The Supreme Court on Friday directed maintenance of the status quo in the dispute concerning the proposed audit of Delhi’s electricity distribution companies (discoms), holding that neither the Comptroller and Auditor General (CAG) nor an independent Chartered Accountant shall undertake the audit until it determines the scope and interpretation of its judgment dated August 6, 2025.
The Bench of Justice KV Viswanathan and Justice Shree Chandrashekhar issued notice on appeals filed by the Delhi Electricity Regulatory Commission (DERC) challenging the orders of the Appellate Tribunal for Electricity (APTEL). The Tribunal had held that DERC could not entrust the audit to the CAG and had instead directed it to appoint an independent Chartered Accountant to conduct the exercise.
Pending further orders, the Supreme Court stayed the operation of paragraph 40 of APTEL’s judgment directing DERC to appoint an independent Chartered Accountant within one week. It also restrained the CAG from proceeding with the proposed audit, thereby freezing the entire exercise until further orders.
The Bench observed that the dispute raises important questions requiring an interpretation of its own August 6, 2025 judgment before deciding whether the audit can legally be carried out by the constitutional auditor or by an independent Chartered Accountant. The matter has been listed for hearing on July 15 and has been directed to be placed before the Chief Justice of India for assignment to an appropriate Bench.
The controversy traces its origin to the Supreme Court’s August 2025 judgment in a batch of appeals concerning tariff orders issued by DERC between 2011 and 2014. In that decision, the Court found that regulatory assets had accumulated to more than Rs. 1.5 lakh crore across the country, including approximately Rs. 27,200 crore in Delhi. It observed that allowing such liabilities to accumulate indefinitely distorted tariff determination, undermined the principle of cost-reflective tariffs and unfairly shifted the financial burden to future consumers.
To address the issue, the Apex Court directed electricity regulatory commissions across the country to ensure that tariffs remained broadly cost-reflective, prescribed timelines for liquidation of regulatory assets and laid down a roadmap to prevent fresh accumulation of such liabilities. It further directed all electricity regulatory commissions to undertake a strict and comprehensive audit into the circumstances under which distribution companies continued operations without recovering regulatory assets. The Court also entrusted APTEL with monitoring compliance by exercising its powers under Section 121 of the Electricity Act, 2003.
However, while mandating the audit, the Supreme Court did not specify the authority competent to conduct it. Acting upon these directions, the Lieutenant Governor of Delhi approved a proposal on March 5, 2026 for the audit to be conducted by the CAG. The proposal formed part of the Delhi government’s initiative to examine the financial affairs of the three private discoms—BSES Rajdhani Power Limited (BRPL), BSES Yamuna Power Limited (BYPL) and Tata Power Delhi Distribution Limited (TPDDL)—before permitting them to recover regulatory assets exceeding Rs. 38,500 crore from electricity consumers.
The proposal was challenged before APTEL, which held that DERC’s decision to entrust the audit to the CAG was contrary to the statutory framework governing electricity regulation. The Tribunal consequently quashed the proposal and directed DERC to appoint an independent Chartered Accountant to carry out the audit. Review petitions preferred by DERC were subsequently dismissed, resulting in the present appeals before the Supreme Court.
Solicitor General Tushar Mehta, appearing for DERC, submitted that the audit contemplated by the Supreme Court’s August 2025 judgment constituted an integral component of the mechanism devised by the Court before permitting recovery of regulatory assets from consumers. Referring to paragraph 71 of the judgment, he argued that the audit had to be completed before any recovery of regulatory assets could be effected.
Senior Advocate Abhishek Manu Singhvi, appearing for the private discoms, disputed this interpretation. He submitted that the question of audit and the issue relating to recovery of regulatory assets were distinct and independent. According to him, the present proceedings were confined solely to determining the authority competent to conduct the audit and did not concern the recovery of regulatory assets.
Taking note of the rival submissions, the Bench observed that the controversy necessitates an authoritative interpretation of its own judgment dated August 6, 2025. It accordingly directed that the matter be placed before the Chief Justice of India for assignment to an appropriate Bench.
Until further orders, the Supreme Court directed that neither the CAG nor any independent Chartered Accountant shall proceed with the proposed audit of Delhi’s electricity distribution companies.
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