Supreme Court of India
M/S Dakshin Gujarat Vij Company Limited … vs M/S Gayatri Shakti Paper And Board Ltd on 9 October, 2023
Author: M.M. Sundresh
Bench: M.M. Sundresh
REPORTABLE
2023INSC886
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 8527-8529 OF 2009
M/S. DAKSHIN GUJARAT VIJ COMPANY ….. APPELLANT
LIMITED
VERSUS
M/S. GAYATRI SHAKTI PAPER AND
BOARD LIMITED AND ANOTHER, ETC. ….. RESPONDENTS
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
Signature Not Verified CIVIL APPEAL DIARY NO. 10378 OF 2022
Digitally signed by
SWETA BALODI
Date: 2023.10.09
18:01:23 IST
Reason:
CIVIL APPEAL NO. 3662 OF 2022
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 1 of 55
CIVIL APPEAL NO. 4233 OF 2022
AND
CIVIL APPEAL NO. 8738 OF 2022
JUDGMENT
SANJIV KHANNA, J.
This judgment interprets relevant provisions of the Electricity
Act, 20031 and Rule 3 of the Electricity Rules, 20052, for being
classified as a Captive Generating Plant3 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. These are, Kadodara Power
Pvt. Ltd. and Others v. Gujarat Electricity Regulatory
Commission and Another5, dated 22.09.2009, which decision
was held to be per incuriam on several findings in Tamil Nadu
1 For short, “Act”.
2 For short, “Rules”.
3 For short, “CGP”.
4 For short, “APTEL”.
5 2009 SCC OnLine APTEL 119; for short, “Kadodara Power”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 2 of 55
Power Producers Association v. Tamil Nadu Electricity
Regulatory Commission6, dated 07.06.2021. A third decision of
the APTEL in Sai Wardha Power Generation Limited and Others
v. Maharashtra Electricity Regulatory Commission7 dated
26.11.2021, substantially agrees with the view in Tamil Nadu
Power8 . 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:
“2. Definition. — In this Act, unless the context
otherwise requires,—xx xx xx
(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;
xx xx xx
(49) “person” shall include any company or body
corporate or association or body of individuals, whether
incorporated or not, or artificial juridical person;
xx xx xx
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:
6 2021 SCC OnLine APTEL 19; for short, “Tamil Nadu Power”.
7 2021 SCC OnLine APTEL 78; for short, “Sai Wardha”.
8 Supra note 6.
9 As amended up to 31.08.2023.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 3 of 55
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, 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); and10 As amended up to 01.09.2023.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 4 of 55
(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:
Provided that in case of power plant set up by
registered cooperative society, the conditions
mentioned under paragraphs at (i) and (ii) above shall
be satisfied collectively by the members of the co-
operative society:
Provided further that in case of association of persons,
the captive user(s) shall hold not less than twenty-six
per cent of the ownership of the plant in aggregate and
such captive user(s) shall consume not less than fifty-
one per cent of the electricity generated, determined
on an annual basis, in proportion to their shares in
ownership of the power plant within a variation not
exceeding ten per cent;
(b) in case of a generating station owned by a company
formed as special purpose vehicle for such generating
station, a unit or units of such generating station
identified for captive use and not the entire generating
station satisfy(ies) the conditions contained in
paragraphs (i) and (ii) of sub-clause (a) above
including—Explanation.—(1) The electricity required to be
consumed by captive users shall be determined with
reference to such generating unit or units in aggregate
identified for captive use and not with reference to
generating station as a whole; and(2) The equity shares to be held by the captive user(s)
in the generating station shall not be less than twenty-
six per cent of the proportionate of the equity of the
company related to the generating unit or units
identified as the captive generating plant.
Illustration.— In a generating station with two units of
50 MW each namely Units A and B, one unit of 50 MW
namely Unit A may be identified as the Captive
Generating Plant. The captive users shall hold not less
than thirteen per cent of the equity shares in the
company (being the twenty-six per cent proportionate
to Unit A of 50 MW) and not less than fifty-one per cent
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 5 of 55
of the electricity generated in Unit A determined on an
annual basis is to be consumed by the captive users.
(2) It shall be the obligation of the captive users to
ensure that the consumption by the Captive Users at
the percentages mentioned in sub-clauses (a) and (b)
of sub-rule (1) above is maintained and in case the
minimum percentage of captive use is not complied
with in any year, the entire electricity generated shall
be treated as if it is a supply of electricity by a
generating company.
(3) The captive status of such generating plants, where
captive generating plant and its captive user(s) are
located in more than one state, shall be verified by the
Central Electricity Authority as per the procedure
issued by the Authority with the approval of the Central
Government.
Explanation.—(1) For the purpose of this rule,—
(a) ‘Annual Basis’ shall be determined based on a
financial year;
(b) ‘captive user’ shall mean the end user of the
electricity generated in a Captive Generating Plant and
the term “captive use” shall be construed accordingly:
Provided that the consumption of electricity by the
captive user may be either directly or through Energy
Storage System:
Provided further that the consumption by a subsidiary
company as defined in clause (87) of Section 2 of the
Companies Act, 2013 (18 of 2013) or the holding
company as defined in clause (46) of Section 2 of the
Companies Act, 2013 (18 of 2013), of a company
which is a captive user, shall also be admissible as
captive consumption by the captive user;
(c) ‘Ownership’ in relation to a generating station or
power plant set up by a company or any other body
corporate shall mean the equity share capital with
voting rights. In other cases ownership shall mean
proprietary interest and control over the generating
station or power plant;
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 6 of 55
(d) ‘Special Purpose Vehicle’ shall mean a legal entity
owning, operating and maintaining a generating station
and with no other business or activity to be engaged in
by the legal entity.”
6. Section 2(8) of the Act defines a “captive generating plant” as a
power plant set up by any person to generate electricity primarily
for his own use. A power plant set up by co-operative society or
associations of persons for generating electricity primarily for use
of the members of the co-operative society or association is also a
CGP.
7. Section 2(8) emphasises on the words, “primarily for his own use”
and “primarily for use of the members of the co-operative society or
association of persons”. Secondly, while specifically referring to a
co-operative society and association of persons, the clause does
not refer to a company. Section 2(49) defines the word, “person”, to
include any company or body corporate or association or body of
individuals, whether incorporated or not, or artificial juridical person.
8. On a conjoint reading of Section 2(8) and Section 2(49) of the Act,
a CGP can be an individual, body corporate, association or body of
individuals, whether incorporated or not, “primarily for his own use”
and “primarily for use of the members of the co-operative society or
association of persons”. An association of body corporates is
permitted to set up a CGP.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 7 of 55
9. Section 9 of the Act, a specific provision relating to captive
generation, applies notwithstanding anything contained in any other
provision of the Act. It states that any person may construct,
maintain or operate a CGP and dedicated transmission lines. The
second proviso to Section 9(1) states that no licence is required
under the Act for supply of electricity generated from a CGP to any
licensee in accordance with the provisions of the Act, rules and
regulations made thereunder. However, supply to any consumer is
subject to regulations made under Section 42(2) of the Act. The first
proviso to Section 9 states that the supply of electricity from the
CGP through the grid shall be regulated in the same manner as the
generating station of a generating company.
10. Section 9(2) of the Act states that a person who has constructed a
CGP and maintains and operates the CGP, shall have right to open
access for the purpose of carrying electricity from his CGP to the
destination of his use. The first proviso to Section 9(2) states that
such open access shall be subject to the 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. Any dispute regarding
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 8 of 55
availability of transmission facility is to be adjudicated by theappropriate commission.
11. Therefore, in terms of Section 9(2) of the Act, a person who has
constructed a CGP, and maintains and operates such plant,11
subject to availability constraints, can ask the distribution licensee
to open access for the purpose of carrying electricity from his CGP
to the destination of his use. This right under Section 9(2) to open
access to the transmission facilities, must be contrasted with the
right referred to in Section 9(1), which states that any person may
construct, maintain or operate a CGP and use dedicated
transmission lines for self-use.
12. The third aspect to be noticed with reference to Section 9(1) is that
the second proviso permits a person who has constructed,
maintains or operates a CGP, to supply electricity generated from
a CGP to any licensee. However, as stated above, this supply is
subject to the provisions of the Act, and rules and regulations made
thereunder. Thus, the supply to any consumer, other than a captive
user, is subject to regulations made under Section 42(2) of the Act.
11 As explained and elucidated below the word ‘and’ in Section 9(2) of the Act, when read harmoniously
with Section 9(1) and on purposive interpretation would include a subsequent owner who maintains
and operates a CGP. Captive generation as per Section 9 is not restricted to a person who constructs,
maintains and operates a CGP. The provision does not bar or prohibit transfer of ownership rights by
the person who has constructed or had originally set up the CGP.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 9 of 55
Equally, the first proviso permits supply of electricity from the CGP
through the grid, in which case the supply is to be regulated in the
same manner as in generating station of a generating company.
