M/s Dakshin
Gujarat Vij Company Ltd. versus M/s Gayatri Shakti Paper and Board Limited and
Anr., etc.,
Civil Appeal Nos. 8527-8529 of 2009; decided on
October 09, 2023
1. This
judgment interprets relevant provisions of Electricity Act, 2003 (“Act”)
and Rule 3 of Electricity Rules, 2005 (“Rules”).
2. The Supreme Court was called upon
to settle the interpretation of Rule 3 of the Rules given the
conflicting interpretations rendered by two
judgments of Appellate Tribunal for Electricity (“APTEL”): (1) Kadodara Power Pvt. Ltd. and Ors. v/s
Gujarat Electricity Regulatory Commission and Anr.[1] (“Kadodara Power”)
and (2) Tamil Nadu Power
Producers Association v. Tamil Nadu Electricity Regulatory Commission [2] (“Tamil Nadu Power”).
3. Section
2(8) of the Act categorizes Captive Generating Plant (“CGP”)
into 2 categories: (i) Single User CGP - power
plant set up by any person to generate electricity primarily for his own use,
and (ii) Group User CGP - within the group captive users, there are 2 (two)
categories of captive users i.e., co-operative societies and association of
persons. No other category of CGP is recognized under Section 2(8)
of the Act.[3]
4. 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.[4]
5. Section 9 of the Act states that any
person may construct, maintain or operate a CGP, and dedicated transmission
lines and no license 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 and
the open access shall be allowed on payment of surcharge in addition to charges
for wheeling as determined by the State Commission.[5]
6. 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.[6]
7. 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. 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.[7]
8. Three issues which arises for specific
consideration in view of the conflicting judgments of the APTEL are:
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 by a registered cooperative society. 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.[8]
ii. Application of the second proviso to Rule 3(1)(a) of the Rules
In
addition to the above, the second proviso provides an additional eligibility
requirement where the captive users are “an association of persons”. 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 with a
variation not exceeding + 10%.[9]
iii. Whether a company set up as a Special Purpose Vehicle 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
The
Court frames last issue - whether a company set up as a SPV, in view of 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. 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. 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.
Therefore, reading the entire Rule 3 as a whole it does appear
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.[10]
9. In
a related findings Supreme Court answers positive to an issue “Can the ownership of the CGP be
transferred after its set up?”,
Hon’ble Supreme Court agreed with Kododara Power interpretation and held that 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.[11]
10. Thus, the Supreme Court has upheld
the principles laid down by APTEL in Kadodara Power regarding the applicability
and computation of Proportionality Test.
[1] 2009 SCC OnLine APTEL 119
[2] 2021 SCC OnLine APTEL 19
[3] Para 58 of
the Judgment.
[4] Para 8 of
the Judgment.
[5] Paragraphs
9, 10 & 14 of the Judgment.
[6] Para 14 of
the Judgment.
[7] Para 32 of
the Judgment.
[8] Paragraphs
22 to 40 of the Judgment.
[9] Paragraphs
23 and 41 to 48 of the Judgment.
[10] Paragraphs 49 to 66 of the
Judgment.
[11] Para 36 of
the Judgment.
