CAG Audit Of BSES Discoms Cannot Be Blocked At Show-Cause Stage: Delhi High Court

The Delhi High Court on 22 June held that a writ petition challenging a notice proposing entrustment of audit to the Comptroller and Auditor General of India (CAG) is premature, reiterating that courts ordinarily do not interfere at the stage of a show cause notice as it does not give rise to a cause of action unless it is issued without jurisdiction.

Justice Tejas Karia dismissed the writ petition filed by BSES Rajdhani Power Limited and BSES Yamuna Power Limited, upholding the Government of NCT of Delhi's notice under Section 20(3) of the CAG Act proposing entrustment of their audit to the CAG. He observed:

“The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so.”

The petitioners had challenged the notice issued by the Government of NCT of Delhi proposing a CAG audit, arguing that it was contrary to the Supreme Court's regulatory asset judgment, the earlier URJA decision of the Delhi High Court, and orders of the Appellate Tribunal for Electricity.

The respondents contended that the notice merely provided an opportunity of hearing and that the proposed audit was intended to comply with the Supreme Court's directions mandating a strict and intensive audit into the circumstances leading to accumulation of regulatory assets.

The Court held that the Supreme Court's regulatory asset judgment did not bar a CAG audit and that the scope of the proposed exercise was wide enough to include examination of the records and financial position of the distribution companies. It further held that the URJA judgment arose in a different factual context and did not prohibit initiation of the present process. The Bench held:

“The RA Judgment contains no prohibition against an audit of the Petitioners, nor does it preclude such audit from being conducted by the CAG, provided that the same is undertaken strictly in accordance with the provisions of the CAG Act and for complying with the directions contained in the RA Judgment.”

Accordingly, the High Court dismissed the writ petition, holding that the impugned notice only initiated a statutory process and did not record any adverse findings against the petitioners. It clarified that all rights and contentions of the parties in the proceedings pending before the Supreme Court would remain open.

For Petitioners: Mr. Sandeep Sethi and Mr. Buddy Ranganathan, Senior Advocates, with Mr. Amit Kapur and others

For Respondents: Mr. S.V. Raju, ASG, with Mr. Annam Venkatesh, Mr. Shaurya Sarin and Ms. Aditi Andley for GNCTD; Mr. Sanjeev Kumar Dubey, Senior Advocate, for DERC; Dr. S.S. Hooda and others for CAG