13. Section 9 read with the relevant provisions of the Act, therefore,
postulates three situations. First, when the person who constructs,
maintains or operates a CGP for their own use and supplies
electricity to himself through dedicated transmission lines.
Secondly, when the person who constructs, maintains or operates
a CGP to supply electricity by exercising their right to open access
for the purpose of carrying electricity from their CGP to the
destination of their use. Thirdly, when the electricity generated from
the CGP is supplied through the grid for any licensee or consumer.
While no license is required for the supply of electricity to a licensee
or consumer, the supply is subject to the regulations made under
Section 42(2) of the Act.
14. Section 42(1) of the Act states that a distribution licensee has the
duty to develop and maintain an efficient, coordinated, and
economical distribution system in the area of his supply.12 A
distribution licensee also owes duty to supply electricity in
12 “Section 42. (Duties of distribution licensee and open access): — (1) It shall be the duty of a
distribution licensee to develop and maintain an efficient, co-ordinated and economical distribution
system in his area of supply and to supply electricity in accordance with the provisions contained in
this Act.”
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 10 of 55
accordance with the provisions of the Act. Section 42(2) states that
open access shall be introduced by a State Commission in such
phases, and subject to such conditions, including cross subsidies
and other operational constraints.13 The sub-section permits the
State Commission to specify the extent of open access in
successive phases and determine charges for wheeling, which
charges have to be determined having regard to all relevant factors,
including cross subsidies and other operational constraints.14 The
first proviso states that open access shall be allowed on payment
of surcharge in addition to charges for wheeling as determined by
the State Commission.15 Such surcharge, in terms of the second
proviso, is to be utilised to meet the requirements of current level of
cross subsidy within the area of supply of the distributing licensee.16
The third proviso provides that cross subsidy and surcharge shall
be progressively reduced in the manner as may be specified by the
13 “42(2) The State Commission shall introduce open access in such phases and subject to such
conditions, (including the cross subsidies, and other operational constraints) as may be specified within
one year of the appointed date by it and in specifying the extent of open access in successive phases
and in determining the charges for wheeling, it shall have due regard to all relevant factors including
such cross-subsidies, and other operational constraints:”
14 Supra note 11.
15 “Section 42. (Duties of distribution licensee and open access): —
xx xx xx
Provided that 12[such open access shall be allowed on payment of a surcharge] in addition to the
charges for wheeling as may be determined by the State Commission:”
16 “Section 42. (Duties of distribution licensee and open access): —
xx xx xx
Provided further that such surcharge shall be utilised to meet the requirements of current level of cross-
subsidy within the area of supply of the distribution licensee:”
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 11 of 55
State Commission.17 What is important for our consideration is the
fourth proviso which states that surcharge will not be leviable in
case open access is provided to a person who has established a
CGP for carrying electricity to the destination of his use. The fourth
proviso reads:
“42. Duties of distribution licensee and open
access. —xx xx xx
Provided also that such surcharge shall not be leviable
in case open access is provided to a person who has
established a captive generating plant for carrying the
electricity to the destination of his own use:”In our opinion, the fourth proviso deals with the second situation
elaborated by us above, that is, when the person who has
established a CGP, invokes his right to open access for the purpose
of carrying electricity from the CGP to the destination of his own use
in terms of Section 9(2) of the Act. In such cases, no surcharge is
leviable even if the right to open access is invoked. However,
wheeling charges have to be paid to the distribution licensee for the
use of his distribution system to supply electricity to the destination
of his own use.
17 “Section 42. (Duties of distribution licensee and open access): —
xx xx xx
“Provided also that such surcharge and cross-subsidies shall be progressively reduced in the manner
as may be specified by the State Commission:”
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 12 of 55
15. The aforesaid interpretation of Section 9 and Section 42 of the Act,
respectfully follows the view expressed by this Court in
Chhattisgarh State Power Distribution Company Limited v.
Chhattisgarh State Electricity Regulatory Commission and
Anr.18 and Maharashtra State Electricity Distribution Company
Limited v. JSW Steel Limited and Ors.19
16. In Maharashtra State Electricity20, the specific question answered
was whether captive consumers are liable to pay additional
surcharge leviable under the Act. The answer in the negative, holds
that levy of additional surcharge would be contrary to Section 42(2)
of the Act read with the definition of “consumer” vide Section 2(15)
of the Act21, which means a person who is supplied with electricity
by the licensee or the government or any other person engaged in
the business of supplying electricity to the public and includes a
person whose premises for the time being are connected for the
purpose of receiving electricity with the works of a licensee,
government, or such other person, as the case may be. Apart from
18 (2022) SCC Online SC 604; for short, “Chhattisgarh State Power”.
19 (2022) 2 SCC 742; for short, “Maharashtra State Electricity”.
20 Supra note 19.
21 2. Definition.—In this Act, unless the context otherwise requires,—
xx xx xx
(15) ‘consumer’ means any person who is supplied with electricity for his own use by a licensee or the
Government or by any other person engaged in the business of supplying electricity to the public under
this Act or any other law for the time being in force and includes any person whose premises are for
the time being connected for the purpose of receiving electricity with the works of a licensee, the
Government or such other person, as the case may be;”
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 13 of 55
the language of the sections, this Court highlighted that the captive
consumers incur huge expenditure or invest substantial amounts
for the purpose of construction, maintenance and operation of the
CGP and sometimes on the dedicated transmission lines. Thus,
captive consumers form a separate class different viz the,
“consumers”, defined under Section 2(15).22 They are not be
subjected and liable to pay the additional surcharge.
17. In Chhattisgarh State Power23, reference was made to the
National Electricity Policy, 2005,24 notified by the Government of
India in exercise of its powers under Section 3 of the Act on
12.02.2005. Clauses 5.2.24 to 5.2.26 of the Policy dealing with
captive generation and use are relevant, and read:
“Captive Generation
5.2.24 The liberal provision in the Electricity Act, 2003
with respect to setting up of captive power plant has
been made with a view to not only securing reliable,
quality and cost effective power but also to facilitate
creation of employment opportunities through speedy
and efficient growth of industry.
5.2.25 The provision relating to captive power plants to
be set up by group of consumers is primarily aimed at
enabling small and medium industries or other
consumers that may not individually be in a position to
set up plant of optimal size in a cost effective manner.
It needs to be noted that efficient expansion of small
and medium industries across the country would lead
to creation of enormous employment opportunities.
22 Supra note 21.
23 Supra note 18.
24 For short, “Policy”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 14 of 55
5.2.26 A large number of captive and standby
generating stations in India have surplus capacity that
could be supplied to the grid continuously or during
certain time periods. These plants offer a sizeable and
potentially competitive capacity that could be
harnessed for meeting demand for power. Under the
Act, captive generators have access to licensees and
would get access to consumers who are allowed open
access. Grid inter-connections for captive generators
shall be facilitated as per section 30 of the Act. This
should be done on priority basis to enable captive
generation to become available as distributed
generation along the grid. Towards this end, non-
conventional energy sources including co-generation
could also play a role. Appropriate commercial
arrangements would need to be instituted between
licensees and the captive generators for harnessing of
spare capacity energy from captive power plants. The
appropriate Regulatory Commission shall exercise
regulatory oversight on such commercial
arrangements between captive generators and
licensees and determine tariffs when a licensee is the
off-taker of power from captive plant.”
18. This Court in Chhattisgarh State Power25 observes that the
provisions of the Act which deal with captive generation and use
have been made not only with the view to secure reliable, quality
and cost-effective power, but also to felicitate creation of
employment opportunities through speedy and efficient growth of
industry. The policy states that provisions relating to the CGP,
which can be set up by a group of consumers, are primarily made
for enabling small and medium industries and other consumers,
who may not be individually be in a position to set up a power plant
25 Supra note 18.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 15 of 55
of optimum size, in a cost-effective manner. Efficient expansion and
growth of small and medium industries across the country leads to
creation of employment opportunities. Lastly, the captive and
standby generating stations in India can supply electricity
continuously or during certain time periods. The policy which is
issued under Section 3 of the Act, contains the statutory flavour. In
case of ambiguity, an interpretation which advances the object and
purpose of the Act as underlined and stated in the policy has to be
preferred.
19. At this stage, we must distinguish an earlier decision of this Court
in SESA Sterilite Limited v. Orissa Electricity Regulatory
Commission and Others.26 In this case the appellant industry had
set up a unit in Special Economic Zone27, and was the developer of
the SEZ. The appellant-industry had entered into a power purchase
agreement with a third party. The contention raised by the appellant
industry was that it was not drawing or utilising any electricity from
the distribution licensee and, therefore, is not a consumer of the
distribution licensee, and accordingly not liable to pay the cross-
subsidy surcharge. This was not a case of a captive user. The
contention of the appellant-industry was rejected by this Court
26 (2014) 8 SCC 444; for short, “SESA Sterlite”.
