1. Interpretation of Electricity Act, 2003 and Electricity Rules, 2005 concerning eligibility and classification of Captive Generating Plants and captive users. (Para 1 )
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2023 Supreme(SC) 1024
SUPREME COURT OF INDIA
SANJIV KHANNA, M.M. SUNDRESH, JJ.
M/s. Dakshin Gujarat Vij Company Limited - Appellant
Versus
M/s. Gayatri Shakti Paper And Board Limited And Another, Etc. - Respondents
Civil Appeal Nos. 8527-8529 OF 2009 With Civil Appeal Nos. 1-2 Of 2010, Civil Appeal Nos. 1693-1698 Of 2010, Civil Appeal No. 12282 Of 2016, Civil Appeal No. 1142 Of 2022, Civil Appeal No. 1141 Of 2022, Civil Appeal Nos. 4611-4624 Of 2022, Civil Appeal Nos. 4532-4556 Of 2022, Civil Appeal No. 4571 Of 2022, Civil Appeal Diary No. 10378 Of 2022, Civil Appeal No. 3662 Of 2022, Civil Appeal No. 4233 Of 2022 And Civil Appeal No. 8738 Of 2022
Decided On : 09-10-2023
Important Points
Captive generating plants must ensure 26% ownership and 51% consumption by captive users, interpreted not only to include individuals but also legal entities as associations, ensuring compliance with stipulated eligibility criteria.
Subject
Energy Law - Captive Generation
Act Referred
CENTRAL ELECTRICITY REGULATORY COMMISSION PROCEDURE, TERMS AND CONDITIONS FOR GRANT OF TRADING LICENSE AND OTHER RELATED MATTERS REGULATIONS: Reg.6(a)
COMPANIES ACT: S.2(87)
ELECTRICITY ACT: S.2(8), S.42(2), S.8(2), S.9
ELECTRICITY RULES: R.3
COMPANIES ACT: S.2(87)
ELECTRICITY ACT: S.2(8), S.42(2), S.8(2), S.9
ELECTRICITY RULES: R.3
Headnote
(A) Electricity Act, 2003 - Sections 2(8), 2(49), 9, 42 - Interpretation of captive generating plant and eligibility requirements for captive users discussed. (Paras 1-2)
(B) Captive generating plants must be primarily for self-use or the use of an association of persons; transfer of ownership does not void captive status if criteria are met. (Paras 10-17)
(C) Specific eligibility criteria require at least 26% ownership and 51% consumption of generated electricity by captive users. (Paras 21-24)
(D) Proportional consumption requirements clarified, stressing individual consumption must align with ownership. (Paras 41-44)
Facts of the case:
This judgment addressed the interpretation of the Electricity Act provisions and eligibility of certain entities as captive users against conflicting earlier judgments. The court analyzed ownership and consumption requirements under applicable rules and statutes.
Findings of Court:
The court affirmed the need for captive users to satisfy ownership and consumption requisites continuously throughout the financial year and established a clear framework for understanding the legal status and obligations of captive generating plants and their users.
Issues: The primary issues included qualifications for a captive generating plant, the interpretation of rules regarding captive user status, and the implications of ownership transfers.
Ratio Decidendi: The court concluded the interpretation of 'association of persons' encompasses SPVs, affirming no exemption from proportional consumption requirements exists for SPVs.
Result: The court confirmed the necessity for compliance with sections and rules pertaining to captive generating plants.
(B) Captive generating plants must be primarily for self-use or the use of an association of persons; transfer of ownership does not void captive status if criteria are met. (Paras 10-17)
(C) Specific eligibility criteria require at least 26% ownership and 51% consumption of generated electricity by captive users. (Paras 21-24)
(D) Proportional consumption requirements clarified, stressing individual consumption must align with ownership. (Paras 41-44)
Facts of the case:
This judgment addressed the interpretation of the Electricity Act provisions and eligibility of certain entities as captive users against conflicting earlier judgments. The court analyzed ownership and consumption requirements under applicable rules and statutes.
Findings of Court:
The court affirmed the need for captive users to satisfy ownership and consumption requisites continuously throughout the financial year and established a clear framework for understanding the legal status and obligations of captive generating plants and their users.
Issues: The primary issues included qualifications for a captive generating plant, the interpretation of rules regarding captive user status, and the implications of ownership transfers.
Ratio Decidendi: The court concluded the interpretation of 'association of persons' encompasses SPVs, affirming no exemption from proportional consumption requirements exists for SPVs.
