CHHATISGARH STATE POWER DISTRIBUTION COMPANY LTD vs. CHATTISGARH STATE ELECT.REG.COMMN.

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. th 1. These   appeals   challenge   the   judgment   dated   6 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.   th The Commission, vide its order dated 14   October 4. 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 th dismissed by the APTEL vide impugned judgment dated 6 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 1 Company Limited v. JSW Steel Limited and Others ,   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. Smt. Seshadari, learned counsel appearing on behalf 9. 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:

………. (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

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 . —(1) It shall be the duty of a distribution access 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— ( ) in case of a power plant— a ( 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

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 th exercise of its powers under Section 3 of the said Act, on 12 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 2 Dahankar, Advocate and Another ,   S. Gopal Reddy v. 2 (1992) 1 SCC 361 17 3 State   of   A.P.   and   Ahmedabad   Municipal   Corporation 4 . and Another v. Nilaybhai R. Thakore and Another 25. We   are,   therefore,   of  the   considered   view  that  no th case is made out for interfering with the order dated 14 October 2005 passed by the Commission and the impugned th judgment dated 6  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