27 For short, “SEZ”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 16 of 55
referring to the rationale behind cross-subsidy surcharge. Bulk
consumers who avail of open access are burdened with relatively
high rates, as this subsidises supply of electricity to marginalised
and vulnerable sections of the society. Thus, the exit of consumers
has an adverse effect on finances of the existing distribution
licensee. Cross subsidy surcharge intends to compensate the
existing distribution licensee in a two-fold manner: first, to
compensate on the requirements of current levels of cross-subsidy,
and secondly, to compensate for the fixed cost incurred by the
distribution licensee as a part of its obligation to supply electricity to
a consumer on demand, sometimes referred to as the stranded
cost. Cross subsidy and surcharge are meant to compensate the
distribution licensee on both counts. Thus, this decision does not
deal with and decide the legal issue in question before us which
relates to the definition of the CGP and use of electricity by the
captive users.
20. In addition to the reasons given in Chhattisgarh State Power28 and
Maharashtra State Electricity29, we will also like to refer to Section
38 of the Act30, which prescribes that the Central Government may
28 Supra note 18.
29 Supra note 19.
30 “38. Central Transmission Utility and functions.—(1) The Central Government may notify an
Government company as the Central Transmission Utility:
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 17 of 55
notify any Government company as the Central Transmission
Utility31. The CTU cannot engage in business of generating and
trading of electricity. Its functions under Section 38(2) includes the
planning and coordination relating to inter-State transmission
system and the development of efficient, coordinated and
economical system of inter-State transmission lines for smooth flow
of electricity from generating stations to the load centre and to
Provided that the Central Transmission Utility shall not engage in the business of generation of
electricity or trading in electricity:
Provided further that the Central Government may transfer, and vest any property, interest in property,
rights and liabilities connected with, and personnel involved in transmission of electricity of such Central
Transmission Utility, to a company or companies to be incorporated under the Companies Act, 1956
(1 of 1956) to function as a transmission licensee, through a transfer scheme to be effected in the
manner specified under Part XIII and such company or companies shall be deemed to be transmission
licensees under this Act.
(2) The functions of the Central Transmission Utility shall be—
(a) to undertake transmission of electricity through inter-State transmission system;
(b) to discharge all functions of planning and co-ordination relating to inter-State transmission system
with—
(i) State Transmission Utilities;
(ii) Central Government;
(iii) State Governments;
(iv) generating companies;
(v) Regional Power Committees;
(vi) Authority;
(vii) licensees;
(viii) any other person notified by the Central Government in this behalf;
(c) to ensure development of an efficient, co-ordinated and economical system of inter-State
transmission lines for smooth flow of electricity from generating stations to the load centres;
(d) to provide non-discriminatory open access to its transmission system for use by—
(i) any licensee or generating company on payment of the transmission charges; or
(ii) any consumer as and when such open access is provided by the State Commission under sub-
section (2) of Section 42, on payment of the transmission charges and a surcharge thereon, as may
be specified by the Central Commission:
Provided that such surcharge shall be utilised for the purpose of meeting the requirement of current
level cross-subsidy:
Provided further that such surcharge and cross subsidies shall be progressively reduced in the manner
as may be specified by the Central Commission:
Provided also that the manner of payment and utilisation of the surcharge shall be specified by the
Central Commission:
Provided also that such surcharge shall not be leviable in case open access is provided to a person
who has established a captive generating plant for carrying the electricity to the destination of his own
use.”
31 For short, “CTU”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 18 of 55
provide non-discriminatory open access to its transmission system
for use by a licensee or generating company on payment of
transmission charges and by any consumer as and when open
access is provided by the State Commission under Section 42(2),
on payment of transmission charges or surcharge thereon. The
fourth proviso to Section 38(2) reads:
“38. Central Transmission Utility and functions. —
xx xx xx
Provided also that such surcharge shall not be leviable
in case open access is provided to a person who has
established a captive generating plant for carrying the
electricity to the destination of his own use.”Thus, the Act prohibits levy of surcharge, cross or additional
surcharge, even when open access is provided to a person who
has established a CGP for carrying the electricity to the destination
of their own use.
21. This brings us to the core issue which relates to interpretation of
Rule 3 of the Rules. Three issues arise for our specific
consideration in view of the conflicting judgments of the APTEL.
These are:
I. Eligibility criteria for a CGP/captive user under Rule 3(1)(a) of
the Rules.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 19 of 55
II. Interpretation of the second proviso under Rule 3(1)(a) of the
Rules and in particular the words “association of persons”.
III. Whether a company set up as a Special Purpose Vehicle32 for
generating electricity is an, “association of persons”, in terms
of the second proviso to Rule 3(1)(a) of the Rules.
Issue I Eligibility criteria for a CGP/captive user specified under
Rule 3(1)(a) of the Rules.
22. Rule 3(1)(a) of the Rules was interpreted by this Court in
Chhattisgarh State Power33. In the said case, M/s. Shri Bajrang
Power and Ispat Ltd.34 had established a CGP. SBPIL had
submitted a petition to provide open access for wheeling of power
through the transmission system of Chhattisgarh State Power35,
for the captive use by SBPIL’s sister concern, Shri Bajrang Metallics
and Power Limited36. SBMPL held 27.6% equity shares in SBPIL.
However, the judgement also states that SBMPL directly held
26.67% shares in the CGP.37 The petition was resisted by CSPDCL
on the ground that the consumption of electricity by SBPIL and
32 For short, “SPV”.
33 Supra note 18.
34 For short, “SBIPL”.
35 For short, CSPDCL.
36 For short, “SBMPL”.
37 The judgment states that, “It was contended by the appellant that SBPIL holds more than 72% of the
shares of the company. However, its consumption would be limited only to 14.16% (13.22 MU),
whereas the consumption of SBMPL holding 26.67% shares, would be 57.87%(54 MU). It was
submitted that this was not proportionate to the ownership of the power plant”. Proviso to Explanation
1 to Rule 3 states that consumption by a holding or subsidiary of a company, which is a captive user,
shall also be admissible as captive consumption.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 20 of 55
SBMPL independently/individually was not in proportion to their
respective ownership of the CGP. SBPIL, while holding 72% shares
in the CGP, was to consume 14.16% of the electricity generated,
whereas, SBMPL, which was holding 26.67% shares in the CGP,
was to consume 57.87% of the electricity generated.
23. This Court did not agree with the plea and contention of the
distribution licensee. The plant was held to be a CGP and SBMPL
a captive user. The requirement under Rule 3(1)(a) of the Rules is
twofold. First, the captive user should not hold less than 26% of the
ownership in the CGP. Secondly, the captive user should consume
not less than 51% of the aggregate electricity generated by such
CGP. The second proviso to Rule 3(1)(a)(ii) of the Rules states that
in case of an association of persons, the captive user(s) shall not
hold less than 26% of ownership of the plant in aggregate and the
captive user(s) shall not consume less than 51% of the electricity
generated, determined on an annual basis, in proportion to their
shares in ownership of the CGP within a variation not exceeding
+10%. The decision holds that an association of corporate bodies
can establish a power plant. SBMPL held 27.6% equity shares in
SBPIL and thus satisfied the ownership requirement of 26%. The
second requirement with regard to consumption of electricity was
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 21 of 55
satisfied as SBMPL and SBPIL, together, would be consuming
more than 51% of the power generated.38
24. The ratio in the Chhattisgarh State Power39 requires clarification
and elaboration. We have provided such clarification and
elaboration in Issues I and II, on our interpretation of the rule of
proportionality in terms of the second proviso to Rule 3(1)(a) of the
Rules.
25. To qualify as a CGP under Section 9, read with Section 2(8) of the
Act, the requirements of paragraphs (i) and (ii) to Rule 3(1)(a) of the
Rules have to be satisfied. We have already referred to the
definition of a CGP under Section 2(8) of the Act which uses the
words, “primarily for his own use”. This expression has been given
statutory grail vide Rule 3 of the Rules. Rule 3 as repeatedly noticed
incorporates two separate requirements. The first requirement is
that the captive user(s) should have not less than 26% of the
ownership in the CGP. Lower limit or minimum of 26% ownership
is prescribed. Upper limit of ownership is not prescribed. The
second requirement relates to the minimum electricity consumption.
51% of aggregated or more of the generated electricity should be
consumed by the user(s) who meets the ownership requirement.
38 See footnote 37.
39 Supra note 18.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 22 of 55
26. The presence of the words, “not less than”, in paragraphs (i) and (ii)
to Rule 3(1)(a) of the Rules reflects and shows that the stipulations
with regard to 26% ownership and 51% consumption is the minimal
or lowest threshold. Maximum is not prescribed. A captive user
who owns 100% of the CGP and consumes 51% or more electricity
generated from such plant would satisfy the parameters prescribed.
Equally, a captive user who owns 26% of the CGP and consumes
51% or more of the electricity generated would qualify as a captive
user. However, this can result in abuse or gaming where there are
multiple owners with different shareholdings. In case of an
association of persons, a situation which is covered by the first
explanation. This aspect, when there are multiple owners, in a case
of association of persons, is examined under Issue II.
