Aapka Consultant Judgment Series- In this series, we are providing case analysis of Landmark Judgments of Hon’ble Supreme Court of India.
State of U.P. and Ors. Vs. Renusagar Power Co. and Ors.
AIR 1988 SC 1737, 1988 (2) SCALE 238, (1988) 4 SCC 59, [1988] Supp 1 SCR 627
Hon’ble Judges/Coram: Sabyasachi Mukherjee, JJ. and S. Ranganathan.
Date of Decision: 28.07.1988
FACTS:-
Disallowing request for exemption from levy of electricity duty under sub-section (4) of section 3 of the U.P. Electricity Duty Act, 1952 (’the Act’), as amended, the appellants issued notice of demand asking respondent Renusagar Power Co., to pay electricity duty on the energy supplied by it to respondent No. 2, Hindalco, for industrial purposes. Being aggrieved by the decision of the State Government, the respondents filed a writ petition in the High Court. The High Court allowed the writ petition, holding that the impugned order of the State Government was not maintainable in law, and quashing the order as well as the notice of demand abovesaid. Being aggrieved by the decision of the High Court the appellants moved this Court for relief.
ISSUES: –
- Whether the respondent Renusagar Power Co. Ltd., was ’own’ source of generation of electricity for respondent No. 2, the Hindalco, under section 3(1)(c) of the Act?
JUDGMENT: –
From 1952 to 1970, no duty was payable if electricity was generated from own source of energy. From 1970 to 1973, duty of one paisa was payable in respect of electricity supplied from own source of generation. After 1973, no duty was payable in respect of electricity supplied from own source of generation. Renusagar, a 100% subsidiary of Hindalco, wholly owned and controlled by Hindalco, was incorporated in March, 1964. Hindalco had established the power plant through the agency of Renusagar to avoid complications in the case of a possible take-over of the power plant by the State Electricity Board as power generation is generally not permitted in normal conditions in the private sector.
The respondents highlighted that the sanction under section 28 of the Indian Electricity Act, 1910, given to Renusagar and its amendment established that Renusagar was not a normal type of sanction under Section 23 of the 1910 Act as the holder could supply power only to Hindalco. All these steps for the expansion of the power in Renusagar so as to match the power requirement of Hindalco’s expansion were taken by Hindalco even though Renusagar had been incorporated. Applications for all the necessary sanctions and permissions were made by Hindalco. Permissions and sanctions were first intimated to Hindalco even though Renusagar was in existence. Changes in the sanctions and/or permissions were obtained by Hindalco and not Renusagar. The expansion of the power plant in Renusagar was to exactly match the requirements of Hindalco for the production of Aluminium. The expansion of the power plant in Renusagar was part and parcel of the expansion of the aluminium plant of Hindalco. All the steps to set up the power plant in Renusagar and its expansion were taken by Hindalco. There was only one transmission line going out of Renusagar and that went to Hindalco, which had complete control over Renusagar.
The agreement between Renusagar and Hindalco indicated this was not a normal sale-purchase agreement between two independent persons at arm’s length. The price of electricity was determined according to the cash needs of Renusagar. This covenant also showed complete control of Hindalco over Renusagar. All persons and authorities dealing and conversant with this matter had consistently treated Renusagar as own source of generation of Hindalco. In the power-cuts matter under section 22B of 1910 Act, 100% cut was imposed on Hindalco on the footing that it had its own source of generation. All the authorities including the State and Board had all along treated Renusagar as own source of generation of Hindalco. It was thus contended that Renusagar must he treated as alter ego of Hindalco, i.e., 629 Own source of generation of Hindalco within the meaning of section 3(1)(c) of the Duty Act, and that consumption clearly fell within that section.
‘Own source of generation’ is an expression connected with the question of lifting or piercing the corporate veil. In the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of legislation is to do justice to all the parties. The horizon of the doctrine of lifting corporate veil is expanding. In this case, indubitably, it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It was also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of takeover of the power station by the State or the Electricity Board. All the steps for establishing and expanding the power station were taken by Hindalco and Renusagar was wholly owned subsidiary of and completely controlled by Hindalco. Even the-today affairs were controlled by Hindalco. Renusagar had never indicated independent volition. Whenever felt necessary, the State or the Board themselves had lifted the corporate veil and treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco. Indubitably, the manner of treatment of the powerplant of Renusagar as the power-plant of Hindalco and the Government taking full advantage of the same in the case of power cuts and denial of supply of 100% power to Hindalco underlined the facts and implied acceptance and waiver of the position that Renusagar was a power plant owned by Hindalco.
HELD: –
The person generating and consuming energy were the same and the corporate veil should be lifted. Hindalco and Renusagar were in-extricably linked up together. Renusagar had in reality no separate and independent existence apart from and independent of Hindalco. Consumption of energy of Hindalco is consumption of Hindalco from its own source of generation. Therefore, the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern.
To Get Legal Opinion from Advocates/ Legal Experts, Please click here
To Get Legal Opinion from Retired Hon’ble Judges, Please click here
