Chhatisgarh State Power Distribution ... vs Chattisgarh State Elect.Reg.Commn.

Electricity (hereinafter referred to as the “APTEL”), thereby

dismissing the appeals filed by the present appellant.

2. The facts in brief giving rise to the present appeals

are as under:

1

M/s Shri Bajrang Power and Ispat Ltd. (hereinafter

referred to as “SBPIL”) has established a Captive Generation

Plant. M/s Shri Bajrang Metallics and Power Ltd. (hereinafter

referred to as “SBMPL”) is a sister concern of SBPIL. SBPIL

submitted a petition to the Chhattisgarh State Electricity

Regulatory Commission (hereinafter referred to as “the

Commission”) for providing open access and wheeling of

power through the transmission system of the appellant for

captive use by SBMPL. The petition of the SBPIL was for

permission to wheel 19 lakh units, corresponding to 13 MW,

to SBMPL. It was stated in the said petition that SBMPL

holds 27.6% of the equity shares of SBPIL and that more

than 51% of the electricity generated by the captive power

plant would be consumed by them. It was submitted that

the generating capacity of the captive generation plant set up

by SBPIL would be 103.68 MU per annum. It was further

submitted that out of the said 103.68 MU per annum power

generated, 13.22 MU per annum would be utilized in its

sponge iron plant. It was further submitted that 54 MU per

annum would be supplied to SBMPL through the appellant

grid and the balance would be sold to the appellant.

2 3. The said petition came to be resisted by the

appellant. 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.

4. The Commission, vide its order dated 14 th October

2005, rejected the contention of the appellant and held that

SBPIL was entitled to supply electricity to its sister concern

SBMPL and the same would qualify to be treated as ‘own

consumption’ within the ambit of Section 9 read with Section

2(8) of the Electricity Act, 2003 (hereinafter referred to as

“the said Act”) and Rule 3 of the Electricity Rules, 2005

(hereinafter referred to as “the said Rules”). While allowing

the said petition, the Commission imposed the following

conditions:

(i) “The consumption of electricity by the captive users shall not be less than 51% over a financial year, and in case it is not so it would be treated as ‘supply of electricity by a

3 generating company’ in terms of provision of rule 3(2) of the Rules.

(ii) The CSEB is entitled to charge for wheeling of electricity and levy other charges as per their present rates which shall be subject to revision as per the provisions in regulations on the charges for open access to be notified by the Commission shortly.

(iii) The company may enter into necessary agreement with the CSEB for the sale of balance power under the present terms and conditions of the CSEB, is subject to revision as per the directions of the Commission from time to time.”

5. Being aggrieved thereby, the appellant preferred

appeals before the APTEL. The said appeals came to be

dismissed by the APTEL vide impugned judgment dated 6 th

December 2007. Being aggrieved thereby, the present

appeals.

6. We have heard Shri Nikhil Nayyar, learned Senior

Counsel appearing on behalf of the appellant and Shri

Naveen R. Nath, learned Senior Counsel and Smt. Swapna

Seshadari, learned counsel appearing on behalf of the

respondents.

7. Shri Nayyar submitted that the order passed by the

Commission and the impugned judgment passed by the

4 APTEL are contrary to the plain language used in Rule 3 of

the said Rules. He submitted that SBMPL is a sister concern

of SBPIL which has established the captive power plant. It is

submitted that unless SBPIL consumes 51% of the aggregate

electricity generated by it, it will not be entitled to get the

benefit under Section 9 of the said Act. He submitted that in

sub­rule (1) of Rule 3 of the said Rules, the words used are

“Captive Generating Plant”. He submitted that upon a plain

and literal interpretation of Rule 3 of the said Rules, it will be

abundantly clear that unless the sister concern establishes

captive generating plant utilization of 51% of the electricity

generated, it will not be entitled to get benefit under Section

9 of the said Act.

8. Shri Nath submitted that the Commission, as well as

the APTEL, has rightly construed the provisions of the said

Act and the said Rules. He submitted, that this Court, in the

case of Maharashtra State Electricity Distribution

Company Limited v. JSW Steel Limited and Others 1, has

held that no permission is required from the Commission for

supply of electricity for its own use. He further submitted

1 (2022) 2 SCC 742

5 that this Court has also held that insofar as captive users are

concerned, they are not liable to pay the additional surcharge

under Section 42(4) of the said Act.

9. Smt. Seshadari, learned counsel appearing on behalf

of the Commission submitted that if the arguments advanced

on behalf of the appellant are accepted, the same would be

contrary to the provisions of the said Act. She, therefore,

submitted that the order passed by the Commission and the

impugned judgment passed by the APTEL warrant no

interference.

10. For appreciating the rival contentions, it will be

apposite to refer to Clauses (8) and (49) of Section 2 as well

as Section 9 and sub­sections (1) and (2) of Section 42 of the

said Act, which read thus:

“2. Definitions.­ ……….

(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;

…………

6 (49) “person” shall include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial 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 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 sub­section (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.

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

7 accordance with the provisions contained in this Act.