27. Proviso to clause (b) to Explanation 1 to Rule 3 states that
consumption by a subsidiary, or holding company as defined in the
Companies Act, 2013, when one of them is a captive user, shall be
also admissible as captive consumption by the captive user. Clause
(b) to Explanation 1 to Rule 3 states that captive user is the end
user of the electricity. Captive user is the actual consumer who uses
electricity for his own use.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 23 of 55
28. The first proviso to Rule 3(1)(a) of the Rules applies in case of a
CGP set up by a registered cooperative society. In such cases, the
requirements under paragraphs (i) and (ii) to Rule 3(1)(a) are
treated as satisfied collectively by the members of the cooperative
society. Therefore, if the members of the cooperative society
consume more than 51% of the electricity generated collectively,
the power plant is to be treated as a CGP and the members of the
cooperative society as captive users. The cooperative society may
supply 49% or less of the aggregate electricity generated to third
parties. Any third party, who is not a member of the cooperative
society, will be a non-captive user and a consumer, who will be
liable to pay a cross-subsidy and an additional surcharge, as
applicable. The members of the cooperative society when they
collectively satisfy the consumption requirement will not be liable to
pay cross-subsidy or additional surcharge, irrespective of whether
they use dedicated transmission lines or exercise their right to open
access using the distribution network of the distribution licensee.
They will be liable to pay wheeling charges to the distribution
licensee in case they use their distribution network.
29. The second proviso to Rule 3(1)(a) of the Rules applies in cases
where the captive user(s) is an, “association of persons”. We will
elaborate on the eligibility requirements for, “association of
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 24 of 55
persons”, while interpreting the second proviso to Rule 3(1)(a) in
Issue II.
30. Two secondary, but nevertheless important questions arise for our
consideration.
31. First, a contention was raised before us that since Section 2(8) of
the Act uses the expression, “power plant set up by any person”,
the captive user under Rule 3(1)(a) of the Rules must be the person
who had participated in setting up the plant. It is submitted that, “set
up”, does not include the acquisition of shares/ownership after the
power plant has already been set up. Therefore, transfer of captive
status through transfer of ownership is prohibited under the Act.
32. We should not accept this plea for several reasons. The expression,
“set up” used in clause Section 2(8) of the Act should not to be read
in a pedantic manner as referring to initial set up. We should
recognise the practical reality and not ignore the impractical asinine
consequences of this interpretation. Section 2(8) of the Act should
not be read as impliedly incorporating a prohibition to transfer of
ownership once the CGP has been set up. This bar is not
specifically stated and mentioned, though the legislature could have
stated this in simple words. Rather, in Section 9(1) the words used
are, “construct, maintain or operate a captive generating plant”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 25 of 55
Thus, construction, maintenance or operation of a CGP under
Section 9(1) of the Act can be read disjunctively. This emanates
from the use of the word, “or”, with reference to “construct, maintain
or operate” in Section 9(1). This would be rational and reasonable
interpretation in consonance with the legislative intent. It is not
necessary that the person who maintains and operates the CGP
must have also constructed the CGP. Construction, maintenance
or operation can be by different persons. This is brought out in Rule
3 of the Rules which specifies the eligibility criteria for captive users.
Rule 3 refers to the percentage of ownership of the captive user in
the CGP, and use/consumption by the captive user in the financial
year.
33. Clause (c) to Explanation 1 to Rule 3 states that ownership in
relation to the generating station or power plant set up by a
company or body corporate means the equity capital with voting
rights. In other cases, ownership means proprietary interest and
control over the generating station or power plant.
34. Section 9(2) the words used are “every person, who has
constructed a captive generating plant and maintains and operates
such plant”. The expression, “every person” can refer to a person
who maintains and operates a CGP while not having constructed
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 26 of 55
the CGP, which meaning and interpretation gains affirmation from
the language of Section 9(1) which states that a, “a person may
construct, maintain or operate a captive generating plant”. In case
of ambiguity, it is useful to apply the purpose and object rule of
interpretation. A practical interpretation is preferable, so as not to
over-ride the legislative intent. It is legitimate for the court to assume
that the legislature knows the reality and supports and enacts
practicable laws which encourages and promotes business
activities.
35. The expression, “person”, as defined under Section 2(49) of the
Act, includes, inter alia, body corporates and association or body of
individuals, whether incorporated or not. Transfer of ownership in
case of companies and association of persons is a normal
occurrence and incidence of business.
36. This issue was examined in Kadodara Power40 and it has been
observed:
“Can the ownership of the CGP be transferred after its
set up?:
xx xx xx
21. It is submitted that the words “set up” here are
important and that the person who has set up the plant
alone can own captive generating plant and not the
person(s) who is transferee from the original owner(s).
40 Supra note 5.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 27 of 55
This proposition has not been accepted by the
Commission in the impugned order. Nor does this
proposition appeal to us. The Act nowhere prescribes
that once set up by a person(s) a captive generating
plant cannot be transferred to another owner. Nor does
the Act say that on transfer of ownership the captive
generating plant will lose its character of being captive
despite fulfillment of all other conditions requiring it to
be so. Section 9 of the Act which permits captive
generation begins with the following words:
notwithstanding anything contained in this Act, the
person may construct, maintain or operate a captive
generating plant and dedicated transmission lines”.
Obviously the owner of a captive generating plant need
not be one who constructs. Set up defined in section
2(8) has been made equal to “construct, maintain or
operate” by the use of these words in section 9. As we
view it a captive generating plant does not lose its
character by transfer of the ownership or any part of
the ownership provided the generating plant produces
power primarily for the use of its owner(s). The
Regulation quoted above lays down further restrictions
on the user of the power generated by a CGP. If all the
provisions of the Act and Regulations governing
captive generation and consumption from the CGP are
specified a plant will be a CGP notwithstanding the fact
that the plant at present is not owned by the person
who originally set up the plant.”We agree with the said interpretation and logic. A CGP does
not lose its captive status due to transfer of its ownership or any
part of its ownership, provided that the transferee, that is, a new
captive user, complies with eligibility criteria specified under Rule 3
of the Rules.
37. This Court in Global Energy Ltd. and Another v. Central
Electricity Regulatory Commission41, while holding that
41 (2009) 15 SCC 570.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 28 of 55
Regulation 6-A of the Central Electricity Regulatory Commission
(Procedure, Terms and Conditions for Grant of Trading Licence and
Other Related Matters), Regulations, 2004 was intra vires the Act
and the Constitution of India, had reasoned:
“38. When a disqualification is provided, it is to operate
at the threshold in respect of the players in the field of
trading in electricity. When, however, a regulatory
statute is sought to be enforced, the power of the
authority to impose restrictions and conditions must be
construed having regard to the purpose and object it
seeks to achieve. Dealing in any manner with
generation, distribution and supply and trading in
electrical energy is vital for the economy of the country.
The private players who are permitted or who are
granted licence in this behalf may have to satisfy the
conditions imposed. No doubt, such conditions must be
reasonable. Concededly, the doctrine of proportionality
may have to be invoked.”Dealing with the generation of electricity being vital for the economy
of the country, a narrow interpretation will ignore realities, leading
to irrational results. Section 2(8) and Section 9(2) are required to be
read harmoniously with Section 9(1) of the Act. A purposive
interpretation would include a subsequent owner of the CGP, who
is an owner as per clause (c) to Explanation 1 to Rule 3 of the Rules.
38. In Tamil Nadu Power42, the APTEL had held that the minimum
ownership and consumption criteria for captive users are required
to be satisfied only on the last day of the financial year, that is, 31st
42 Supra note 6.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 29 of 55
March. This, the APTEL in Tamil Nadu Power43 observes, will
account for any change in shareholding of the CGP, and
consequent captive status, throughout the financial year. It is
observed:
“292. It is critical for us to note the practical difficulties
staring down at the face of the captive users and CGPs
in the event the concept of weighted average is applied.
