The Cabinet also decided to call a special session of Delhi Assembly tomorrow to discuss alleged irregularities in Delhi and District Cricket Association (DDCA) and the last week's CBI raid at the Delhi Secretariat.
The decisions were taken at a Cabinet meeting presided by Chief Minister Arvind Kejriwal.
"Delhi Cabinet resolves to set up Commission of Enquiry on DDCA scam. Special session of assembly tomorrow to discuss DDCA scam and CBI raids on Delhi Secretariat," Kejriwal tweeted.
The decision to form the commission of inquiry came amid AAP's fierce attack on Union Finance Minister Arun Jaitley over alleged irregularities in DDCA during his 13-year tenure its chief. Jaitley has strongly rubbished the allegations.
"We will present a resolution in the House to approve setting up of the Commission of Inquiry," said Deputy Chief Minister Manish Sisodia.
Following a CBI raid in Delhi Secretariat in connection with charges against Kejriwal's Principal Secretary Rajendra Kumar, AAP has been claiming that the central agency carried out the searches to target the AAP chief and was looking for a file relating to alleged graft in DDCA.
Since then, the party has been demanding resignation of Jaitley from the Union Cabinet.
The decision to appoint the committee came a month after an AAP government-appointed probe committee recommended immediate suspension of DDCA by the BCCI for alleged irregularities including financial bungling.
The Delhi Government panel had suggested that an interim committee of professional cricketers should manage affairs of the game in the capital.
The committee had also recommended to the government to appoint a Commission of Inquiry under the Commission of Enquiries Act while mentioning about findings on DDCA's alleged wrongdoings by various probe panels in the recent past including the Serious Fraud Investigation Office (SFIO).
BJP MP Kirti Azad, who has been campaigning against alleged corruption in Delhi's cricket body, today demanded an ED and DRI probe into the affairs of DDCA.
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