Delhi High Court: Show-Cause Notice Alone Cannot Be Challenged, BSES Must Respond Before Seeking Court Relief

The Delhi High Court has ruled that a show-cause notice issued under Section 20(3) of the Comptroller and Auditor General’s (CAG) Act cannot be challenged at the initial stage, holding that BSES Rajdhani Power Ltd. (BRPL) and BSES Yamuna Power Ltd. (BYPL) must first submit their objections before seeking judicial intervention. The Court observed that a notice proposing a CAG audit does not determine any legal rights or liabilities and is only the beginning of the statutory process.

Justice Tejas Karia dismissed the writ petition filed by the two power distribution companies challenging a June 6, 2026 show-cause notice proposing to entrust their audit to the CAG. The companies argued that the proposed audit violated the Supreme Court’s August 2025 Regulatory Asset (RA) judgment and the Delhi High Court’s 2015 decision in the United Residents Joint Action (URJA) case, which had quashed an earlier attempt to order a CAG audit of BSES.

Rejecting the challenge, the Court held that the notice merely invited BSES to present its objections and did not amount to a final decision. It reiterated the settled legal principle that courts ordinarily do not interfere with show-cause notices unless they are issued without jurisdiction, are patently illegal, or are perverse. Since none of these circumstances existed, the petition was found to be premature.

The Court also rejected BSES’ argument that the Supreme Court’s Regulatory Asset judgment restricted the audit only to the Delhi Electricity Regulatory Commission (DERC). It observed that the Supreme Court had directed a “strict and intensive audit” into the circumstances leading to the accumulation of regulatory assets, which necessarily permits examination of the distribution companies’ accounts, records and conduct. Importantly, the Supreme Court had not specified which agency should conduct the audit, nor had it prohibited the CAG from undertaking it, provided the statutory requirements under the CAG Act were followed.

Distinguishing the 2015 URJA judgment, the Court noted that the earlier case arose in a different factual and legal context. Unlike the previous attempt, the present proposal was initiated by DERC to comply with the Supreme Court’s directions regarding regulatory assets and included an opportunity for BSES to be heard before any final decision on entrusting the audit was taken. The proposed audit was also limited to issues arising from the Regulatory Asset judgment and served a clear public interest, as its outcome could directly impact electricity consumers.

The High Court clarified that its observations were confined to the validity of the show-cause notice and would not influence the competent authority while deciding whether to entrust the audit to the CAG. It directed the authority to independently consider all objections raised by BSES before taking a final decision.

With these observations, the writ petition was dismissed, while leaving all rights and contentions of the parties open in the pending proceedings before the Supreme Court and the Appellate Tribunal for Electricity (APTEL).

Case: BSES Rajdhani Power Limited & Anr. v. Government of NCT of Delhi & Ors.

Court: Delhi High Court

Bench: Justice Tejas Karia

Judgment Date: 22 June 2026