# CASE DETAILS M/S. DAKSHIN GUJARAT VIJ COMPANY LIMITED v. M/S. GAYATRI SHAKTI PAPER AND BOARD LIMITED AND ANOTHER, ETC

- **Citation:** 2023 INSC 886
- **Court:** Supreme Court of India
- **Decided:** 2023-10-09
- **Case number:** Civil Appeal Nos. 8527-8529 of 2009
- **Bench:** Sanjiv Khanna, M. M. Sundresh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-m-s-dakshin-gujarat-vij-company-limited-v-m-s-gayatri-shakti-paper-36852
- **Pages:** 49

## Headnote

Issue for consideration: Eligibility criteria for a Captive Generating
Plant (CGP)/captive user u/r.3(1)(a) of the Electricity Rules, 2005;
Interpretation of the second proviso u/r.3(1)(a) of the Rules and the words
"association of persons"; Whether a company set up as a Special Purpose
Vehicle for generating electricity is an, "association of persons", in terms
of the second proviso to r.3(1)(a) of the Rules.
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 - Confl icting 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 satisfi ed - The
defi nition 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 defi ned 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
345
that captive user is the end user of the electricity - Captive user is the actual
consumer who uses electricity for his own use - The fi rst 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 satisfi ed 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 defi ned
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 specifi ed 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 satisfi ed only on the last day of
the fi nancial year, that is, 31st is not agreed with - The minimum threshold
of ownership, which is 26%, is to be met and satisfi ed throughout the year
and not at the end of the fi nancial 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 ha

## Text

_Characters 0–39,995 of 106,481. This is a partial read: ask again with offset=39995 for what follows._

