Introduction

In the landmark case of M/S Dakshin Gujarat Vij Company Limited Through Additional Chief Engineer (Commerce and Regulatory) v. M/S Gayatri Shakti Paper and Board Ltd (2023 INSC 886), the Supreme Court of India provided a comprehensive interpretation of the provisions related to Captive Generating Plants (CGPs) under the Electricity Act, 2003 and Electricity Rules, 2005. The case primarily revolved around the eligibility criteria for CGPs and captive users, the interpretation of associations of persons, and the status of Special Purpose Vehicles (SPVs) within this framework.

The parties involved were Dakshin Gujarat Vij Company Limited (DGVC) and Gayatri Shakti Paper and Board Ltd. The core issue addressed was the classification of entities as CGPs and ensuring compliance with ownership and consumption requirements to prevent misuse and gaming of the system.

Summary of the Judgment

The Supreme Court meticulously analyzed the definitions and provisions within the Electricity Act and Rules to establish clear guidelines for what constitutes a Captive Generating Plant and a captive user. Key findings include:

• Definition and Scope: Clarified that a CGP can be established by any person, including companies, cooperative societies, or associations of persons, primarily for their own use.
• Eligibility Criteria: Emphasized the mandatory minimum requirements of ownership (not less than 26%) and electricity consumption (not less than 51%) for captive users.
• Association of Persons: Established that SPVs are considered associations of persons and must comply with proportional consumption rules.
• Prevention of Gaming: Implemented measures to prevent misuse of CGP classifications by ensuring adherence to ownership and consumption ratios throughout the financial year.

The judgment upheld previous decisions from the Appellate Tribunal for Electricity (APTEL) while providing more nuanced interpretations to address ambiguities and potential loopholes.

Analysis

Precedents Cited

The Court referenced several key cases to shape its interpretation:

• Kadodara Power Pvt. Ltd. v. Gujarat Electricity Regulatory Commission 119 (2009): Highlighted the importance of proportional ownership and consumption in CGP classifications.
• Tamil Nadu Power Producers Association v. Tamil Nadu Electricity Regulatory Commission 2021: Deemed Kadodara Power's decision per incuriam, reinforcing stringent compliance requirements.
• Sai Wardha Power Generation Limited v. Maharashtra Electricity Regulatory Commission 2021: Supported the view in Tamil Nadu Power regarding CGP regulations.
• Chhattisgarh State Power Distribution Company Limited v. Chhattisgarh State Electricity Regulatory Commission 2022: Reinforced the non-liability of captive consumers to pay additional surcharges.
• M/S Dakshin Gujarat Vij Company Limited v. M/S Gayatri Shakti Paper and Board Ltd 2023: The current judgment, building upon previous interpretations to provide comprehensive guidelines.

Legal Reasoning

The Court adopted a purposive approach, emphasizing the legislative intent behind the Electricity Act and Rules. Key aspects of the legal reasoning include:

• Interpretation of Terms: Clarified that "person" under Section 2(49) includes both juridical and non-juridical entities, encompassing companies, associations, and individuals.
• Proportionality Principle: Mandated that ownership and consumption ratios must be maintained proportionally, especially for associations of persons, to ensure CGPs are not misclassified for undue benefits.
• Special Purpose Vehicles (SPVs): Determined that SPVs are a form of association of persons and must adhere to the same eligibility criteria, including the proportional consumption rules.
• Preventing Gaming: Implemented annual verification based on end-of-year shareholding to prevent manipulation of ownership and consumption ratios.

Impact

This judgment has significant implications for the electricity sector:

• Clarity in CGP Classification: Provides definitive guidelines on what constitutes a CGP and the obligations of captive users, reducing ambiguities.
• Enhanced Compliance: Mandates strict adherence to ownership and consumption ratios, promoting transparency and accountability.
• Prevention of Abuse: Tightens regulations to prevent entities from misclassifying themselves as CGPs to evade additional surcharges.
• Legal Precedence: Sets a higher standard for future cases, influencing how regulatory bodies interpret and enforce CGP-related provisions.
• Facilitation of Industrial Growth: By ensuring that genuine CGPs are recognized and regulated appropriately, it supports the objective of fostering reliable and cost-effective power generation for industries.

Complex Concepts Simplified

Captive Generating Plant (CGP)

A CGP is a power plant established by an individual or entity primarily to generate electricity for their own use, rather than for sale to the grid or public. This includes plants set up by cooperative societies or associations of persons for their members' use.

Association of Persons

This term refers to a group of individuals or entities that come together with a common purpose or goal. In the context of CGPs, it involves multiple owners who collectively own the power plant and agree to consume the majority of its generated electricity.

Special Purpose Vehicle (SPV)

An SPV is a legal entity created for a specific, narrow purpose—in this case, owning, operating, and maintaining a CGP. SPVs are established by companies or corporates to facilitate separate operational and financial handling of the power plant.

Proportionality Principle

This principle ensures that the amount of electricity consumed by each captive user is proportionate to their ownership stake in the CGP. It prevents individuals or entities from bypassing ownership requirements to claim benefits unfairly.

Cross Subsidy Surcharge (CSS)

CSS is an additional charge levied on consumers who use open access to draw power directly from the grid, thereby subsidizing the disbursement of electricity to marginalized and vulnerable sections of society. CGP users are exempt from CSS to encourage self-generation and reduce strain on the distribution network.

Conclusion

The Supreme Court's judgment in M/S Dakshin Gujarat Vij Company Limited v. M/S Gayatri Shakti Paper and Board Ltd serves as a pivotal reference point in the regulation of Captive Generating Plants in India. By delineating stringent criteria for ownership and consumption, and by classifying Special Purpose Vehicles as associations of persons subject to the same rules, the Court has fortified the framework against misuse and ensured that the benefits of CGPs are rightly allocated to genuine users. This judgment not only clarifies existing ambiguities but also fosters an environment conducive to reliable and cost-effective power generation, thereby supporting industrial growth and economic stability.