Result: The court confirmed the necessity for compliance with sections and rules pertaining to captive generating plants.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) Mr. K. V. Mohan, AOR Mr. Nikunj Dayal, AOR Mr. Sanjay Sen, Sr. Adv. Mr. Rohit Singha, Adv. Ms. Tatini Basu, AOR Mr. Kumar Shashank, Adv. Ms. Nitipriya Kar, Adv. Ms. Shraddha Deshmukh, Adv. Ms. Supriya Juneja, AOR M/S. D. S. K Legal, AOR Mr. G. Saikumar, Adv. Mr. Samir Malik, Adv. Ms. Nikita Choukse, Adv. Mr. Akash Lamba, Adv. Mr. Krishan Kumar, Adv. Mr. G.umapathy, Sr. Adv. Mr. Rohit K. Singh, AOR Mr. Vijay Kumar, Adv. Mr. Mr. Basava Prabhu S.patil, Sr. Adv. Mr. Basava Prabhu S.patil, Sr. Adv. Ms. Ishita Jain, AOR Mr. Sudhir Nandrajog, Sr. Adv. Mr. Anand Kumar Shrivastava, Adv. Mr. Shivam Sinha, Adv. Mr. Ankit Bhandari, Adv. Mr. Geet Rajan Ahuja, Adv. Mr. C. A. Sundaram, Sr. Adv. Ms. Sharmila Upadhyay, AOR Mr. Matrugupta Mishra, Adv. Mr. Nipun Dave, Adv. Ms. Rohini Musa, Adv. Mr. Zafar Inayat, Adv. Mr. Mohit D. Ram, AOR Ms. Sapna Chauhan, Adv. Mr. Bhagirath N.patel, Adv. Mr. Anubhav Sharma, Adv.
For the Respondent(s) Mr. Nikunj Dayal, AOR Mr. Sanjeev Kapoor, Adv. Ms. Divya Chaturvedi, Adv. Mr. Saransh Shaw, Adv. M/S. Khaitan & Co., AOR Mr. B. Krishna Prasad, AOR Mr. Nakul Dewan , Sr., Adv. Mr. Pradhuman Gohil, Adv. Ms. Taruna Singh Gohil, Adv. Ms. Ranu Purohit, Adv. Mr. Alapati Sahithya Krishna, Adv. Ms. Nidhi Mittal, Adv. Mr. Rushabh N. Kapadia, Adv. Mrs. Taruna Singh Gohil, AOR M/S. D.S. K. Legal, AOR Mr. Samir Malik, AOR Mr. Hasan Murtaza, AOR Mr. K. V. Mohan, AOR Ms. Amita Singh Kalkal, AOR Ms. Hemantika Wahi, AOR Mr. M. Y. Deshmukh, AOR Ms. Manjeet Kirpal, Adv. Ms. Adviteeya Sharma, Adv. Mr. D. Kumanan, AOR Mr. Sheikh F Kalia, Adv. Mr. Rajeev Maheshwaranand Roy, AOR Mr. P. Srinivasan, Adv. Mr. Gunjan Kumar, Adv. Mr. Senthil Jagadeesan, AOR Mr. Sajal Jain, Adv. Ms. Sonakshi Malhan, Adv. Ms. Ishita Jain, AOR Mr. Anand Kumar Shrivastava, Adv. Mr. Shivam Sinha, Adv. Mr. Shivam Sinah, Adv. Mr. Ankit Bhandari, Adv. Ms. Arunima Dwivedi, AOR Mr. Gurmeet Singh Makker, AOR Mr. Anand Shankar Jha, AOR Mrs. Meenakshi Devgan, Adv. Mr. Sachin Mintri, Adv. Mr. T. Sundar Ramanathan, AOR Mr. Vivek Pandey, Adv. Mr. D Balaji, Adv. Mr. Krishan Singhal, Adv. Mr. Abhinav Mukerji, AOR Mr. Senthil Jagadeesan, AOR Mr. Sajal Jain, Adv. Ms. Sonakshi Malhan, Adv. Mr. Sanjeev Kapoor, Adv. Ms. Divya Chaturvedi, Adv. Mr. Saransh Shaw, Adv. M/S. Khaitan & Co., AOR Mr. Nikunj Dayal, AOR Mr Hasan Murtaza, AOR Mr. V.S. Pillai, Sr. Adv. Mr. Hitesh Kumar Sharma, Adv. Mr. Akhileshwar Jha, Adv. Mr. R.L.K. Sundram, Adv. Mr. S.S. Stalian, Adv. Mr. V. J. Stlani, Adv. Mr. Vinodh Kanna B., AOR
