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CASE NO.: Appeal (civil)  4660 of 2001

PETITIONER: A.P.Gas Power Corpn. Ltd.  

RESPONDENT: A.P.State Regulatory Commission & Anr.

DATE OF JUDGMENT: 23/03/2004

BENCH: Brijesh Kumar & Arun Kumar.

JUDGMENT: JUDGMENT

WITH

CIVIL APPEAL NO. 4661 OF 2001

Madras Cements Ltd Versus A.P.State Regulatory Commission & Ors.      

CIVIL APPEAL NO. 4662 OF 2001

My Home Cement Industries Ltd.                         Versus A.P.State Regulatory Commission & Ors.      

CIVIL APPEAL NO. 5208 OF 2001

India Cements Co. Ltd.                                Versus A.P.Gas Power  Corporation Ltd. & Ors    

AND

CIVIL APPEAL NO. 6338 OF 2001

Precot Mills Ltd.                                                        Versus A.P.Electricity Regulatory Commission & Ors.    

BRIJESH KUMAR,J.          The above noted appeals have been preferred against the  common judgment of the Andhra Pradesh High Court, upholding the  order passed by the Andhra Pradesh State Regulatory Commission  and its  finding that the extended activities of supply of energy to the  sister concern of the participating industries of  A.P. Gas Power  Corporation Ltd. (for short, ‘APGPCL’) would require Licence or  exemption therefrom under the provisions of Sections 15 or 16 of the  Andhra Pradesh Electricity Reform Act 1998 (for short ’the Reform  Act, 1998’).         Shortage of power is felt in most of the parts of the  country which, apart from disrupting day-to-day life of the people,  quite often than not, creates problem for industries.  The States or the  Electricity Boards managing the power sector find it difficult to meet  the ever increasing demand of electricity.  In such circumstances,  captive generation of power is not unknown and it is getting quite in  vogue but generally it is done in a manner that the  factory or industry  would  generate and consume the power confining it in its premises to

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run its manufacturing/processing unit. In such circumstances, finding  a via media, it appears that the State Government of Andhra Pradesh  and the Andhra Pradesh Electricity Board mooted the idea of setting  up of a  3 X 33 MW gas based combined cycle power station at  Vijjeswaram  for establishing a generating station which required high  amount of investment, hence they decided to invite private  participation in the venture  which attracted some of the heavy  industries to the proposal.  They entered into a Memorandum of  Understanding (MOU-1) on 17.10.1988 and another MOU on  19.4.1997, according to which, the Andhra Pradesh State Electricity  Board  (for short ’APSEB’) had to have 26% share in the new  company to come up viz. APGPCL, and the rest of the participating  industries  were to have  different percentage of shares and  the power  so generated  by the company was to be shared proportionately   amongst the share holding participating industries and their sister  concerns.  The Central Electricity Authority is also said to have  acceded to the request made to treat APGPCL  as  collective captive  power generation company.           The new company, APGPCL, as indicated above, came  into being and started power generation and distribution of the same  according to the MOUs to the participating industries in proportion to  their share holding.    The power so generated  was taken to  the grid  of APSEB  wherefrom it was being wheeled   on  payment of   wheeling charges to  the APSEB in the shape of electricity to the  extent of the charges for wheeling the electricity.  The State  Government is also said to have issued consent under Section  43A(1)(c) of the Electric Supply Act, 1948  (for short ‘the Supply  Act’) to sell the power generated to the share holders of the company  and their sister concerns. Later on a second unit of  160 MW capacity  of power generation was also set up.  While the APGPCL has been generating  power in the  manner indicated above the Reform Act, 1998 was passed and  enforced with effect from 1.2.1999.             Before entering into the legal position  as to whether it is  necessary for the appellant to have licence for sale or supply of the  electricity to participating industries and its sister-concerns,  it would be  better to have an idea about  the Memo of Understandings entered into  amongst the parties and the Articles of Association incorporating the  appellant as a Company under the Companies Act.  The First Memorandum  of Understanding was entered  into  on 17.10.1988 between the APSEB  of  the First Part and (1) the Andhra Sugars Limited, (2) Sri Vishnu Cement Ltd.  (3) Nava Bharat Ferro Alloys Limited, (4) VBC Ferro Alloys Limited, (5)  Mishra Dhatu Nigam Limited and (6) Panyam Cements & Mineral  Industries Limited of the Second Part.  The purpose of formation and  registration of a new company,  under the name and style of APGPCL was  to  set up a Natural Gas based power generation station in the State of  Andhra Pradesh.  The APSEB and the various medium and large-scale  industries located in Andhra Pradesh had agreed to invest in equity capital of  APGPCL.  The APSEB joined  the parties of the second part namely, the  participating industries to form a working group for raising capital of  APGPCL and regulation of power generated by it and other related matters.     The power and energy to be generated  by APGPCL was agreed to be shared  amongst the participating industries and the APSEB,  in proportion to their  paid-up share capital.  It was further agreed that the energy sharing shall be  pro-rata of actual energy generated.   In clause (4) of the Memorandum of Understanding it was provided  that the participating industries may transfer their share of energy and power  to their sister-concern subject to the condition that  the said sister-concern,   being located within the State of Andhra Pradesh and  a High Tension (HT)  consumer of electricity of APSEB. The explanation to clause (4) provided  that the sister-concern means a concern under the "same group:. We further  find that clause (6) provided that the participating industries may transfer all  of their capital or part thereof only with prior approval of the Board of  Directors of APGPCL subject to the condition that the transferee shall be  High Tension consumer of APSEB and shall agree to abide by all the