(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 cross­subsidies, and other operational constraints:

Provided that 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:

Provided further that such surcharge shall be utilised to meet the requirements of current level of cross­subsidy within the area of supply of the distribution licensee:

Provided also that such surcharge and cross­ subsidies shall be progressively reduced in the manner as may be specified by the State 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:

Provided also that the State Commission shall, not later than five years from the date of commencement of the Electricity (Amendment) Act, 2003, by regulations, provide such open access to all consumers who require a supply of electricity where the maximum power to be made available at any time exceeds one megawatt.

……….”

8

11. It could thus be seen that in view of Section 9 of the

said Act, any person may construct, maintain or operate a

captive generating plant and dedicated transmission lines.

The first proviso to Section 9 of the said Act 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 of the said Act. Sub­section (2) of

Section 9 of the said Act 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 sub­section (2) of Section 9 of the said Act provides

that such open access shall be subject to availability of

9 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 sub­section (2) of

Section 9 of the said Act provides that if there is any dispute

regarding the availability of transmission facility, it shall be

adjudicated upon by the Appropriate Commission.

12. Clause (8) of Section 2 of the said 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 co­operative society or association.

13. Clause (49) of Section 2 of the said Act defines

“person”. It states that “person” shall include any company

or body corporate or association or body of individuals,

whether incorporated or not, or artificial juridical person.

14. A combined reading of Section 9 and Clause (8) of

Section 2 of the said Act would reveal that a person is

entitled to construct, maintain or operate a captive

10 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 co­operative society or

association.

15. The definition of “person” is wide enough to include

any company or body corporate or association or body of

individuals, whether incorporated or not, or artificial juridical

person.

16. It is thus clear that a person, to get benefit under

Section 9 of the said Act, 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 sub­section (2) of Section 42 of the said Act would

also reveal that surcharge would not be leviable in case open

access is provided to a person who has established a captive

11 generating plant for carrying the electricity to the destination

of his own use.

17. Therefore, the question that would arise is as to

whether the open access for transmitting electricity from

SBPIL to SBMPL would be for own use or not.

18. We find that Rule 3 of the said Rules would clarify

the position, which reads thus:

“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 twenty­six per cent of the ownership is held by the captive user(s), and

(ii) not less than fifty­one 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 co­operative society: Provided further that in case of association of persons, the captive user(s) shall hold not less than twenty­six per cent of the ownership of the plant in aggregate and such captive user(s) shall consume not less than fifty­one per cent of the electricity generated, determined on an annual basis, in proportion to their shares in

12 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 sub­clause (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 twenty­six per cent of the proportionate of the equity of the company related to the generating unit or units identified as the captive generating plant.”

19. The provisions made in Rule 3 of the said Rules are

clear. Sub­rule (1) of Rule 3 of the said Rules provides that

no power plant shall qualify as a “Captive Generating Plant”

under Section 9 read with Clause (8) of Section 2 of the said

Act 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

13 for the captive use. The second proviso to Rule 3(1)(a)(ii) of

the said Rules 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%.

20. Admittedly, SBMPL holds 27.6% equity shares in

SBPIL. As such, the requirement of not less than 26% of

shares is fulfilled by SBMPL. As already discussed

hereinabove, 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.

14

21. We find that it will also be appropriate to refer to the

National Electricity Policy, 2005 (hereinafter referred to as

“the said Policy”) as notified by the Government of India, in

exercise of its powers under Section 3 of the said Act, on 12 th

February 2005. Clauses 5.2.24 to 5.2.26 deal with the

“Captive Generation”, which read thus:

“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 cost­effective 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 cost­effective 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.

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.

15 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. Grind inter­connections 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 tariffs when a licensee is the off­taker of power from captive plant.” [emphasis supplied]

22. It could thus be seen that the provision with respect

to establishing captive power plant has been made with a

view to not only securing reliable, quality and cost­effective

power but also to facilitate creation of employment

opportunities through speedy and efficient growth of

industry. The said Policy 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

16 individually be in a position to set up plant of optimal size, in

a cost­effective manner. It also states that 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.

23. The said Policy is issued under Section 3 of the said

Act 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 said Act. A

liberal provision has been made in Section 9 of the said Act

so as to promote establishment of captive power plants.

24. It is a settled position of law that the interpretation

which advances the object and purpose of the Act, has to be

preferred. A reliance in this respect can be placed on the

judgments of this Court in the cases of Administrator,

Municipal Corporation, Bilaspur v. Dattatraya

Dahankar, Advocate and Another2, S. Gopal Reddy v.

2 (1992) 1 SCC 361

17 State of A.P.3 and Ahmedabad Municipal Corporation

and Another v. Nilaybhai R. Thakore and Another4.

25. We are, therefore, of the considered view that no

case is made out for interfering with the order dated 14 th

October 2005 passed by the Commission and the impugned

judgment dated 6th December 2007 passed by the APTEL.

26. In the result, the present appeals are found without

merit and as such, are dismissed.

27. Pending application(s), if any, shall stand disposed of

in the above terms. No order as to costs.

……..….......................J. [L. NAGESWARA RAO]

…….........................J. [B.R. GAVAI]

NEW DELHI;

MAY 12, 2022.

3 (1996) 4 SCC 596 4 (1999) 8 SCC 139

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