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M/s Dakshin Gujarat Vij Company Limited vs. M/s Gayatri Shakti Paper and Board Limited and Another, Etc.

Civil Appeal · 2023 INSC 886Decided 9 Oct 2023
Civil Appeal Nos. 8527-8529 of 2009
Sanjiv Khanna · M.M. Sundresh

Background

This is a common judgment deciding thirteen tagged appeals together, all raising the same recurring legal question under India's power sector regulations: what counts as a "Captive Generating Plant" (a power plant set up mainly to supply its own owners/shareholders, which gets certain benefits like exemption from cross-subsidy surcharges) and who qualifies as a "captive user" of such a plant. The dispute arose because two Appellate Tribunal for Electricity (APTEL) rulings had taken conflicting positions on how to calculate the required shareholding and consumption thresholds under Rule 3 of the Electricity Rules, 2005, creating uncertainty for power companies and consumers across multiple ongoing cases, including the lead dispute between Dakshin Gujarat Vij Company Limited and Gayatri Shakti Paper and Board Limited.

Decision Breakdown

The Supreme Court framed and answered three legal questions: (1) the eligibility criteria for a plant/user to qualify as "captive" under Rule 3(1)(a), (2) the meaning of "association of persons" in the rule's second proviso, and (3) whether a company incorporated as a Special Purpose Vehicle (SPV) to generate electricity can itself be treated as an "association of persons" for this purpose. On the technical calculation method, the Court endorsed and refined a "unitary qualifying ratio" approach (consumption requirement of 51% divided by shareholding requirement of 26%, i.e., roughly 1.96% consumption required for every 1% of shareholding, with a 10% variation allowed either way), illustrating with worked numerical examples how individual shareholders' captive-user status should be assessed. On the SPV question, the Court held that an SPV which owns, operates, and maintains a Captive Generating Plant is itself an "association of persons" under the second proviso, meaning its shareholder-companies must still separately satisfy the Rule 3(1)(a) shareholding-and-consumption thresholds, rejecting the argument that forming an SPV could let a plant "camouflage" as captive while a dominant shareholder-generator consumes most of the power without holding matching captive-user shares.

Lesson Learnt

Businesses and industrial groups structuring a "captive" power plant to obtain regulatory benefits must ensure each shareholder-consumer's shareholding and actual electricity consumption independently satisfy the prescribed mathematical ratio, using layered corporate structures like an SPV does not bypass this requirement, since courts will look through the structure to prevent "gaming" the statutory scheme meant to genuinely benefit companies that invest in and consume from their own power plants.

Official source (sci.gov.in)View Judgment (PDF)

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