M/S Dakshin Gujarat Vij Company Vs M/S Gayatri Shakti Paper And Board

• The Supreme Court on 9^th October 2023, in the case of M/S Dakshin Gujarat Vij Company vs. M/S Gayatri Shakti Paper and Board,[1] discussed and gave a verdict concerning the definition of the phrase “association of persons” in the context of captive power plant rules.
• This issue had arisen due to conflicting decisions from the Hon’ble APTEL, particularly in cases such as Kadodara Power Pvt. Ltd. and Others v. Gujarat Electricity Regulatory Commission,[2] and another, dated September 22, 2009, which had been subsequently deemed per incuriam in light of various findings in the case of Tamil Nadu Power Producers Association v. Tamil Nadu Electricity Regulatory Commission[3] from June 7, 2021.
• The court clarified that Special Purpose Vehicles (“SPVs”) established to own, operate, and maintain Captive Generating Plants (“CGPs”) should be considered “associations of persons” in line with the second proviso to Rule 3(1)(a) of the Electricity Rules, 2005 (“the Rules”).
• It was held that companies, body corporates, and other individuals who are shareholders and captive users of a CGP set up by an SPV must adhere to the Rules and meet the required eligibility criteria, including the rule of proportionality.

Arguments Advanced

The arguments presented in this case revolved around three key issues:

Issue 1: Whether an SPV, being an incorporated company, can be categorized as an “association of persons.”

The petitioner argued that because an SPV is an incorporated company, it should not be classified as an “association of persons,” a term commonly used to refer to unincorporated companies or individuals. The interpretation supplied in Ramanlal Bhailal Patel v. State of Gujarat[4] was cited, implying that comprehensive definitions allow for expanded statutory interpretations of the terms. It was also stated that the term “association of persons” could be read in the context of statutes such as the Income Tax Act of 1961.

Issue 2: The scope and context of the term “association of persons” under the Act and Rules governing captive power plants.

A critical issue of controversy was the interpretation of “association of persons” in the context of the Electricity Act, 2003 and the Electricity Rules, 2005. The argument was that the phrase “association of persons” varies in different legislation depending on the context and whether the association of persons is pursuing a joint action to obtain a benefit under the relevant statute.

Issue 3: Whether SPVs that own, operate, and maintain captive generating plants should be considered as an “association of persons” under the rules.

The third issue was whether SPVs, as incorporated entities, would be considered an “association of persons” and so subject to the rules governing captive power plants. According to the petitioner, such SPVs constitute an “association of persons” under the regulations, and organisations or entities that participate in SPVs must follow the accompanying rules and criteria.

Ratio

The court ruled the following:

• The court rejected the claim that because of their incorporation, SPVs could not be deemed “associations of persons.” Instead, they relied on past legal interpretations to apply a broad reading of “association of persons” SPVs were deemed groupings of persons because they were founded with the shared goal of operating power plants.
• The meaning of “association of persons” was confirmed to vary based on the specific statute and its context, emphasizing the joint conduct to obtain a benefit under that statute.
• The court concluded that SPVs that owned, operated, and maintained captive generating plants met the rules’ definition of “association of persons” As a result, organisations and entities involved in SPVs were obligated to follow the applicable rules and provisions.

Impact

• The impact of this decision would be two-fold:
• This decision will ensure that companies and corporate entities involved in electricity generation via SPVs follow the parameters outlined in Rule 3(1)(a) of the Rules. This is because such companies and corporations would be required to meet the standards for electricity ownership and consumption in proportion to their shares, preventing any attempts to avoid these obligations.
• It will prompt businesses to rethink their corporate structures, particularly those engaged in captive power generation via SPVs.

[1] Civil Appeal Nos. 8527-8529 of 2009.

[2] Appeal No. 171 of 2008.

[3] Appeal No.131 of 2020.

[4] Civil Appeal No. 4420 of 2004.