CHHATTISGARH STATE POWER DISTRIBUTION COMPANY LTD. VS CHHATTISGARH STATE ELECTRICITY REGULATORY COMMISSION Case

CHHATTISGARH STATE POWER DISTRIBUTION  COMPANY LTD. VS CHHATTISGARH STATE ELECTRICITY REGULATORY COMMISSION Supreme Court Case Judgment 2022 

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION 

CIVIL APPEAL NOS. 2578­2579 OF 2008

CHHATTISGARH STATE POWER DISTRIBUTION 

COMPANY LTD.                ...APPELLANT(S)

VERSUS

CHHATTISGARH STATE ELECTRICITY

REGULATORY COMMISSION AND ANOTHER

...RESPONDENT(S)

WITH

CIVIL APPEAL NOS. 2941­2942 OF 2008

CIVIL APPEAL NO. 2868 OF 2008

J U D G M E N T

B.R. GAVAI, J.

1. These   appeals   challenge   the   judgment   dated   6th

December   2007   passed   by   the   Appellate   Tribunal   for

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 14th  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 6th

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 Others1

, 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, coordinated 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   crosssubsidies   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   subsection (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 cooperative   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.  

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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 12th

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.

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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 cogeneration   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 14th

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

18