For the Appellant(s) Mr. K. V. Mohan, AOR Mr. Nikunj Dayal, AOR Mr. Sanjay Sen, Sr. Adv. Mr. Rohit Singha, Adv. Ms. Tatini Basu, AOR Mr. Kumar Shashank, Adv. Ms. Nitipriya Kar, Adv. Ms. Shraddha Deshmukh, Adv. Ms. Supriya Juneja, AOR M/S. D. S. K Legal, AOR Mr. G. Saikumar, Adv. Mr. Samir Malik, Adv. Ms. Nikita Choukse, Adv. Mr. Akash Lamba, Adv. Mr. Krishan Kumar, Adv. Mr. G.umapathy, Sr. Adv. Mr. Rohit K. Singh, AOR Mr. Vijay Kumar, Adv. Mr. Mr. Basava Prabhu S.patil, Sr. Adv. Mr. Basava Prabhu S.patil, Sr. Adv. Ms. Ishita Jain, AOR Mr. Sudhir Nandrajog, Sr. Adv. Mr. Anand Kumar Shrivastava, Adv. Mr. Shivam Sinha, Adv. Mr. Ankit Bhandari, Adv. Mr. Geet Rajan Ahuja, Adv. Mr. C. A. Sundaram, Sr. Adv. Ms. Sharmila Upadhyay, AOR Mr. Matrugupta Mishra, Adv. Mr. Nipun Dave, Adv. Ms. Rohini Musa, Adv. Mr. Zafar Inayat, Adv. Mr. Mohit D. Ram, AOR Ms. Sapna Chauhan, Adv. Mr. Bhagirath N.patel, Adv. Mr. Anubhav Sharma, Adv.
For the Respondent(s) Mr. Nikunj Dayal, AOR Mr. Sanjeev Kapoor, Adv. Ms. Divya Chaturvedi, Adv. Mr. Saransh Shaw, Adv. M/S. Khaitan & Co., AOR Mr. B. Krishna Prasad, AOR Mr. Nakul Dewan , Sr., Adv. Mr. Pradhuman Gohil, Adv. Ms. Taruna Singh Gohil, Adv. Ms. Ranu Purohit, Adv. Mr. Alapati Sahithya Krishna, Adv. Ms. Nidhi Mittal, Adv. Mr. Rushabh N. Kapadia, Adv. Mrs. Taruna Singh Gohil, AOR M/S. D.S. K. Legal, AOR Mr. Samir Malik, AOR Mr. Hasan Murtaza, AOR Mr. K. V. Mohan, AOR Ms. Amita Singh Kalkal, AOR Ms. Hemantika Wahi, AOR Mr. M. Y. Deshmukh, AOR Ms. Manjeet Kirpal, Adv. Ms. Adviteeya Sharma, Adv. Mr. D. Kumanan, AOR Mr. Sheikh F Kalia, Adv. Mr. Rajeev Maheshwaranand Roy, AOR Mr. P. Srinivasan, Adv. Mr. Gunjan Kumar, Adv. Mr. Senthil Jagadeesan, AOR Mr. Sajal Jain, Adv. Ms. Sonakshi Malhan, Adv. Ms. Ishita Jain, AOR Mr. Anand Kumar Shrivastava, Adv. Mr. Shivam Sinha, Adv. Mr. Shivam Sinah, Adv. Mr. Ankit Bhandari, Adv. Ms. Arunima Dwivedi, AOR Mr. Gurmeet Singh Makker, AOR Mr. Anand Shankar Jha, AOR Mrs. Meenakshi Devgan, Adv. Mr. Sachin Mintri, Adv. Mr. T. Sundar Ramanathan, AOR Mr. Vivek Pandey, Adv. Mr. D Balaji, Adv. Mr. Krishan Singhal, Adv. Mr. Abhinav Mukerji, AOR Mr. Senthil Jagadeesan, AOR Mr. Sajal Jain, Adv. Ms. Sonakshi Malhan, Adv. Mr. Sanjeev Kapoor, Adv. Ms. Divya Chaturvedi, Adv. Mr. Saransh Shaw, Adv. M/S. Khaitan & Co., AOR Mr. Nikunj Dayal, AOR Mr Hasan Murtaza, AOR Mr. V.S. Pillai, Sr. Adv. Mr. Hitesh Kumar Sharma, Adv. Mr. Akhileshwar Jha, Adv. Mr. R.L.K. Sundram, Adv. Mr. S.S. Stalian, Adv. Mr. V. J. Stlani, Adv. Mr. Vinodh Kanna B., AOR
Table of Contents
2. Whether SPVs are associations of persons subject to proportionality, whether ownership transfer bars captive status, and whether eligibility is verified only at year-end. (Para 31 , 49 , 52 )
3. Analysis of the primarily for own use requirement, the nature of SPVs as associations of persons, and the necessity of continuous ownership compliance. (Para 11 , 25 , 32 , 39 , 43 , 47 , 51 , 57 , 65 )
4. SPVs are associations of persons subject to proportionality; ownership thresholds must be maintained continuously; CGP status persists after ownership transfer if criteria are met. (Para 36 , 39 , 48 , 66 )
5. Held that SPVs are associations of persons required to comply with Rule 3(1)(a) and the proportionality requirement under the second proviso. (Para 67 )
