Summary
The Supreme Court clarified captive-power eligibility under the Electricity Act and Rules. Captive users must meet the minimum ownership and consumption requirements; ownership must be maintained throughout the financial year. Ownership transfers do not themselves destroy captive status. Group users other than registered cooperative societies, including users participating through special-purpose vehicles, must satisfy proportional consumption requirements, with weighted averages applied to ownership changes.
Issues
- What ownership and consumption requirements determine captive generating plant and user status.
- Whether subsequent ownership transfers qualify and whether year-end shareholding alone suffices.
- How proportionate consumption applies to group users and changes during the year.
- Whether a special-purpose vehicle is exempt from the association-of-persons requirements.
Provisions considered
- Sections 2(8), 2(49) and 9, Electricity Act, 2003Captive generation encompasses individual and group arrangements; purposive interpretation permits subsequent owners meeting the prescribed captive eligibility conditions. (¶¶ 4, 6, 7, 8, 9, 10, 11, 12, 13, 25, 31, 32, 33, 34, 35, 36, 37, 58, 59, 60)
- Sections 38(2) and 42(2): captive-use surcharge provisos, Electricity Act, 2003Qualifying captive own-use open access is protected from the identified surcharges; use of the distribution network still attracts wheeling charges. (¶¶ 14, 15, 16, 20, 28)
- Rule 3(1)(a)(i) and (ii), Electricity Rules, 2005At least 26% ownership and 51% aggregate annual captive consumption are minimum thresholds; the ownership threshold must be continuously maintained throughout the financial year. (¶¶ 25, 26, 38, 39)
- Rule 3(1)(a), first and second provisos, Electricity Rules, 2005Cooperative members satisfy the thresholds collectively; other group captive arrangements must additionally satisfy the proportionality requirement. (¶¶ 28, 29, 41, 42, 43, 44, 45, 61, 62, 64)
- Rule 3(1)(b) and Explanation 1, Electricity Rules, 2005An SPV may identify particular generating units for captive use, but that flexibility does not displace the substantive eligibility and proportionality conditions. (¶¶ 49, 50, 51, 57, 64, 65, 66)
- Rule 3: proportionate consumption on ownership changes, Electricity Rules, 2005Weighted-average shareholding is the appropriate method for testing proportionate consumption when ownership or consumption changes, without breaching the aggregate minimum ownership requirement. (¶¶ 46, 47, 48)
Held
- The 26% ownership and 51% annual consumption figures are minimum qualifying thresholds. Qualifying captive own-use arrangements receive the statutory surcharge protection, while network use remains subject to wheeling charges. (¶¶ 14, 15, 16, 20, 25, 26, 28)
- Captive status is not confined to the original constructor. Transfer of all or part ownership does not itself destroy that status if the new captive user satisfies Rule 3; Sections 2(8) and 9 must be read harmoniously and purposively. (¶¶ 31, 32, 33, 34, 35, 36, 37)
- The minimum 26% ownership requirement must be satisfied throughout the financial year. Testing only the ownership existing on its final day, as accepted in Tamil Nadu Power, was rejected. (¶¶ 38, 39)
- Registered cooperative societies receive collective treatment under the first proviso. Other group captive users must satisfy the second proviso’s additional proportionality requirement; the Court explained its application through a qualifying consumption-to-shareholding ratio and illustrations. (¶¶ 28, 41, 42, 43, 44, 45, 61, 62)
- Changes in shareholding or captive users call for weighted-average shareholding and corresponding proportionate consumption rather than a year-end snapshot, while the aggregate minimum ownership threshold must remain unbreached. (¶¶ 46, 47, 48)
- Rule 3(1)(b) permits an SPV to designate one or more generating units for captive use and test the relevant ownership and consumption against those units. It does not override Rule 3(1)(a) or exempt group users from proportionality. (¶¶ 49, 50, 51)
- An SPV owning, operating and maintaining the plant is an association of persons for this purpose. Its shareholder captive users must comply with the second proviso; the SPV corporate form cannot be used to evade the substantive requirements. (¶¶ 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66)
Result
The three legal issues were answered by declaring the captive-eligibility, continuous-ownership, weighted-average and SPV proportionality requirements. This judgment sets out the governing principles rather than recording individual factual disposal of every appeal.