Electricity Act, 2003 – ss.2(8), 9 – Electricity Rules, 2005 – r.3 – Interpretation – Captive Generating Plant (CGP) and use of electricity by the captive users – Conflicting judgments of the APTEL: Held: To qualify as a CGP u/s.9, r/w s.2(8) of the Act, the requirements of paragraphs (i) and (ii) to r.3(1)(a) of the Rules have to be satisfied – The definition of a CGP u/s.2(8) of the Act uses the words, “primarily for his own use” – This expression has been given statutory grail vide r.3 of the Rules – It incorporates two separate requirements- (i) 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 – Proviso to clause (b) to Explanation 1 to r.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 r.3 states SHAKTI PAPER AND BOARD LTD.
that captive user is the end user of the electricity – Captive user is the actual consumer who uses electricity for his own use – The first proviso to r.3(1)
(a) applies in case of a CGP set up by a registered cooperative society – In such cases, the requirements under paragraphs (i) and (ii) to r.3(1)(a) are treated as satisfied collectively by the members of the cooperative society – The second proviso to r.3(1)(a) of the Rules applies in cases where the captive user(s) is an, “association of persons” –Clause (c) to Explanation
1 to r.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 – “person”, as defined u/s.2(49) 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 – Interpretation and logic in Kadodara Power case of the APTEL agreed with – 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 u/r.3 – Dealing with the generation of electricity being vital for the economy of the country, a narrow interpretation will ignore realities, leading to irrational results – s.2(8) and s.9(2) to be read harmoniously with s.9(1) – A purposive interpretation would include a subsequent owner of the CGP, who is an owner as per clause (c) to Explanation 1 to r.3 – However, the holding by APTEL in Tamil Nadu Power case, 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 is not agreed with – 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. [Paras 25, 27-29, 33, 35-37, 39] Electricity Act, 2003 – s.2(8) – Electricity Rules, 2005 – r.3(1)
(a) – Plea that since s.2(8) uses the expression, “power plant set up by any person”, the captive user u/r.3(1)(a) 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:
Held: The expression, “set up” used in clause s.2(8) of the Act should not to be read in a pedantic manner as referring to initial set up – The practical reality should be recognised and the impractical asinine consequences of this interpretation should not be ignored – s.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 s.9(1) the words used are, “construct, maintain or operate a captive generating plant” – Thus, construction, maintenance or operation of a CGP u/s.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 s.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 – r.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. [Para 32]
Electricity Act, 2003 – ss.9(2), 9(1) - “every person”; “a person may construct, maintain or operate a captive generating plant”: Held: In s.9(2) the words used are “every person, who has constructed a captive generating plant and maintains and operates such plant” – “every person” can refer to a person who maintains and operates a CGP while not having constructed the CGP, which meaning and interpretation gains affirmation from the language of s.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 – Interpretation of Statutes. [Para 34] Electricity Act, 2003 – Electricity Rules, 2005 – r.3 – Second proviso u/r.3(1)(a); “association of persons” – Interpretation – Proportionality Principle – Unitary qualifying ratio – Explained – Reasoning in Kadodara SHAKTI PAPER AND BOARD LTD.
Power w.r.t proportionality requirement agreed with, elaborated by referring to the clarifications and the illustrations provided on behalf of the appellant – Interpretation given checks, “gaming”, by owners, which would amount to misuse and abuse of the r.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. [Paras 42, 43 and 45]
Electricity Act, 2003 – s.2(8) – Categories of Captive Generating Plants (CGPs) – Electricity Rules, 2005 – Proviso to r.3(1)(a) – Group captive users which are not registered cooperative societies, to comply with the test of proportionality:
Held: s.2(8) of the Act recognises two categories of CGPs, 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 r.3(1)(a) of the Rules creates an exception for cooperative societies – It requires members of the cooperative society to only collectively satisfy the minimum ownership and electricity consumption requirements specified under paragraphs (i) and (ii) of r.3(1)
(a) of Rules – The second proviso to r.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 r.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) – Second proviso to r.3(1)(a) of the Rules is not case specific – It is to be treated as corollary to the interpretation embedded under s. 2(8) of the Act, that is, “primarily for its own use” – In order make the enactment under s. 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 r.3(1)(a) of the Rules should be read as a mandatory condition – Second proviso to r.3(1)(a) of the Rules is in furtherance of s.2(8) of the Act. [Paras 61-63]
Electricity Rules, 2005 – Second proviso to r.3(1)(a) – Change in ownership or shareholding of the CGP, applicability of the second proviso of r.3(1)(a):
Held: 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) – 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) – 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. [Paras 47, 48]
Electricity Rules, 2005 – r.3 – A company set up as a Special Purpose Vehicle (SPV) for generating electricity if an “association of persons”, in terms of the second proviso to r.3(1)(a) of the Rules and meet the proportionality requirement specified therein: Held: Reasoning given in Kadodara Power agreed with – r.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 – r.3(1)(b) does not undo or override the eligibility criteria specified under r.3(1)(a) read with second proviso – An association of companies or body corporates are required to comply with r.3(1)(a) read with the second proviso to r.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 r.3(1)(a) read with the second proviso to r.3(1)(a) – A SPV in this regard may be company, but it also is also an association of persons in terms of the second proviso to r.3(1)(a) – Thus, SPVs which own, operate and maintain CGPs are an “association of persons” in terms of the second proviso to r.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 SHAKTI PAPER AND BOARD LTD.
comply with r.3(1)(a) of the Rules read with the second proviso of the Rules. [Paras 51, 64, 66]
Words and Phrases – “association of persons” – Electricity Act, 2003 – Electricity Rules, 2005:
Held: 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 – 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 – 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 s.2(49) of the Act widens the scope of a “person” to include both juridical and non-juridical persons. [Paras 55, 56, 60]
LIST OF CITATIONS AND OTHER REFERENCES
Kadodara Power Pvt. Ltd. and Others v. Gujarat Electricity Regulatory Commission and Another 2009 SCC OnLine APTEL 119 – approved. SESA Sterilite Limited v. Orissa Electricity Regulatory Commission and Others (2014) 8 SCC 444: [2014] 13 SCR 426 – distinguished. Tamil Nadu Power Producers Association v. Tamil Nadu Electricity Regulatory Commission 2021 SCC OnLine APTEL 19; Sai Wardha Power Generation Limited and Others v. Maharashtra Electricity Regulatory Commission 2021 SCC OnLine APTEL 78; Chhattisgarh State Power Distribution Company Limited v. Chhattisgarh State Electricity Regulatory Commission and Anr. (2022) SCC Online SC 604; Maharashtra State Electricity Distribution Company Limited v. JSW Steel Limited and Ors. (2022) 2 SCC 742; Global Energy Ltd. and Another v. Central Electricity Regulatory Commission (2009) 15 SCC 570: [2009] 9 SCR 22; Ramanlal Bhailal Patel and Others v. State of Gujarat (2008) 5 SCC 449: [2008] 2 SCR 468; S. Sundaram Pillai and Others v. V.R. Pattabiraman and Others (1985) 1 SCC 591: [1985] 2 SCR 643; Monnet Ispat & Energy Ltd. And Others v. Union of India and Others C.A. No. 18506-18507 of 2017 referred to. OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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