed with audit in the meantime, and there shall be a stay of the APTEL direction on appointing any chartered accountant for audit.”
The matter has been placed for further hearing before the same Bench that delivered the Supreme Court’s August 6, 2025 judgment relating to the phased liquidation of Delhi’s regulatory assets, subject to the approval of the Chief Justice of India. The case is scheduled to be heard again on July 15.
At the heart of the dispute are regulatory assets totalling nearly Rs. 38,552 crore accumulated by Delhi’s three private Discoms BSES Rajdhani Power Limited, BSES Yamuna Power Limited, and Tata Power Delhi Distribution Limited.
These regulatory assets consist of deferred expenses linked to electricity tariffs that have remained largely static for more than a decade even as the cost of supply has risen. The sums are designed to be ultimately recovered from consumers through future tariff revisions.
For DERC, Solicitor General Tushar Mehta submitted that the Lieutenant Governor had approved the CAG audit after fulfilling the procedural steps that APTEL had identified. He further argued that the audit should take place before any move is made that would allow recovery of the regulatory assets from consumers.
Mehta submitted,
“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,”
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The Bench, however, questioned how the subject of liquidation had arisen in proceedings that were, at least initially, confined to whether DERC was legally entitled to appoint the CAG as auditor.
Senior Advocates A.M. Singhvi, appearing for the distribution companies, argued that the question of the audit is separate from any process relating to recovery of the regulatory assets. Singhvi referred to the Supreme Court’s August 2025 decision and submitted that the liquidation roadmap had already been settled up to 2031.
He maintained that the present appeal is limited to assessing whether DERC was empowered to assign the audit work to the CAG.
Noting that an interpretation of its earlier ruling would be necessary, the Supreme Court directed that the case be listed before the same Bench for further consideration. The interim order, in effect, freezes both the proposed CAG audit and any planned appointment of an independent chartered accountant until the Court finally rules on the legal validity of DERC’s decision.
Case Title: DERC v. Forum of Regulators