Mandatory prior hearing and public interest satisfaction are essential for entrusting CAG audit of private utilities.

Following the Hon’ble Supreme Court’s judgment dated August 6, 2025 ("RA Judgment"), Regulatory Commissions were directed to provide a roadmap for liquidating long-pending Regulatory Assets (RA) and conduct a "strict and intensive audit" of the circumstances leading to their non-recovery

In purported compliance, the Delhi Electricity Regulatory Commission (DERC) sought and received approval from the Lt. Governor of Delhi to entrust the intensive audit of Delhi Distribution Companies (Discoms) for FY 2007-08 to 2024-25 to the Comptroller and Auditor General (CAG)

The Discoms objected, arguing that the CAG audit was neither mandated by the RA Judgment nor compliant with statutory procedures

Simultaneously, DERC filed IA No. 568 of 2026 seeking a three-month extension (until July 1, 2026) to commence RA liquidation, citing the need to first finalize "true-up" orders for FY 2023-24

1. Whether the DERC’s action in initiating an audit of private Discoms through the CAG is legally permissible under Section 20 of the CAG Act and the RA Judgment

2. Whether DERC is entitled to an extension of time for commencing the liquidation of regulatory assets

3. Whether the Tribunal, under Section 121 of the Electricity Act, 2003, has the jurisdiction to review the legality of DERC’s administrative actions

Section 20 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971, which stipulates that the audit of a non-governmental body by the CAG requires the President/Governor’s satisfaction of "public interest" and must be preceded by a "reasonable opportunity" for the concerned body to make representations

Article 149 of the Constitution of India regarding the CAG’s powers

Precedent in United RWAs Joint Action v. Union of India (2015 Delhi HC), which established that while "body or authority" under Article 149 includes private Discoms, statutory procedural safeguards under the CAG Act must be strictly followed

The Tribunal exercised its supervisory jurisdiction under Section 121 of the Electricity Act, 2003, to ensure Regulatory Commissions comply with statutory provisions and judicial mandates

Regarding the CAG audit, the Tribunal reasoned that the Supreme Court’s RA Judgment mandated a "strict audit" but did not specifically name the CAG as the auditor

The Tribunal found that DERC failed to satisfy the twin requirements of Section 20(3) of the CAG Act: first, there was no recorded satisfaction by the Lt. Governor that the audit was in the "public interest," nor did the communications explain how such an audit served the public beyond routine regulatory functions

Second, the Discoms were never afforded an opportunity to represent against the proposal before the audit was entrusted

The Tribunal noted that DERC is already empowered under its own Appointment of Consultants Regulations to engage Chartered Accountants for such tasks

Regarding the extension of time, the Tribunal found DERC’s delay "mala fide"

It observed that the quantum of RAs (approx. ₹38,552 crores) was already provisionally known and the pendency of a true-up order was not a legal impediment to starting recovery, especially since DERC had previously given undertakings to the Supreme Court and High Court to commence liquidation by April 1, 2026

DERC was directed to appoint a Chartered Accountant within one week to conclude the intensive audit within three months

The Tribunal rejected the request for an extension to commence RA liquidation, directing DERC to begin the process within three weeks

The Tribunal granted an extension until June 30, 2026, specifically for passing the true-up orders for FY 2023-24

IA No. 568 of 2026 was disposed of accordingly