The Supreme Court on Friday stayed the audit conducted by the Comptroller and Auditor General (CAG) of the three private power distribution companies in Delhi and ordered maintenance of the status quo, observing that the legality of the Delhi Electricity Regulatory Commission (DERC) decision to appoint the national auditor raises a debatable question that requires examination.
The stay order is a setback for the Rekha Gupta-led Delhi government, which has made the CAG audit a key component of its efforts to scrutinize the finances of private disc jockeys in the capital before allowing the recovery of more than $100 billion. $Rs 38,500 crore in regulatory assets from consumers.
A bench of Justices KV Viswanathan and Shree Chandrashekhar passed the interim order while hearing DERC’s appeal against the April ruling of the Appellate Tribunal for Electricity (APTEL), which held that entrusting the CAG with the audit contravened the legal framework and instead directed the regulator to appoint an independent chartered accountant to conduct the stringent audit.
“The present civil appeal relates directly to the issue whether the action taken by DERC in initiating the process of audit of distribution companies by the CAG was legally permissible,” the bench noted.
Issuing notice on DERC’s appeal, the court stayed APTEL’s directive to appoint a chartered accountant and review the new CAG ordered by the Delhi government earlier this month.
“Till further orders, there shall be a stay on the APTEL directive on appointment of any chartered accountant for audit. The CAG shall also not proceed with the audit in the meantime,” it said.
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The court also ordered the status quo to be maintained until the matter is heard on July 15 by the same body that had delivered the ruling on August 6, 2025 to settle the phased liquidation framework of Delhi’s regulatory assets until 2031 while directing “rigorous and intense scrutiny” into the circumstances that led to their accumulation.
The dispute centers on almost all regulatory assets (RAs). $38,552 crore accumulated by the three Delhi distribution companies – BSES Rajdhani Power Ltd, BSES Yamuna Power Ltd and Tata Power Delhi Distribution Ltd. These represent deferred costs arising largely because electricity tariffs have remained unchanged for more than a decade despite rising supply costs and can eventually be recovered from consumers through future tariff reviews.
Solicitor General Tushar Mehta, representing DERC, argued that the Lieutenant Governor had recently approved the CAG audit after complying with procedural requirements set by APTEL. He stressed that the government’s interest was to prevent consumers from bearing the burden of recovering regulatory assets before the audit process determined how these liabilities accumulated.
“The trend has been to liquidate. LG banned liquidation yesterday. They want to recover without an audit. Consumers should not be burdened with the cost they will have to pay if they continue with liquidation,” Mehta argued.
However, the bench wondered how the issue of liquidation of regulatory assets would arise in an appeal limited to the legality of the CAG’s appointment as auditor.
During their appearances for the disk companies, senior advocates AM Singhvi and Budi Ranganathan argued that the audit and regulatory asset recovery issues were distinct. Referring to the Supreme Court ruling of August 2025, Singhvi maintained that the roadmap for liquidation of regulatory assets has already been settled up to 2031 and that the current procedures are limited to the legality of the CAG appointment.
Noting that an interpretation of the August 2025 ruling would be necessary, the court ordered that the matter be considered by the same body, subject to the approval of the Chief Justice.
The lawsuit is the latest chapter in a dispute over Delhi’s growing regulatory assets. After APTEL overturned DERC’s decision to appoint the CAG, the Delhi government led by Prime Minister Gupta initiated a new process, obtained approvals from the Cabinet and Lieutenant Governor, and once again entrusted the CAG with a “rigorous and intensive” review.
