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.
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 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

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