The Delhi High Court has clarified that a writ petition challenging a notice issued under Section 20(3) of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 (CAG Act), which merely affords an opportunity to submit a representation and to be heard before any entrustment of audit is ordered, is premature and ordinarily not maintainable. The Court held that the RA Judgment (Supreme Court judgment dated Aug 06, 2025 on BSES Writs) does not prohibit an audit of the BSES Rajdhani Power Ltd (Petitioners), nor does it preclude such audit from being conducted by the CAG, provided the same is undertaken strictly in accordance with the CAG Act, and that the URJA Judgment does not bar issuance of such a notice because the present case arises in a distinct factual and legal context.
The Court clarified that its observations were confined to adjudicating the validity and legality of the impugned notice, directed that the proceedings under Section 20(3) of the CAG Act be decided by the competent authority after affording the Petitioners an opportunity of hearing and considering their submissions on merits without being influenced by the observations in the judgment, and kept open all rights and contentions of the parties concerning compliance with the timelines in the RA Judgment and the APTEL orders, subject to the outcome of the proceedings pending before the Supreme Court.
A Single Judge Bench of Justice Tejas Karia observed that the impugned notice merely called upon the Petitioners to submit their written representation and appear for hearing, and did not record any adverse finding or determine any right or liability. Referring to Union of India v. Kunisetty Satyanarayana [(2006) 12 SCC 28] and Secretary, Ministry of Defence v. Prabhash Chandra Mridha [(2012) 11 SCC 565], the Bench reiterated that ordinarily a writ petition does not lie against a show-cause notice unless the notice is perverse, suffers from a jurisdictional infirmity, or has been issued by an authority lacking inherent jurisdiction.
On the scope of the RA Judgment, the Bench held that the direction for a strict and intensive audit of the circumstances in which the Distribution Companies continued without recovery of regulatory asset was broad enough to include examination of the records, conduct, accounts, and financial position of the Distribution Companies, and could not be confined only to an audit of the DERC. The Bench further held that the RA Judgment did not specify the agency by whom the audit was to be conducted, nor did it contain any express prohibition against audit by the CAG, provided the requirements of Section 20 of the CAG Act were complied with.
As regards the URJA Judgment, the Bench held that it arose in a materially different factual and legal context, since the present proposed audit was sought pursuant to the RA Judgment, had been initiated by the DERC for compliance with that judgment, and was preceded by an opportunity of hearing under Section 20(3) of the CAG Act. The Bench therefore found no legal impediment to initiation of the process for audit by the CAG in respect of the Petitioners, while also observing that questions regarding compliance with the timelines in the RA Judgment and the APTEL orders were left open to be agitated in appropriate proceedings, subject to the proceedings pending before the Supreme Court.
Also Read SAM acts as the Lead Legal Counsel to Jio Platforms on its Proposed IPO
Briefly, the petitioners, BSES Rajdhani Power Ltd. and BSES Yamuna Power Ltd., challenged the notice issued by the Government of NCT of Delhi under Section 20(3) of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971, proposing entrustment of their audit to the Comptroller and Auditor General of India.
The dispute arose in the backdrop of the unbundling and privatization of the erstwhile Delhi Vidyut Board, the accumulation of regulatory asset on account of under-recovery of tariff, the Supreme Court’s judgment dated August 06, 2025 directing a strict and intensive audit of the circumstances in which the Distribution Companies continued without recovery of regulatory asset, and the subsequent proceedings before the APTEL concerning the manner and agency for such audit.
The Petitioners contended that the impugned notice was contrary to the RA Judgment, the Division Bench judgment in URJA, Section 20 of the CAG Act, and the orders dated April 20, 2026 and May 27, 2026 passed by the APTEL quashing the earlier entrustment of audit to the CAG and directing appointment of a Chartered Accountant. The Respondents raised a preliminary objection that the petition was premature since the impugned communication was only a show-cause notice affording an opportunity of hearing under Section 20(3) of the CAG Act.