We agree with the submissions of the Appellant that the
nature of shareholding in a captive structure is fluid and
dynamic. That, existing captive users within the said
captive structure can choose to give-up its ownership
along with consumption of captive power at any point of
time if it considers no usage for the same. In such a
scenario, if no new captive user(s) is added then the
shareholding along with consumption is accordingly
adjusted. A CGP cannot foresee the future and predict
as to how many of its shareholders may give up their
ownership along with consumption of captive power,
neither can it be predicted, if any new/ how many
captive user(s) will be inducted within the structure. In
such a scenario, if in terms of Rule 3 of the Rules
verification of minimum shareholding along with
minimum consumption is not done annually, at the end
of the financial year but done considering ownership at
different periods during the year, then same would
create unforeseen difficulties for a CGP to maintain its
captive structure. As such, we opine that the verification
mandated under the Rule 3 has to be done annually, by
considering the shareholding existing at the end of the
financial year. This is also evident from a perusal of
Format-5 formulated by TNERC as a part of the
impugned order, which also specifically contemplates
verification to be done as per the shareholding existing
at the end of the financial year. Similar view has already
been taken by us in Appeal No. 02 and 179 of 2018
titled as “Prism Cement Limited v. MPERC Ors”
(supra).
xx xx xx
43 Supra note 6.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 30 of 55
294. In light of our findings, we also observe that
suppose there are ten (10) captive users who avail open
access for captive use under Section 9 of the Act at the
start of the financial year, and in the event three (3) of
such captive users stops sourcing captive power after
six months, and instead three new captive users are
introduced within the captive structure by subscribing
equity shareholding with voting rights immediately
thereafter, then when the verification of captive status
will be done annually on the basis of the shareholding
existing at the end of such financial year, in that case
the total number of captive users throughout the
financial year would be treated as thirteen (7+3+3) and
not 10. This is because the shareholding of the three
captive users who stopped sourcing captive power,
cannot have a zero/nil shareholding, as they sourced
captive power for the first six months. While verifying
the condition under Rule 3(1)(a)(i) and (ii) of the Rules,
the consumption of captive power has to be done by
captive users holding a minimum of 26% shareholding.
Therefore, in the event shareholding of a captive user
is considered as zero/nil after a few months into the
financial year, then such user cannot be permitted to
take benefit of availing captive power thereby seeking
exemption from payment of CSS. In any event, the
applicability of CSS will also depend upon the
observations made by us in Appeal No. 38 of 2013 titled
as ‘M/s. Steel Furnace Association of India v. PSERC
Anr.’”
39. We do not agree. The minimum threshold of ownership, which is
26%, is to be met and satisfied throughout the year and not at the
end of the financial year alone. The reasoning in Tamil Nadu
Power44 ignores that there is a connect between paragraph (i) and
(ii) of Rule 3(1)(a) of the Rules. Paragraph (ii) which refers to
minimum electricity that is required to be consumed by captive
users is with reference to the minimum ownership specified in
44 Supra note 6.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 31 of 55
paragraph (i) of the said Rule. Thus, the minimum ownership
requirement is required to be maintained continuously, throughout
the financial year, that is, from 1st April of a year to 31st March of the
next year, along with the minimum electricity consumption
requirement. This is also the mandate of Explanation (2) to Rule
3(1)(b) of the Rules, which casts obligation on the captive users to
ensure compliance of clauses (a) and (b) to sub-rule (1) to Rule 3
of the Rules.
40. The issue of computation of consumption of electricity and change
of shareholding of captive users, when a CGP has more than one
captive user and the application of the proportionality principle in
terms of second proviso to Rule 3(1)(a) has been dealt by us in
Issue II.
Issue II Application of the second proviso to Rule 3(1)(a) of the
Rules.
41. The second proviso provides an additional eligibility requirement
where the captive users are “an association of persons”. At the
outset, we must record that the proviso is ambiguous and
confusing. It states that in case of association of persons being the
captive user(s), the captive user(s) shall hold not less than 26% of
the ownership of the plant in aggregate and such captive user(s)
shall not consume less than 51% of the electricity generated on an
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 32 of 55
annual basis. To this extent, it is an exact replica of paragraphs (i)
and (ii) of Rule 3(1)(a). Thereafter, the suffix in the last portion,
states that the proportion of the shares held by the captive user(s)
must be in proportion to the consumption of electricity generated
within a variation not exceeding 10 percent.
42. In Kadodara Power45, referring to proportionality requirement, it is
held:
“How proportionality of consumption has to be
assessed:
17. The Electricity Rules 2005 have set down that not
less than 51% of the aggregate electricity generated by
a CGP, determined on an annual basis is consumed
for captive use. However, in case there are more than
one owner then there is a further rule of proportionality
in consumption. In case the power plant is set up by a
cooperative society the condition of use of 51% can be
satisfied collectively by the members of the cooperative
society. However, if it is an ‘association of persons’
then the captive users are required to hold not less than
26% of the ownership of the plant and such captive
users are required to consume not less than 51% of
electricity generated determined on an annual basis in
proportion to the share of the ownership of the power
plant within a variation not exceeding + 10%. For
example, if a CGP produces 10,000 kWh of electricity,
5100 kWh need to be consumed by the owners of
CGP. In case there are three owners holding equal
share, each one must consume 1/3rd of the 5100 kWh
within a variation of + 10% i.e. between 1530 kWh to
1870 kWh. It will not be proper to assess the
proportionality of the consumption on 100% of the
generation. The Commission, however, appears to
have calculated the proportion of use to 100% of the
total consumption which may be more than 51% of
generation….”45 Supra note 5.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 33 of 55
We agree with the said reasoning in Kadodara Power46 But we
would like to elaborate on the said reasoning by referring to the
clarifications and the illustrations provided by Mr. M.G.
Ramachandran, learned Senior Advocate appearing on behalf of
the appellant – Dakshin Gujarat Vij Company Limited.
43. The last portion of the second proviso to Rule 3(1)(a) of the Rules,
that is, the proportionality principle, specifies an unitary qualifying
ratio. The unitary qualifying ratio is the consumption requirement
divided by the shareholding requirement, that is, 51% divided by
26%. This means that the owner of every 1% shareholding of the
CGP should have minimum consumption of 1.96% of the electricity
generated by the CGP, with a variation of +10% being permissible.
Therefore, the unitary qualifying ratio has to be within a range of
1.764% to 2.156%. In other words, we do not take into
consideration 100% of the electricity generated. Instead, we apply
the shareholding requirement, which should not be less than 26%
in aggregate, to the electricity consumed, which should not be less
than 51%, and thereby compute whether the ownership criteria and
the proportionate consumption criteria is satisfied. Benefit of
variation by 10% either way is to be a given.
46 Supra note 5.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 34 of 55
44. For clarity, the illustrations provided Mr. M.G. Ramachandran,
Senior Advocate, are reproduced below:
Total Generation Unitary Qualifying Ratio is Consumption Requirement divided by
Shareholding Requirement (with a variation of 10%) i.e. 51%
100% divided by 26% which equals to 1.96% consumption by a captive
Consumption Requirement (Not less user for every 1% shareholding
51%
than)
Shareholding Requirement (Not less
26%
than)Actual Actual Unitary
Shareholder Consumption Shareholding Ratio Remarks Result
Achieved
Illustration 1
A 20 10.2 1.96
B 20 10.2 1.96 A, B, C, D, and E (all) consume not less than 1.96% A to E
C 20 10.2 1.96 for 1% shareholding and therefore all qualify as qualify as
D 20 10.2 1.96 captive users. All collectively own more than 26% captive
E 20 10.2 1.96 shareholding. users
Others 0 49 0
Illustration 2
A 15 7 2.14
B 15 6 2.5 A, B, C, D, and E (all) consume more than 1.96% A to E
C 15 5 3 for 1% shareholding and therefore all qualify as qualify as
D 15 4 3.75 captive users. All collectively own 26% captive
E 15 4 3.75 shareholding. users
Others 25 74 –
Illustration 3
A, B and C qualify the captive consumption qua
A 30 10 3 their shareholding in the ratio of not less than 1.96%
of 1% shareholding. The ratio of D is not above
B 30 10 3 1.96, yet it qualifies on account of its ratio being
within the permissible limit of 10% variation. E does A to D
C 20 10 2 not qualify as unitary consumption is 1.67% only, qualify as
i.e. less than 1.96% per 1% shareholding and the captive
D 5.75 3 1.92 same does not fall within 10% variation. Excluding users. E is
E, the shareholding held by A, B, C and D is 33% not a
E 5 3 1.67 i.e. not less than 26%. Hence A, B, C and D qualify captive
as Captive users. user.
Others 9.25 64 – The disqualification of E will not affect A, B, D and
D as they cumulatively consume more than 51%
and hold 33% i.e. not less than 26%.
Illustration 4
A, B, C and D qualify the captive consumption qua
A 25 6 4.17 their shareholding in the ratio of not less than 1.96%
for 1% shareholding. E does not qualify as unitary
B 20 5 4 consumption is 1% only, i.e. less than 1.96% per
1% shareholding. Excluding E, the shareholding No one
C 15 5 3 held by A, B, C and D however is only 21%. Since qualifies as
D 10 5 2 cumulatively A, B, C, and D do not hold not less captive
E 5 5 1 than 26%, by virtue of Rule 3(2) of Electricity Rules, user
Others 25 74 – 2005, they cannot claim captive user status.
Illustration 5
Neither of A or B qualify as captive user even
though they collectively satisfy the requirements of
A 30 1 30 minimum shareholding of not less than 26% and
minimum consumption of not less than 51%. B does
not qualify as unitary consumption is less than No one
B 21 25 0.84 1.95% and not within the 10% variation. A or B qualifies as
independently do not satisfy the shareholding and captive
consumption requirements. By virtue of Rule 3(2) of user
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 35 of 55
Electricity Rules, 2005, they cannot claim captive
Others 49 74 – user status
Once the above standard is met and satisfied, the person satisfying
the requirement will be treated as a member of the group captive
users.