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obligations regarding use and payment for electric power.  Clause (10)(a)  provided that the power station of APGPCL will work parallel with the  A.P.System and APSEB agreed  to transmit the power generated by  APGPCL to the Participating Industries for which the APGPCL is to get  wheeling charges  in kind namely,  a part  of energy put into the A.P.System  at the generating station of APGPCL.  It was further agreed that the  participating industries will be common consumers of APSEB  and  APGPCL.  The APGPCL was free to formulate its tariff taking into account  its financial commitments and costs etc.  It was agreed  that if power  generated by APGPCL could not be utilized by the participating industries in  full or part then the APSEB shall have first claim to utilize such power.  In  pursuance of the aforesaid Memorandum of Understanding the APGPCL  was incorporated as a Company on October 31, 1988.         The Memorandum of Association though appears to have  adopted a very wide object as indicated in clause 1 i.e.  to generate, harness,  develop, use, sell, supply and distribute electricity anywhere in India and  transmit power to industries and other consumers either directly or through  facilities of APSEB.   It will be relevant to mention that an Extraodinary General    Meeting of APGPCL was held on November 24, 1989 for amendment of  Memorandum of  Association in view of the letter dated 11.9.1989 received  from Department of Power with comments by Central Electricity Authority  in connection with issuance of the concurrence under Section 44 of the  Electricity (Supply) Act.1948 (For short ‘Supply Act’)  The resolution  mentions that according to the comments of the Central Electricity Authority  the objects illustrated in the Memorandum of Association are too wide  ranging; therefore to satisfy the Central Electricity Authority it was proposed  to amend the Memorandum of Association. Accordingly, a Resolution was  passed amending clause (1) of the Memorandum of Association and  substitute the existing Clause(1) as follows: "To obtain approval from APSEB under Section 44 of  the Electricity (Supply) Act, 1948, for establishment of  Gas Based Thermal Power station at any place in the  State of Andhra Pradesh to generate and supply electrical  energy exclusively for the use of shareholders of the  Company through transmission lines of APSEB to take  over any gas based Thermal power station whether under  construction or in operation at any place in Andhra  Pradesh for the said purpose, either from Andhra Pradesh  State Electricity Board or from any other person."

It is thus evident that the aims and objects as indicated in the  Original Articles of Association were amended and restricted.  Accordingly,  with the approval and concurrence of the concerned authorities, the power  generating plant started its functioning and has been utilising  the power  generated according to the Memorandum of Understanding which formed  part of the Articles of Association.   Later it  appears that APGPCL made a proposal for extension  of the project and thus  set up a Combined Cycle Power Plant of 160 MW  Gas Turbine station at Vijjeswaram - stage 2. The Central Electricity  Authority, Ministry of Power by its letter dated April 26, 1996 conveyed its  no objection to the extension.  While conveying its approval  and no  objection to the Chairman, APSEB, the Central Electricity Authority  referred to the earlier letter dated 15.1.1996 and Section 44 of the Supply  Act and it also mentioned "M/s.APGPCL has been formed on the basis of  collective captive generation principle.  The main objective of the company  is to set up, operate and supply power from the proposed station to all the  industries who are shareholders of the Company."  With the sanction of  extension of the project by setting up another generating station at  Vijjeswaram itself a second Memorandum of Understanding was executed  on 19.4.1997 amongst APGPCL, APSEB and 22 other private sector  undertakings.  The conditions of the Second Memorandum of Understanding  are similar to the earlier one and  Article 2  Clause 2 provides for transfer of  energy  providing that the  APGPCL agrees  that the participating industries  may transfer their share of energy to their sister concerns,  located within the

