Can CAG Audit Privately Run Discoms? Supreme Court to Decide Key Constitutional Question in Delhi Power Dispute
Apex Court stays both CAG and Chartered Accountant audits of Delhi’s private power distribution companies as it examines the legal limits of public financial oversight
The Supreme Court is set to decide a significant constitutional and regulatory question: Can the Comptroller and Auditor General (CAG) audit privately owned electricity distribution companies (discoms)? The issue has arisen in a high-stakes dispute involving Delhi’s three private power distributors and nearly ₹38,500 crore in regulatory assets, costs that may ultimately be recovered from electricity consumers.
A Bench of Justice K.V. Viswanathan and Justice Shree Chandrashekhar has ordered status quo, temporarily staying both the proposed CAG audit and the appointment of an independent Chartered Accountant directed by the Appellate Tribunal for Electricity (APTEL). The Court observed that the dispute raises substantial legal questions requiring authoritative interpretation before any audit proceeds.
At the centre of the controversy is the Delhi Electricity Regulatory Commission (DERC), which sought to have the CAG conduct a “strict and intensive” audit of the finances of BSES Rajdhani Power Ltd., BSES Yamuna Power Ltd., and Tata Power Delhi Distribution Ltd. The Delhi Government argues that before consumers are asked to bear the burden of accumulated regulatory assets, there must be a transparent examination of how these liabilities arose.
The dispute stems from an earlier Supreme Court judgment delivered in August 2025, which directed electricity regulators across the country to ensure strict audits into the accumulation of regulatory assets. However, that judgment did not specify who should conduct the audit. The present litigation seeks clarity on whether such an exercise can legally be entrusted to the CAG or must instead be carried out by an independent auditor.
Earlier this year, APTEL ruled that DERC lacked statutory authority to appoint the CAG for auditing private discoms. The tribunal held that the Electricity Act contemplates audits by independent professionals rather than the constitutional auditor and consequently directed DERC to appoint a Chartered Accountant to undertake the exercise. DERC challenged that ruling before the Supreme Court.
Appearing for DERC, Solicitor General Tushar Mehta argued that the Supreme Court’s 2025 judgment envisaged a rigorous audit before any recovery of regulatory assets from consumers. According to the regulator, the CAG’s institutional expertise and independence make it the appropriate authority to carry out such an examination in the public interest.
The discoms, represented by senior counsel, opposed the proposal, contending that they are privately owned companies governed by the Electricity Act and the Companies Act. They argued that the question of who conducts the audit is legally distinct from the issue of recovering regulatory assets and maintained that extending CAG jurisdiction over private entities would exceed the constitutional framework governing the national auditor.
During the hearing, the Supreme Court observed that resolving the dispute would require interpreting its own August 2025 judgment. Consequently, it directed that the matter be placed before the appropriate Bench and fixed it for further hearing. Until then, neither the CAG nor any Chartered Accountant appointed pursuant to APTEL’s directions may proceed with the audit.
The outcome of the case is expected to have ramifications well beyond Delhi. A ruling in favour of the CAG could expand the scope of public financial scrutiny over private entities performing essential public functions and receiving substantial government subsidies. Conversely, a decision limiting the CAG’s role may reaffirm the distinction between constitutional audit powers and sector-specific regulatory oversight.
For now, the Supreme Court has made it clear that it has not expressed any opinion on the legality of a CAG audit. The interim order merely preserves the existing position while the Court decides a question that could shape the future relationship between constitutional accountability, private utilities, and consumer protection in India’s power sector.