45. The aforesaid interpretation checks, “gaming”, by owners, which
would amount to misuse and abuse of the Rule 3(1)(a) of the Rules.
Instances of gaming are where a 1% or an insignificant shareholder
of the CGP disproportionately uses the electricity generated, in
which case he should not be treated as a group captive user and,
therefore, should be denied the benefits that are given under the
Act to the captive users. Gaming or misuse should be checked to
protect interests of the Distribution Licensee.
46. This brings us to the question of applicability of the second proviso
of Rule 3(1)(a) in cases where there is a change in ownership or
shareholding of the CGP. An issue arises with respect to calculation
of proportional consumption of electricity under the second proviso
to Rule 3(1)(a) of the Rules when an existing captive user
exits/transfers their shareholding/ownership to a new captive user.
It may happen in multiple situations. The APTEL in Tamil Nadu
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 36 of 55
Power47 had postulated that such issue would be resolved if the
minimum consumption and shareholding requirements are verified
only at the end of the financial year. However, we have held that
the minimum consumption and shareholding requirement are
required to be maintained continuously and not just at the end of
the year. It is only with respect to determining the ownership
proportionate to consumption of electricity that requires our
attention, with respect to the second proviso to Rule 3(1)(a) of the
Rules.
47. In case of change of ownership, shareholding, or consumption, the
principle of weighted average should be applied to ensure
compliance of the proportional electricity consumption requirement
stipulated under the second proviso to Rule 3(1)(a). For instance, if
a captive consumer exits or drops out in the middle of the year,
transferring its shareholding to another or new captive user, it would
be fair to hold that the captive user who has become a shareholder
in the middle of the year, is required to consume proportionately to
the electricity generated. In a given case, existing captive users
taking advantage of the variation, may enhance their consumption.
The concept of weighted average shareholding comes in aid to
calculate the relevant average shareholding of the captive user in
47 Supra note 6.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 37 of 55
the year and the proportionate electricity required to be consumed
by him. To borrow from the illustrations provided by learned Senior
Advocate Mr. Basava Prabhu Patil, appearing on behalf of Tata
Power Company Limited, this comes in aid in instances where the
shareholding of a captive user in a CGP fluctuates, provided that
the minimum ownership requirement of 26% in aggregate is not
being breached. Further, a shareholder may hold 30% of shares of
the CGP for 3 months, 40% of shares for 4 months, and 50% of the
shares for the balance 12 months. The weighted average
shareholding method is applied by taking average shareholding
held by particular shareholder for the year for the purpose of
calculating proportionate electricity required to be consumed by it
in terms of the second proviso of Rule 3(1)(a).
48. We agree with the reasoning and logic, that weighted shareholding
and proportionate consumption of electricity is the fair, equitable
and the correct method to determine whether the essential
requirements of the second proviso to Rule 3(1)(a) are satisfied.
Issue III Whether a company set up as a Special Purpose
Vehicle48 for generating electricity is an ‘association of
persons’ which must meet the proportionality
requirement specified in the second proviso to Rule
3(1)(a) of the Rules.
48 For short, “SPV”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 38 of 55
49. This brings us to the last issue and question – whether a company
set up as a SPV, in view of clause Rule 3(1)(b) of the Rules, is
absolved from meeting the eligibility criteria specified in paragraphs
(i) and (ii) of Rule 3(1)(a) of the Rules read with second proviso to
Rule 3(1)(a) of the Rules. This argument was raised and accepted
in Tamil Nadu Power49 on the following grounds:
“255. We have analysed the submissions of the parties
on the issue of treatment of an SPV as an AOP. As seen
before, Rule 3 of the Rules deals with the requirements
to be fulfilled to qualify as a captive. In the said rule,
SPV as a CGP is given under Rule 3 (1)(b). Further, it
is also seen that Rule 3(1)(a)(i) has two provisos
contemplating the manner in which the requirements to
qualify as a CGP is to be fulfilled by a registered Co-
operative society and an AOP. It is also seen that the
said two provisos do not relate to Rule 3(1)(b) which
deals with a SPV.
256. We agree with the submission put forward by the
Appellant that second proviso to Rule 3(1)(a) is a
stand-alone provision and as such does not relate to
Rule 3 (1)(b). The Parliament in its wisdom has created
an intelligible differentia under Rule 3, between a SPV
and an AOP. It is clear from a reading of Rule 3 that
second proviso to Rule 3(1)(a) which exclusively deals
with an AOP, lays down that the captive user (s) shall
hold not less than 26% ownership of the plant in
aggregate and shall not consume less than 51% of the
electricity generated, determined on an annual basis,
in proportion to their ownership of the power plant.
257. On the other hand, Rule 3(1)(b) exclusively deals
with a SPV, and it only provides that the conditions
mentioned in Rule 3(1)(a)(i) and (ii) are applicable to a
SPV, with the second proviso not mandated to be
applied to it. Thus, we find force in the argument of the
Appellant that second Proviso to Rule 3(1)(a) is a
stand-alone provision.
49 Supra note 6.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 39 of 55
258. The above argument of the Appellant is further
strengthened on the principles enunciated by the
Hon’ble Supreme Court with regard to interpretation of
statutes by Courts. The Hon’ble Supreme Court has
time and again held that Courts cannot rewrite or
recast legislation, they should not act as law makers
where there is no ambiguity in the language in a piece
of legislation then such legislation ought to be literally
interpreted without any deviation. The Hon’ble
Supreme Court has also held that provisos are
exceptions to the general rule. In this regard, we refer
to the following judgments:
xx xx xx
259. From the principles drawn from the above
judgments, we observe that TNERC vide the impugned
order particularly in para 6.4.4 has endeavoured to add
an intention to Rule 3(1)(b) which was otherwise
absent from its construction. By holding that the
second proviso to Rule 3(1)(a) is applicable to Rule
3(1)(b) thereby equating a SPV with an AOP, the
impugned order has committed an error in interpreting
the said Rule in the manner in which it has been
enacted by the Parliament. We also concur with the
principles laid down in the cases of Kailash Nath
(supra) and Sanjay Kumar (Supra) that a proviso is an
exception and it cannot travel beyond the provision to
which it is a proviso. We therefore, find that the same
are applicable in the facts of the present Appeal. It is
settled law that the function of a proviso is to except
something out of the enactment or to qualify something
enacted therein which but for the proviso would be
within the purview of the enactment. Applying this clear
jurisprudence, TNERC could not have applied the
second proviso to Rule 3(1)(a) to Rule 3(1)(b). Hence,
the requirement of consuming minimum of 51%
electricity generated on an annual basis and the
requirement of the captive users holding 26% of the
ownership of the plant in aggregate, and such
consumption being in proportion to the shares of
ownership of the power plant can only be applicable to
power plants set- up by an AOP but cannot be applied
to power plants set-up by SPV.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 40 of 55
50. Kadodara Power50 takes the opposite view, and the APTEL has
reasoned:
“Is a company formed as a special purpose vehicle an
association of person?
15. The question has arisen because the word
‘association of persons’ is not defined anywhere in the
Act or in the Rules. The proviso to Rule 3 (l)(a)(ii)
makes two special conditions for cooperative societies
and association of persons. If the CGP is held by a
person it is sufficient that the person consumes not less
than 51% of the aggregate electricity generated in such
plant. In case the plant is owned by a registered
cooperative society then all the members together
have to collectively consume 51% of the aggregate
electricity generated. In case the CGP is owned by an
association of persons the captive users together shall
hold not less than 26% of the ownership of the plant in
aggregate and shall consume not less than 51% of the
electricity generated in proportion to their shares of the
ownership of the plant within a variation not exceeding
+ 10%. A special purpose vehicle is a legal entity
owning, operating and maintaining a generating station
with no other business or activity to be engaged in by
the legal entity. Now if three companies need to set up
the power plant primarily for their own use they can
come together and form another legal entity which may
itself be a company registered under the Companies
Act. This company may set up a power plant. In that
case the company formed by three different companies
would become a special purpose vehicle. If a company
which is a special purpose vehicle is one person then
all that is necessary is that this company should
consume 51% of the generation. However, if it is
treated as association of persons apart from a
condition of consuming minimum 51% of its generation
the three share holders will also have to consume 51%
of the generation in proportion to their ownership in the
power plant. It is contended on behalf of some of the
appellants before us who are special purpose vehicles
that they are not an association of persons and
accordingly it is only necessary for them to consume
51% of their generation collectively without adhering to50 Supra note 5.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 41 of 55
the Rule of proportionality of consumption to their
share. This does not appear to us to be the correct
view. Section 2(8) of the Act, as extracted above, says
that a captive generating plant may be set up by any
person and includes the power plant set up by any
cooperative society or association of persons. Mr. M.
