Are Delhi's Power Discoms Diverting Funds? Delhi HC Allows CAG Audit Process to Continue

The Delhi High Court on Monday dismissed a petition by BSES Rajdhani Power Ltd and BSES Yamuna Power Ltd challenging the Delhi government's proposal to entrust their audit to the Comptroller and Auditor General of India (CAG), calling the challenge premature.

What Happened

The Delhi government issued a notice on June 6 proposing to entrust the audit of both BSES distribution companies to the CAG under Section 20(3) of the CAG Act. The notice required the companies to submit their representation and appear for a hearing before the authorities.

BSES Rajdhani and BSES Yamuna moved the Delhi High Court challenging the notice, contending it was:

• Void ab initio and illegal
• Contrary to judicial precedents, including a Supreme Court judgment they argued foreclosed such an audit

What the Court Said

A vacation bench of Justice Tejas Karia dismissed the petition at the threshold, holding it premature on two grounds:

• The June 6 notice had no adverse finding against the petitioners — it merely provided them an opportunity to be heard before any decision was taken
• There was no legal impediment preventing the Delhi Electricity Regulatory Commission or the Delhi government from initiating a CAG audit

On the Supreme Court judgment cited by the petitioners, the court was unambiguous —

"The Supreme Court's judgment has no prohibition against the petitioners' audit nor does it preclude such audit by the CAG as long as it is done as per the provisions of the CAG Act."

The court also directed that proceedings under Section 20(3) of the CAG Act shall be decided by the competent authority after affording the petitioners a fair hearing, without being influenced by any observations made in the HC judgment.

Delhi Government's Stand

The Delhi government opposed the petition on the grounds that:

• The petition was premature
• A CAG audit was necessary in public interest
• It was in conformity with Supreme Court directions requiring a "strict and intensive audit" of the circumstances in which the discoms continued without recovering regulatory assets
• An independent audit was essential to verify the companies' true financial position, particularly in view of possible related-party transactions or diversion of funds

What's Next

With the HC dismissing the petition, the CAG audit proceedings will now continue before the competent authority. BSES companies will have the opportunity to make their submissions on merits before any final decision on entrustment of audit is taken.