Electricity Act - Ownership and Consumption Criteria Must be Maintained Continuously Throughout the Year: Supreme Court in a Decision on Captive Generating Plants

In a significant ruling, the Supreme Court of India provided extensive clarity on the interpretation of the Electricity Act, 2003, particularly focusing on the definitions and regulations around Captive Generating Plants (CGPs) and their captive users. The bench comprised of Justice Sanjiv Khanna and Justice M.M. Sundresh, and the judgment delved into the nuances of the Act and relevant rules.

The judgment stated, "The judgment provides a comprehensive analysis of the relevant legal provisions and rules related to Captive Generating Plants and captive users in the context of the Electricity Act, 2003, and the Electricity Rules, 2005."

Among the key highlights, the Court clarified what constitutes a CGP as per Section 2(8) of the Act. It also delineated the conditions for captive users, stating that the "captive user should own not less than 26% of the CGP" and "should consume not less than 51% of the electricity generated by the CGP."

Justice Sanjiv Khanna was quoted saying, "Ownership and consumption criteria must be maintained continuously throughout the year." This clarification is critical for companies and cooperative societies involved in the electricity sector, as it sets a precedent for future cases involving CGPs.

The court also went into the technicalities of applying these criteria throughout a financial year, especially when there are changes in shareholding. The Court recommended using a "weighted average shareholding method" when determining proportionate electricity consumption, thus providing concrete guidelines for such scenarios.

Furthermore, the judgment also discussed the role of CGPs in the National Electricity Policy, emphasizing their role in "securing reliable and cost-effective power and creating employment opportunities." The Court highlighted the importance of interpreting the law in line with the policy's objectives.

The judgment also made distinctions from previous cases and provided specific guidelines on the interpretation of Rule 3 of the Electricity Rules, 2005, especially related to Special Purpose Vehicles (SPVs) and their status as "association of persons."

Legal experts believe this judgment will serve as a comprehensive guide for the regulatory framework around CGPs and will likely influence upcoming cases and policy decisions in the sector.

The appellant in the case was M/S. Dakshin Gujarat Vij Company Limited, and the respondents were M/S. Gayatri Shakti Paper and Board Limited and Another, ETC.

 Date of Decision: 09 October  2023

 M/S. DAKSHIN GUJARAT VIJ COMPANY LIMITED VS M/S. GAYATRI SHAKTI PAPER AND  BOARD LIMITED AND ANOTHER, ETC.

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