G. Ramachandran contends that going by this
definition if the special purpose vehicle is not an
association of persons it cannot set up a captive
generating plant because the definition does not
mention any person other than a cooperative society
and association of person. There is small flaw in the
argument of Mr. M. G. Ramachandran in as much as
the definition of captive generating plant is inclusive. In
other words, the captive generating plant may be set
up by any person including a cooperative society or
association of persons. In other words, the person to
set up a generating plant may be somebody who does
not fulfill the description of either a cooperative society
or association of persons. Nonetheless, reading the
entire Rule 3 as a whole it does appear to us that a
CGP owned by a special purpose vehicle has to be
treated as an association of person and liable to
consume 51% of his generation in proportion to the
ownership of the plant. Every legal entity is the person.
Therefore, the special purpose vehicle which has to be
a legal entity shall be a person in itself. Any generating
company or a captive generating company is also a
person. The Rules specially deals with cooperative
society. In an association of persons it has to be a
‘person’ because without being a person it cannot set
up a captive generating plant. Therefore it will be wrong
to say that since the special purpose vehicle is a
‘person’ in itself it cannot be covered by a definition of
‘association of persons’ and has to be covered by the
main provision which requires the owner to consume
51% or more of the generation of the plant. In our view
the definition is somewhat strange in as much as the
term ‘person’ is said to include an ‘association of
persons’. One therefore cannot say that a CGP owner
can be either a ‘person’ or an ‘association of persons’
a special purpose vehicle thus can be a ‘person’ as well
as an ‘association of persons’. A cooperative society is
an ‘association of persons’ in the sense that some
persons come together to form a cooperative society.
However, the moment an association or society is
formed according to the legal provisions it becomes a
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 42 of 55
person in itself. A special provision has been made
permitting a cooperative society from consuming 51%
collectively. The first proviso 3 (1)(a)(ii) itself suggests
that a special privilege has been conferred on a
cooperative society. Other persons who are also legal
entities formed by several persons coming together
have not been given such special privilege. Who can
such association of persons be? Of the various legal
entities comprehended as persons owning a CGP the
special purpose vehicle does seem to fit the description
of ‘association of persons’. We fail to comprehend who
other than a special purpose vehicle can be an
‘association of persons’. None of the lawyers arguing
before us gave example of ‘association of persons’
other than a special purpose vehicle. Therefore, we
have no hesitation to hold that special purpose vehicle
is an association of persons.
16. In case the special purpose vehicle was not
required to maintain the rule of proportionality of
consumption, the Central Government could have
specifically mentioned the same just as it has done for
a cooperative society. The Rule having not exempted
a special purpose vehicle from the requirement of
consuming 51% of the generation in proportion to the
ownership of the persons forming the special purpose
vehicle as has been done in the case of cooperative
society it will only be rational and logical to hold that a
special purpose vehicle is also subject to the rule of
proportionality of consumption to the percentage share
of ownership as an ‘association of persons’.
51. We agree with the reasoning giving in Kadodara Power51 Rule
3(1)(b) of the Rules does not negate or undo the eligibility
requirements specified in paragraphs (i) and (ii) to Rule 3(1)(a) of
the Rules, which in case of an association of persons mandates the
satisfaction of the proportionality requirement under the second
proviso to Rules 3(1)(a). Rule 3(1)(b) refers to a situation where a
51 Supra note 5.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 43 of 55
company set up as a SPV has multiple units generating electricity.
It stipulates that the company formed as a SPV can identify one or
more of such generating units for its captive use. All the generating
units need not be identified for captive use. The units which are not
identified for captive use need not satisfy the conditions mentioned
in paragraphs (i) and (ii) of Rule 3(1)(a) of the Rules. Electricity
generated by these unidentified units need not be accounted and
considered. The explanation clarifies the situation as it states that
the requirement of consumption of electricity by captive users shall
be determined with reference to the generating unit or units
identified for captive use. The unit or units identified for captive use,
in other words, must satisfy the requirements of paragraphs (i) and
(ii) of Rule 3(1)(a) of the Rules read with the second proviso. This
is also clear from Rule 3(2), which states that the equity shares held
by the captive user in the generating station, which is identified for
captive use, should not be less than 26% of the proportionate equity
of the company relating to the generating unit or units identified as
a CGP. The illustration to Section 3(1)(b) that is lucid, for the sake
of convenience is again reproduced:
“Illustration.—In a generating station with two units of
50 MW each namely Units A and B, one unit of 50 MW
namely Unit A may be identified as the Captive
Generating Plant. The captive users shall hold not less
than thirteen per cent of the equity shares in the
company (being the twenty-six per cent proportionateCivil Appeal Nos. 8527-8529 of 2009 etc. Page 44 of 55
to Unit A of 50 MW) and not less than fifty-one per cent
of the electricity generated in Unit A determined on an
annual basis is to be consumed by the captive users.”Thus, Rule 3(1)(b) of the Rules liberalises, gives flexibility and an
option when a generating station owned by company, incorporated
as a SPV, has multiple generating units. Rule 3(1)(b) does not undo
or override the eligibility criteria specified under Rule 3(1)(a) read
with second proviso.
52. It was submitted before us that since a SPV was an incorporated
company, it could not be equated with an association of persons,
which is usually understood to mean a recognised taxable entity
and not as an incorporated entity. Reliance was placed on the
interpretation by this Court in Ramanlal Bhailal Patel and Others
v. State of Gujarat52, to contend that whenever an inclusive
definition is provided for a term, an extended statutory interpretation
of such term may be adopted. Section 2(49) of the Act uses the
word “includes”, in the expression, “‘person’ shall include” to define
a “person” with respect to the Act. Thus such extended statutory
interpretation for the term, “association of persons”, it is submitted
is importable from statutes like the Income Tax Act, 1961. We do
not agree with the said contention.
52 (2008) 5 SCC 449; for short, “Ramanlal Bhailal Patel”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 45 of 55
53. This Court in Ramanlal Bhailal Patel53, while interpreting the
meaning of an, “association of persons”, has held that an
association of persons is one where two or more persons join in a
common purpose and common action to achieve some common
benefit. Further, such common purpose, action or benefit may vary
based on the particular context of a statute. The relevant paragraph
reads:
“28. The terms “association of persons” and “body of
individuals” (which are interchangeable) have a legal
connotation and refer to an entity having rights and
duties. They are not to be understood literally. For
example, if half a dozen people are travelling in a car or
a boat, or standing in a bus-stop, they may be a group
of persons or a “body of individuals” in the literal sense.
But they are not an association of persons/body of
individuals in the legal sense. When a calamity occurs
or a disaster strikes, and a band of volunteers or doctors
meet at the site and associate or cooperate with each
other for providing relief to victims, and not doing
anything for their own benefit, they may literally be an
association of persons, but they are not “an association
of persons/body of individuals” in the legal sense. A
mere combination of persons or coming together of
persons without anything more, without any intention to
have a joint venture or carry on some common activity
with a common understanding and purpose will not
convert two or more persons into a body of
individuals/association of persons. An “association of
persons/body of individuals” is one in which two or more
persons join in a common purpose and common action
to achieve some common benefit. Where there is a
combination of individuals by volition of the parties,
engaged together in some joint enterprise or venture, it
is known as “association of persons/body of
individuals”. The common object will have some
relevance to determine whether a group or set of
persons is an association of persons or body of53 Supra note 52.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 46 of 55
individuals with reference to a particular statute. For
example, when the said terms “association of persons”
or “body of individuals” occur in a section which
imposes a tax on income, the association must be one
the object of which is to produce income, profit or gain
(vide CIT v. Indira Balkrishna, Mohd. Noorulla v. CIT,
N.V. Shanmugam and Co. v. CIT and Meera and
Co. v. CIT). But the object need not always be to carry
on commercial or business activity. For example, when
the word “person” occurs in a statute relating to
agriculture or ceiling on landholding, the term
“association of persons/body of individuals” may refer
to a combination of individuals who join together to
acquire and own land as co-owners and carry on
agricultural operations as a joint enterprise.”
54. Further, in Ramanlal Bhailal Patel54, while elaborating on the
notion of an association of persons, the Court held that co-owners
of a property do not automatically become an association of
persons. Where such co-owners lack a common purpose and
pursue co-ownership not by their own volition, each of such co-
owners would constitute a different person instead of being referred
to as single person, as an association of persons/body of
individuals. The reasoning is reproduced:
“29. Normally, where a group of persons have not
become co-owners by their own volition with a common
purpose, they cannot be considered as a “person”.
