Supreme Court decides that SPVs are AoPs - CIVIL APPEAL NOS. 8527-8529 OF 2009

<p>Dear All,</p><p>In an order pronounced by the Hon'ble Supreme Court today (09.10.2023), in the matter of interpreting Rule 3 of the Electricity Rules 2005, the Hon'ble Supreme Court has observed that SPVs are AoPs and accordingly, while proving the CGP Status, the SPVs have to demonstrate the Test of Proportionality also. This is a big blow on the SPVs, when the APTEL has finally differentiated that SPVs cannot be treated as AoPs and therefore, they are not liable for the Rule of Proportionality while passing its order in TNPPA matter during 2021.</p><p>While reading the Operative Portion of the Judgment, Hon’ble Mr. Justice Sanjiv Khanna stated that in case a Generating Plant is treated as a Captive Generating Plant, the Captive Users shall not be levied with CSS and Additional Surcharge. However, while deciding the issue of Rule of Proportionality, the Hon’ble Supreme Court has held that the law laid down by the Hon’ble APTEL in Kadodara Power, was the correct law and consequently, rejected the law laid down by the Hon’ble APTEL, in the matter of Tamil Nadu Power Producers Association (TNPPA) in Appeal No. 131 of 2020 dated 07.06.2021.</p><p>Accordingly, as per the observations of the Hon'ble Supreme Court, the SPVs have to be treated as an Association of Persons (AoPs) and the Rule of Proportionality will apply to a Captive Generating Plant setup under the SPV Model while demonstrating the CGP status. Further, the Rule of Proportionality is to be computed on the basis of the Weighted Average Formula.</p><p>The Hon'ble Supreme Court has also indicated that it has framed few questions, which would be answered subsequently. Further, all other pending Appeals and Writ Petitions (dealing with the individual disputes), would be listed in the month of December 2023, before the appropriate Bench.</p>