[2023] 15 S.C.R. 344 : 2023 INSC 886
344
CASE DETAILS
 M/S. DAKSHIN GUJARAT VIJ COMPANY LIMITED
v.
M/S. GAYATRI SHAKTI PAPER AND BOARD LIMITED AND
ANOTHER, ETC.
(Civil Appeal Nos. 8527-8529 of 2009)
OCTOBER 09, 2023
[SANJIV KHANNA AND M. M. SUNDRESH, JJ.]
HEADNOTES
Issue for consideration: Eligibility criteria for a Captive Generating
Plant (CGP)/captive user u/r.3(1)(a) of the Electricity Rules, 2005;
Interpretation of the second proviso u/r.3(1)(a) of the Rules and the words
"association of persons"; Whether a company set up as a Special Purpose
Vehicle for generating electricity is an, "association of persons", in terms
of the second proviso to r.3(1)(a) of the Rules.
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 - Confl icting 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 satisfi ed - The
defi nition 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 defi ned 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
345
that captive user is the end user of the electricity - Captive user is the actual
consumer who uses electricity for his own use - The fi rst 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 satisfi ed 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 defi ned
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 specifi ed 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 satisfi ed only on the last day of
the fi nancial year, that is, 31st is not agreed with - The minimum threshold
of ownership, which is 26%, is to be met and satisfi ed throughout the year
and not at the end of the fi nancial 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:
M/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD.
346
SUPREME COURT REPORTS
[2023] 15 S.C.R.
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 specifi cally
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 diff erent persons - This
is brought out in Rule 3 of the Rules which specifi es 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 fi nancial
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
affi rmation 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
347
Power w.r.t proportionality requirement agreed with, elaborated by
referring to the clarifi cations 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 insignifi cant 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 benefi ts 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 fi rst 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 specifi ed 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 specifi ed 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 specifi ed in the second proviso to Rule 3(1)
(a) - Second proviso to r.3(1)(a) of the Rules is not case specifi c - 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
M/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD.
348
SUPREME COURT REPORTS
[2023] 15 S.C.R.
- 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 satisfi ed. [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 specifi ed therein:
Held: Reasoning given in Kadodara Power agreed with - r.3(1)(b)
of the Rules liberalises, gives fl exibility 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 specifi ed
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
349
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 diff erent 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 benefi t 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 benefi t
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 specifi cally defi ned in the Act - Conversely, the
expression, "association or body of individuals, whether incorporated or
not", used in the defi nition 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
M/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD.
350
SUPREME COURT REPORTS
[2023] 15 S.C.R.
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
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8527-8529
of 2009.
From the Judgment and Order dated 22.09.2009 of the Appellate
Tribunal for Electricity, New Delhi in Appeal Nos.10, 171 and 172 of 2008.
With
Civil Appeal Nos.1-2, 1693-1698 of 2010, 12282 of 2016, 1142, 1141,
4611-4624, 4532-4556, 4571 of 2022, Civil Appeal Diary No.10378 of 2022,
Civil Appeal Nos.3662, 4233 and 8738 of 2022
Appearances:
Balbir Singh, Sanjay Jain, ASGs., Basava Prabhu S. Patil, C.
A. Sundaram, Sanjay Sen, G. Umapathy, C. S. Vaidyanathan, M. G.
Ramachandran, Sajan Poovayya, Nakul Dewan, Jayant Bhushan, S. K.
Rungta, Jaideep Gupta, Sr. Advs., M/s. DSK Legal, G. Saikumar, Ravi
Prakash, Samir Malik, Ms. Nikita Choukse, Akash Lamba, Ms. Farha
Malik, Naman Tandan, Chandra Prakash, Ms. Ishita Jain, Anand Kumar
Shrivastava, Sudhir Nandrajog, Shivam Sinha, Ankit Bhandari, Geet Rajan
Ahuja, Matrugupta Mishra, Nipun Dave, Ms. Sharmila Upadhyay, Ms.
Rohini Musa, Zafar Inayat, Anand K. Ganesan, Pramod Dayal, Nikunj
Dayal, Ms. Kriti Soni, Rohit Singha, Ms. Tatini Basu, P. Vinod Kumar,
Ms. Shraddha Deshmukh, Ms. Supriya Juneja, Rohit K Singh, Mohit D.
Ram, Buddy Ranganathan, Gaurav Mitra, Ms. Monisha Handa, Anubhav
Sharma, Amey Nabar, Vishnu Sharma A. S., K. V. Mohan, Mrs. Srishti
Khidaria, K. V. Balakrishnan, Aneesh Bajaj, Ms. Dipali S. Sheth, Shubham
Mehta, Ms. Raksha Agrawal, Ms. Palash Maheshwari, M/s. Khaitan &
Co, Ms. Divya Chaturvedi, Saransh Shaw, B. Krishna Prasad, Pradhuman
Gohil, Mrs. Taruna Singh Gohil, Ms. Ranu Purohit, Alapati Sahithya
Krishna, Hasan Murtaza, Ms. Pratiti Rungta, Prashant Singh, Sumit Pragal,
351
Shivankur Shukla, Ms. Amita Singh Kalkal, Ms. Hemantika Wahi, Ms. Jesal
Wahi, M.Y. Deshmukh, D. Kumanan, Mrs. Deepa S., Sheikh Fakhruddin
Kalia, Ms. Rachheta Chawla, Ms. Divya Singh, Ms. Bano Deswal, Rajeev
Maheshwaranand Roy, Gunjan Kumar, P. Srinivasan, Senthil Jagadeesan,
Sajal Jain, Ms. Sonakshi Malhan, Ms. Ishita Jain, Anand Kumar Shrivastava,
Shivam Sinha, Ankit Bhandari, Anil Kaushik, Abhishek Mishra, Mrs. Shashi
Sharma, Rajat Rana, Ms. Anju Kaushik, Ms. Arunima Dwivedi, Gurmeet
Singh Makker, Padmesh Mishra, Yuvraj Sharma, Digvijay Dam, Madhav
Sinhal, Dr. Arun Kumar Yadav, Anand Shankar Jha, Abhilekh Tiwari, T.
Sundar Ramanathan, Abir Roy, Vivek Pandey, Ms. Sukanya Viswanathan,
Ramakant Rai, Ashish Bhan, Ketan Gaur, Varun Kumar Tikmani, Ravin
Kapur, Somesh Srivastava, Kumar Gourav, Ms. Nooreen Sarna, Abhinav
Mukerji, Vinodh Kanna B., K. R. Sasiprabhu, Tushar Bhardwaj, Vinayak
Goel, Prakhar Agrawal, Advs. for the appearing parties
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
SANJIV KHANNA, J.
This judgment interprets relevant provisions of the Electricity Act,
20031 and Rule 3 of the Electricity Rules, 20052, for being classifi ed 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 fi rst 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 fi ndings
in Tamil Nadu Power Producers Association v. Tamil Nadu Electricity
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".
M/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD.
352
