This paper deals with the design, simulation and implementation of shunt hybrid compensator to maintain the power quality in 3-phase distribution networks feeding different types balanced and unbalanced nonlinear loads. The configuration of the compensator consists of a selective harmonic elimination passive filter, a series connected conventional 6-pulse IGBT inverter, acting as the active filter terminated with a dc link capacitor. The theory and modelling of the compensator based on current harmonic components at the load end and their decomposition in d-q axis frame of reference are utilized in the reference current generation algorithm. Accordingly, the source current waveform is made to follow the reference current waveform using a high frequency carrier based controller. Further, this inner current control loop is supported by a slower outer voltage control loop for sustaining desirable dc link voltage. Performance of the compensator is evaluated through MATLAB simulation covering different types of loads and reduction of harmonic currents and THD at the supply side along with excellent regulation of dc link voltage are confirmed. The performance of a hybrid compensator designed and fabricated using the above principles is evaluated and corroborated with the simulation results.