When the children of the owner of a property succeed
to his property by testamentary succession or inherit by
operation of law, they become co-owners, but the co-
ownership is not by volition of parties nor do they have
any common purpose. Each can act in regard to his/her
share, on his/her own, without any right or obligation
towards the other owners. The legal heirs though co-
owners, do not automatically become an “association of
persons/body of individuals”. When different persons54 Supra note 52.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 47 of 55
buy undivided shares in a plot of land and engage a
common developer to construct an apartment building,
with individual ownership in regard to respective
apartment and joint ownership of common areas, the
co-owners of the plot of land, do not become an
“association of persons/body of individuals”, in the
absence of a deeming provision in a statute or an
agreement. Similarly, when two or more persons merely
purchase a property, under a common sale deed,
without any agreement to have a common or joint
venture, they will not become an “association of
persons/body of individuals”. Mere purchase under a
common deed without anything more, will not convert a
co-ownership into a joint enterprise. Thus when there
are ten co-owners of a property, they are ten persons
and not a “body of individuals” to be treated as a “single
person”. But if the co-owners proceed further and enter
into an arrangement or agreement to have a joint
enterprise or venture to produce a common result for
their benefit, then the co-owners may answer the
definition of a “person”.”
55. Thus, the connotation of the expression, “association of persons”,
may vary in different statutes based on the particular context in
which an association of persons is used in that statute. It needs to
be examined whether such association of persons is pursuing a
common action to achieve a benefit under the said statute.
56. In the context of the Act and Rules, companies or body corporates
may come together and set up another company as a SPV, with a
common purpose to achieve the common benefit of becoming
captive user(s) under the Act and Rules, thereby enjoy the
advantages provided to captive users such as waiver of paying
cross subsidy or additional surcharge, as applicable.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 48 of 55
57. Further, explanation 1(d) to Rule 3 of the Rules, defines a SPV to
mean a legal entity owning, operating, and maintaining a generating
station with no other business or activity to be engaged in by the
legal entity. Thus, SPVs have a single purpose as envisaged under
the Rules, that is, owning, operating and maintaining a generating
station. A SPV cannot consume the electricity generated by the
CGP by itself, that is, it cannot be a captive user since its only
purpose is to own, operate and maintain a generating station. Thus,
the purpose and objective of companies or body corporates in
setting up an SPV, which cannot enjoy the benefits provided to
captive users itself, would be for such body corporates, companies,
or other persons to enjoy the common benefit of becoming captive
users.
58. Our reasoning is in consonance with section 2(8) of the Act, which
defines a CGP, and as noticed above categorises CGPs into two
categories:
i) Single User CGP – the first part of Section 2(8) refers to a
power plant set up by any person to generate electricity
primarily for his own use; and
ii) Group User CGP – the second part of Section 2(8) states that
the power plant set up by any person to generate electricity
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 49 of 55
primarily for their own use includes a power plant set up byany cooperative society or association of persons for
generating electricity primarily for the use of members of such
cooperative society or association.
No other category of CGP is recognised under Section 2(8) of the
Act.
59. The term “person”, as defined in Section 2(49) of the Act, covers a
wide category of users, including, any company or body corporate
or association or body of individuals, whether incorporated or not,
or artificial juridical person.
60. The term, “association of persons”, has not been specifically
defined in the Act. Conversely, the expression, “association or body
of individuals, whether incorporated or not”, used in the definition of
“person” under Section 2(49) of the Act widens the scope of a
“person” to include both juridical and non-juridical persons.
61. To reiterate, Section 2(8) of the Act recognises two categories of
CGPs, that is, single captive users and group captive users. For
group captive users, only two categories of users are recognised,
that is, a cooperative society and association of persons. The first
proviso to Rule 3(1)(a) of the Rules creates an exception for
cooperative societies. It requires members of the cooperative
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 50 of 55
society to only collectively satisfy the minimum ownership and
electricity consumption requirements specified under paragraphs (i)
and (ii) of Rule 3(1)(a) of Rules. The second proviso to Rule 3(1)(a),
which refers to association of persons, requires such captive users
to satisfy the minimum ownership and electricity consumption
requirements specified under paragraphs (i) and (ii) of Rule 3(1)(a)
of Rules. Additionally, it also requires such captive users to
consume electricity generated by the CGP, which shall not be less
than 51%, in proportion to their individual shares in the ownership
of the CGP, which shall not be less than 26%. Thus, under the
Rules, all group captive users which are not registered cooperative
societies are required to comply with the test of proportionality
specified in the second proviso to Rule 3(1)(a).
62. This Court in S. Sundaram Pillai and Others v. V.R.
Pattabiraman and Others55 has held that a proviso serves four
different purposes, as stated below:
“43. We need not multiply authorities after authorities
on this point because the legal position seems to be
clearly and manifestly well established. To sum up, a
proviso may serve four different purposes:
(1) qualifying or excepting certain provisions from
the main enactment:
55 (1985) 1 SCC 591.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 51 of 55
(2) it may entirely change the very concept of the
intendment of the enactment by insisting on certain
mandatory conditions to be fulfilled in order to
make the enactment workable:
(3) it may be so embedded in the Act itself as to
become an integral part of the enactment and thus
acquire the tenor and colour of the substantive
enactment itself; and(4) it may be used merely to act as an optional
addenda to the enactment with the sole object of
explaining the real intendment of the statutory
provision.”Accordingly, the second proviso to Rule 3(1)(a) of the Rules is not
case specific. It is to be treated as corollary to the interpretation
embedded under Section 2(8) of the Act, that is, “primarily for its
own use”. In order make the enactment under Section 2(8) of the
Act workable in any instance where group captive users are not
registered cooperative societies, the rule of proportionality under
the second proviso to Rule 3(1)(a) of the Rules should be read as
a mandatory condition.
63. This Court in Monnet Ispat Energy Ltd. And Others v. Union
of India and Others56 held that the minimum electricity
consumption requirement under paragraph (ii) to Rule 3(1)(a) of the
Rules conforms with the requirement under Section 2(8) of the Act,
that electricity generated by the CGP should be “primarily for its
56 C.A. No. 18506-18507 of 2017; for short, “Monnet Ispat”.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 52 of 55
own use”. Thus it held that Rule 3(1)(a) of the Rules cannot be said
to be against the purposes of the Act. This Court in Monnet Ispat57
observes:
“14. In the light of what has been discussed by this
Court in Global Energy Ltd. (supra) when we examine
definition of Generating Plant in section 2(8) of the Act
it emphasizes setting up primarily for his own use or in
case of cooperative society for use by its members.
When we consider Rule 3(1)(a)(ii) of the Rules of 2005,
it is clear that it provides not less than 51% of aggregate
electricity generated in such plant determined on
annual basis is consumed for captive use. The rule
conforms to the requirement of section 2(8) that
primarily electricity should be generated by captive
generating plant for his own use/members as the case
may be. The provisions of Rule 3(1)(a)(ii) of the Rules
of 2005 cannot be said to be against purposes of the
Act. Rather it promotes rationale of the provision and
essential qualifications laid down in the Act itself…”Similarly, the second proviso to Rule 3(1)(a) of the Rules is in
furtherance of Section 2(8) of the Act.
64. An association of companies or body corporates thus are required
to comply with Rule 3(1)(a) read with the second proviso to Rule
3(1)(a). Equally, an association of companies, body corporates, or
other persons that set up a SPV which owns, maintains, and
operates a CGP is required to comply with Rule 3(1)(a) read with
the second proviso to Rule 3(1)(a). A SPV in this regard may be
57 Supra note 56.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 53 of 55
company, but it also is also an association of persons in terms of
the second proviso to Rule 3(1)(a).
65. We cannot, in any manner, read Rule 3(1)(b) as overriding or
prevailing over Rule 3(1)(a) of the Rules. To accept this argument
would, in fact, be accepting that “gaming”, as described above, is
permissible if a company is formed as a SPV for the purpose of
generating and supplying electricity to its shareholders or other
body corporates. For instance, a generating company established
as an independent power producer being a shareholder of 98%
shares in a plant can camouflage as a CGP by giving 2% shares to
group captive users and allowing them to consume 98% of the
electricity generated. The independent power producer may
consume only 2% of the electricity generated despite holding 98%
of the shares in the plant. This would be clearly contrary to Section
2(8), which uses the expression, “primarily for its own use”. To
accept this submission would also be contrary to the object and
purpose behind giving benefit to captive users who spend their
money and invest in setting up a CGP. While interpreting a
provision which is ambiguous or debatable, the court or the
adjudicator must keep in mind the intent of the legislature and read
the words in a manner that the object and purpose is promoted,
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 54 of 55
rather than accepting an interpretation which would result in misuse
or abuse.
66. In view of the aforesaid reasoning, we hold that SPVs which own,
operate and maintain CGPs are an “association of persons” in
terms of the second proviso to Rule 3(1)(a) of the Rules.
Companies, body corporates and other persons, who are
shareholders and captive users of a CGP set up by a SPV, are
required to comply with Rule 3(1)(a) of the Rules read with the
second proviso of the Rules.
67. We accordingly answer the three issues.
………………………………..J.
(SANJIV KHANNA)
………………………………..J.
(M.M. SUNDRESH)
NEW DELHI;
OCTOBER 09, 2023.
Civil Appeal Nos. 8527-8529 of 2009 etc. Page 55 of 55