SUPREME COURT REPORTS
[2023] 15 S.C.R.
Regulatory Commission6, dated 07.06.2021. A third decision of the APTEL
in Sai Wardha Power Generation Limited and Othersv. 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 fi nding.
4. We begin by fi rst reproducing the relevant provisions of the Act9:
"2. Defi nition.-In this Act, unless the context otherwise requires,-
××
××
××
(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;
××
××
××
(49) "person" shall include any company or body corporate or
association or body of individuals, whether incorporated or not, or
artifi cial juridical person;
××
××
××
9. Captive generation.- (1) Notwithstanding anything contained
in this Act, a person may construct, maintain or operate a captive
generating plant and dedicated transmission lines:
Provided that the supply of electricity from the captive generating
plant through the grid shall be regulated in the same manner as the
generating station of a generating company:
Provided further that no licence shall be required under this Act for
supply of electricity generated from a captive generating plan to any
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.
353
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); and
(ii) not less than fi fty-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 satisfi ed collectively by the members of the co-operative
society:
10 As amended upto 01.09.2023.
M/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD. [SANJIV KHANNA, J.]
354
SUPREME COURT REPORTS
[2023] 15 S.C.R.
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 fi fty-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 identifi ed for captive use and not the entire
generating station satisfy(ies) the conditions contained in paragraphs
(i) and (ii) of sub-clause (a) above includingExplanation.-(1) The electricity required to be consumed by captive
users shall be determined with reference to such generating unit or
units in aggregate identifi ed 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
identifi ed 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
identifi ed 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 fi fty-one per cent 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
355
state, shall be verifi ed 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 fi nancial year;
(b) 'captive user' shall mean the end user of the electricity generated
in a Captive Generating Plantand 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
defi ned in clause (87) of Section 2 of the Companies Act, 2013 (18
of 2013) or the holding company as defi ned 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;
(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 defi nes 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 specifi cally referring to a coM/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD. [SANJIV KHANNA, J.]
356
SUPREME COURT REPORTS
[2023] 15 S.C.R.
operative society and association of persons, the clause does not refer to a
company. Section 2(49) defi nes the word, "person", to include any company
or body corporate or association or body of individuals, whether incorporated
or not, or artifi cial 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.
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 fi rst 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 fi rst 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 availability of transmission facility is to be adjudicated by the
appropriate 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
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
357
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. Equally, the fi rst 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 effi cient, coordinated, and economical
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.
M/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD. [SANJIV KHANNA, J.]
358
SUPREME COURT REPORTS
[2023] 15 S.C.R.
distribution system in the area of his supply.12 A distribution licensee also
owes duty to supply electricity in 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 fi rst 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 specifi ed by the State Commission.17 What
is important for our consideration is the fourth proviso which states that
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 effi cient, co-ordinated
and economical distribution system in his area of supply and to supply electricity in
accordance with the provisions contained in this Act."
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 specifi ed 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): ---
××
××
××
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): ---
××
××
××
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:"
17 "Section 42. (Duties of distribution licensee and open access): ---
××
××
××
"Provided also that such surcharge and cross-subsidies shall be progressively reduced
in the manner as may be specifi ed by the State Commission:"
359
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.-
××
××
××
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.
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 specifi c 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 defi nition of "consumer" vide Section 2(15) of the Act21, which means
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. Defi nition.-In this Act, unless the context otherwise requires,-
××
××
××
(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
M/S. DAKSHIN GUJARAT VIJ COMPANY LTD. v. M/S. GAYATRI
SHAKTI PAPER AND BOARD LTD. [SANJIV KHANNA, J.]
360
SUPREME COURT REPORTS
[2023] 15 S.C.R.
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 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
diff erent viz the, "consumers", defi ned under Section 2(15).22They 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 notifi ed 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 eff ective power but also to
facilitate creation of employment opportunities through speedy and
effi cient 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 eff ective manner. It needs to be
noted that effi cient expansion of small and medium industries across the
country would lead to creation of enormous employment opportunities.
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;"
22 Supra note 21.
23 Supra note 18.
24 For short, "Policy".
361
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 off er 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, nonconventional 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
tariff s when a licensee is the off -taker of power from captive plant."
18. This Court in Chhattisgarh State Power25observes 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-eff ective
power, but also to felicitate creation of employment opportunities through
speedy and effi cient 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 of optimum size, in a cost-eff ective manner.