Supreme Court Stays CAG Audit Of Delhi Discoms, Orders Status Quo On ₹38,552 Crore Regulatory Assets

The Bench of Justice K.V. Viswanathan and Justice Shree Chandrashekhar passed the interim order while hearing DERC's appeal against an April 2026 judgment of the Appellate Tribunal for Electricity (APTEL), which had held that appointing the CAG to conduct the audit was contrary to the statutory framework governing electricity regulation. "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 Bench observed while issuing notice.

The Court stayed both APTEL's direction requiring the appointment of an independent chartered accountant for conducting the audit and the fresh CAG audit initiated by the Delhi Government earlier this month. "Till further orders, there shall be a stay of the APTEL direction on appointing any chartered accountant for audit. The CAG shall also not proceed with audit in the meantime," the Court ordered.

The matter has been directed to be heard by the same Bench that delivered the Supreme Court's August 6, 2025 judgment concerning the phased liquidation of Delhi's regulatory assets, subject to approval by the Chief Justice of India.

The case is listed for further hearing on July 15.

Dispute over Rs. 38,552 crore regulatory assets

The controversy relates to regulatory assets amounting to nearly Rs. 38,552 crore, accumulated by Delhi's three private distribution companies; BSES Rajdhani Power Limited, BSES Yamuna Power Limited, and Tata Power Delhi Distribution Limited.

These regulatory assets represent deferred costs arising from electricity tariffs remaining largely unchanged for over a decade despite increasing supply costs. The amounts are ultimately recoverable from consumers through future tariff revisions.

Delhi government backed CAG Audit

Appearing for DERC, Solicitor General Tushar Mehta submitted that the Lieutenant Governor had approved the CAG audit after complying with the procedural requirements identified by APTEL. He argued that the audit was necessary before permitting recovery of the regulatory assets from consumers.

"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 submitted.

The Bench, however, questioned how the issue of liquidation arose in proceedings confined to the legality of appointing the CAG as auditor.

Discoms opposed CAG appointment

Senior Advocates A.M. Singhvi, appearing for the distribution companies, argued that the audit issue was distinct from the recovery of regulatory assets.

Referring to the Supreme Court's August 2025 judgment, Singhvi contended that the roadmap for liquidation of the regulatory assets had already been settled until 2031 and that the present appeal was limited to examining whether DERC was legally empowered to entrust the audit to the CAG.

Observing that interpretation of its earlier judgment would be necessary, the Supreme Court directed that the matter be placed before the same Bench for further consideration.

The interim order effectively halts both the proposed CAG audit and the appointment of any independent chartered accountant until the Court decides the legal validity of DERC's decision.