6. Does the transfer of ownership affect the status of a Captive Generating Plant (CGP)?
No. A CGP does not lose its captive status due to the transfer of ownership or any part thereof, provided the new owner complies with the eligibility criteria specified under Rule 3 of the Electricity Rules, 2005. (Para 36 )
7. When must the minimum ownership and consumption criteria for captive users be satisfied?
The minimum ownership requirement of 26% and the minimum electricity consumption requirement of 51% must be maintained continuously throughout the financial year, from 1st April to 31st March, rather than only at the end of the year. (Para 39 )
8. How is the proportionality principle applied to an association of persons in a CGP?
Captive users must consume electricity in proportion to their shareholding. This is calculated using a unitary qualifying ratio where every 1% shareholding requires approximately 1.96% consumption of generated electricity, with a permissible variation of 10%. (Para 43 , 44 )
9. How is proportional consumption determined when shareholding fluctuates during the year?
The principle of weighted average shareholding is applied to calculate the relevant average shareholding of the captive user for the year, which then determines the proportionate electricity required to be consumed. (Para 47 , 48 )
10. Is a Special Purpose Vehicle (SPV) considered an association of persons subject to the proportionality requirement?
Yes. An SPV is an association of persons formed for the common benefit of its shareholders to be captive users. Therefore, it must comply with Rule 3(1)(a) and the proportionality requirement under the second proviso. (Para 51 , 57 , 64 , 66 )
JUDGMENT :
(Sanjiv Khanna, J.)
This judgment interprets relevant provisions of the ELECTRICITY ACT , 20031[For short, “Act”] and Rule 3 of the ELECTRICITY RULES , 20052[For short, “Rules”], for being classified as a Captive Generating Plant3[For short, “CGP”] and a captive user.
2. We will be elucidating the legal position as per the statute, our intent being to first lay down the principles of law and then apply the principles to the facts and circumstances of each case.
3. To decide the legal question, we will refer to two judgments of the Appellate Tribunal for Electricity4[For short, “APTEL”]. These are, Kadodara Power Pvt. Ltd. and Others v. Gujarat Electricity Regulatory Commission and Another 5[2009 SCC OnLine APTEL 119; for short, “Kadodara Power”], dated 22.09.2009, which decision was held to be per incuriam on several findings in Tamil Nadu Power Producers Association v. Tamil Nadu Electricity Regulatory Commission 6[2021 SCC OnLine APTEL 19; for short, “Tamil Nadu Power”], dated 07.06.2021. A third decision of the APTEL in Sai Wardha Power Generation Limited and Others v. Maharashtra Electricity Regulatory Commission 7[2021 SCC OnLine APTEL 78; for short, “Sai Wardha”], dated 26.11.2021, substantially agrees with the view in Tamil Nadu Power8[Supra note 6]. We shall refer to the reasons given in the decisions and the explanation and grounds for our conclusion and legal finding.
4. We begin by first reproducing the relevant provisions of the Act9[As amended up to 31.08.2023] :
“2. Definition. — In this Act, unless the context otherwise requires,—
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(8) “Captive generating plant” means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any cooperative society or association of persons for generating electricity primarily for use of members of such cooperative society or association;
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(49) “person” shall include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person;
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9. Captive generation. — (1) Notwithstanding anything contained in this Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines:
Provided that the supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company:
Provided further that no licence shall be required under this Act for supply of electricity generated from a captive generating plan to any licensee in accordance with the provisions of this Act and the rules and regulations made thereunder and to any consumer subject to the regulations made under sub-section (2) of Section 42.
(2) Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use:
Provided that such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be:
Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission."
5. We would also like to reproduce Rule 3 of the Rules10[As amended up to 01.09.2023], interpretation of which is pivotal for the decision:
“3. Requirements of Captive Generating Plant.—
(1) No power plant shall qualify as a ‘captive generating plant’ under Section 9 read with clause (8) of Section 2 of the Act unless—
(a) in case of a power plant—
(i) not less than twenty-six per cent of the ownership is held by the captive user(s); and
(ii) not less than fifty-one per cent of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for the captive use:
Provi
