Electricity Act, 2003: s. 9 rw s. 2(8) – Electricity Rules, 2005 – r. 3 – Captive generation plant – Requirement of – On facts, SBPIL established a captive generation plant and SBMPL is its sister concern – Petition by SBPIL to State Electricity Regulatory Commission for providing open access and wheeling of power through the transmission system of the appellant-State Power Distribution Company for capitive use by SBMPL – Allowed by the Commission holding that SBPIL was entitled to supply electricity to its sister concern SBMPL and same would qualify to be treated as own consumption within the ambit of s. 9 – Said order upheld by APTEL – On appeal, held: Combined reading of s. 9 and 2(8) reveal that a person is entitled to construct, maintain or operate a captive generating plant and such a plant should be primarily for his own use – SBMPL holds 27.6% equity shares in SBPIL, as such, the requirement of not less than 26% of shares is fulfilled by SBMPL and since SBMPL holds 27.6% of the ownership, the use of electricity by it would be for captive use – Other requirement that the consumption of SBIPL and SBMPL together should not be less than 51% of the power generated and admittedly, the joint consumption by SBIPL and SBMPL is more than 51% – Thus, both the conditions as provided u/r 3 are satisfied, thus, the order passed by the Commission and the APTEL justified.
Dismissing the appeals, the Court
HELD: 1.1 In view of Section 9 of the Electricity Act, 2003 any person may construct, maintain or operate a captive generating plant and dedicated transmission lines. The first proviso to Section 9 provides 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 the generating company. The second proviso to Section 9 of the said Act provides that no licence shall be required under the said Act for supply of electricity generated from a captive generating plant to any licensee in accordance with the provisions of the said Act and the rules and regulations made thereunder and to any consumer, subject to the regulations made under sub-section (2) of Section
42. Sub-section (2) of Section 9 provides that 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. The first proviso to sub-section (2) of Section 9 provides 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. The second proviso to sub-section (2) of Section 9 provides that if there is any dispute regarding the availability of transmission facility, it shall be adjudicated upon by the Appropriate Commission. [Para 11][807-A-E]
1.2 Clause (8) of Section 2 of the Act defines “Captive generating plant”. It states that “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 co-operative society or association. [Para 12][807-E-F]
1.3 A combined reading of Section 9 and Clause (8) of Section
2 of the Act would reveal that a person is entitled to construct, maintain or operate a captive generating plant. Such a plant should be primarily for his own use. Clause (8) of Section 2 of the said Act would further show that it includes a power plant set up by any co-operative society or association of persons for generating electricity. The requirement is that it should be primarily for the use of the members of such co-operative society or association. The definition of “person” under Clause (49) of Section 2 is wide enough, to include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person. [Paras 13, 14, 15][807-G-H; 808-A-B]
1.4 A person, to get benefit under Section 9, could be an individual or a body corporate or association or body of individuals, whether incorporated or not. It could thus be seen that even an association of corporate bodies can establish a captive power plant. The only requirement would be that the said plant must be established primarily for their own use. The fourth proviso to s. 42(2) reveal that surcharge would 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. [Para 16][808-B-D]
1.5 Sub-rule (1) of Rule 3 of the Electricity Rules, 2005 provides that no power plant shall qualify as a “Captive Generating Plant” under Section 9 read with Clause (8) of Section 2 unless the conditions stated therein are fulfilled. The first requirement is that not less than 26% of the ownership is held by the captive user(s). The second requirement is that not less than 51% of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for the captive use. The second proviso to Rule 3(1)(a)(ii) provides that in case of association of persons, the captive user(s) shall hold not less than 26% of the ownership of the plant in aggregate and such captive user(s) shall consume not less than 51% 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 10%. [Para 19][809E-H]
1.6 Admittedly, SBMPL holds 27.6% equity shares in SBPIL. As such, the requirement of not less than 26% of shares is fulfilled by SBMPL. Even an association of corporate bodies can establish a power plant. Since SBMPL holds 27.6% of the ownership, the use of electricity by it would be for captive use under the provisions of the said Act. The other requirement would be that the consumption of SBIPL and SBMPL together should not be less than 51% of the power generated. Admittedly, the joint consumption by SBIPL and SBMPL is more than 51%. As such, both the conditions as provided under Rule 3 of the said Rules are satisfied. [Para 20][809-H; 810-A-B]
1.7 The provision with respect to establishing 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. The National Electricity Policy, 2005 further states that the provision relating to captive power plants to be set up by a group of consumers has been made primarily for 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. The efficient expansion of small and medium industries across the country would lead to creation of enormous employment opportunities. Clause 5.2.26 of the said Policy further states that the captive and standby generating stations in India have surplus capacity that could be supplied to the grid continuously or during certain time periods. The said Policy is issued u/s. 3 and as such, has a statutory flavour. In any case, the said Policy is in tune with the provisions as contained in Section 9 and Clause (8) of Section 2 of the Act. A liberal provision has been made in Section 9 so as to promote establishment of captive power plants. The interpretation which advances the object and purpose of the Act, has to be preferred. Thus, no case is made out for interfering with the order passed by the Commission and the APTEL. [Para 22-25][811-C-H; 812-B] Maharashtra State Electricity Distribution Company Limited v. JSW Steel Limited and Others (2022) 2 SCC 742; Administrator, Municipal Corporation, Bilaspur v. Dattatraya Dahankar, Advocate and Another (1992)
1 SCC 361 : [1991] 3 Suppl. SCR 112; S. Gopal Reddy v. State of A.P. (1996) 4 SCC 596 : [1996] 3 Suppl. SCR 439; Ahmedabad Municipal Corporation and
Another v. Nilaybhai R. Thakore and Another (1999) 8 SCC 139 : [1999] 3 Suppl. SCR 647 – referred to.
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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