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State of Andhra Pradesh and being  High Tension consumers of APSEB. On the basis of the facts indicated above, the case of the  appellant is that the appellant Company has been generating power and  sharing the same amongst its shareholding participating industries as per  terms and conditions agreed upon amongst the parties, namely APGPCL,  APSEB and other private sector High Tension consumer industries in  Andhra Pradesh. According to the appellant, it is a collective captive power  generation company generating power for captive consumption of the  participating/shareholding industries.    The case of the appellant is that  since the power generating  company did not require any licence either under the Indian Electricity Act,  1910 (for short ’the Act of 1910’)or under the Supply Act therefore, no  licence was ever taken.  However, the controversy arose with coming into  force of the Reform Act, 1998  with effect from 1.2.1999.  Section 3 of the  said Act provided for establishment of Andhra Pradesh Electricity  Regulatory Commission.  One of the functions as indicated in clause (c) of  Section  11(1) of the Act is to issue licences in accordance with the Act and  clause (e) thereof  provides as follows : "to regulate the purchase, distribution, supply and  utilization of electricity, the quality of service, the tariff  and charges payable keeping in view both the interest of  the consumer as well as the consideration that the supply  and distribution cannot be maintained unless the charges  for the electricity supplied are adequately levied and duly  collected."

So far the State Government is concerned, under Section 12  it has power to  issue policy directions on matters concerning electricity in the State  including the overall planning and co-ordination.  Section 13 relates to  the  establishment of Transmission Corporation of Andhra Pradesh Limited (for  short ’APTRANSCO’) with the objects of  engaging in the business of  procurement, transmission and supply of electric energy.  APTRANSCO  was to perform the functions as were used to be performed by APSEB prior  to coming into force of the Act. Part VI of the Act deals with licensing of  transmission and supply.  The relevant clauses of Section 14  of the Reform  Act 1998 are reproduced below.  "14. Licensing:- (1) No person, other than those  authorized to do so by licence or by virtue of exemption  under this Act or authorized to or exempted by any other  authority under the  Supply Act, shall engage in the State  in the business of,-

(a)     transmitting electricity; or (b)     supplying electricity.

(2) and (3)  xxx                        xxx

(4) Notwithstanding anything contained in any other  provisions of this Act and until the establishment of the  Commission in terms of Section 3, the State Government  shall have the power to grant provisional licences under  this Section having a duration not exceeding twelve  months to any person or persons to engage in the State in  the business of transmission or supply of electricity on  such terms and conditions as the State Government may  determine consistent with the provisions of this Act,  subject to the following conditions, namely :-

(a)     upon the establishment of the Commission, each of  the provisional licences granted by the State  Government shall be placed before the  Commission and shall be deemed to constitute an  application for grant of a licence by the  Commission under the provisions of this Act; and (b)     each provisional licence granted under this section

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shall cease to be valid from the date notified by the  Commission. Xxx                             xxx"

The appellant was accordingly granted a provisional licence by the State  Government under sub-section (4) of Section 14 on 01.02.1999 for a period  of 12 months. The relevant clauses of Section 15 are reproduced below :     "15. Grant of licences by the Commission :- (1) The  Commission may on an application made in such form  and on payment of such fee, as may be prescribed grant a  licence authorizing any person to, -

(a)     transmit electricity in a specified area of  transmission; or (b)     supply electricity in a specified area of supply  including bulk supply to licencees or any person.

(2 ) to (4) xxx         xxx

(5) Without prejudice to the generality of sub-section (3),  the conditions included in a licence granted by the  Commission may require the holder of such a licence to  establish a tariff or to calculate its charges from time to  time in accordance with the requirements prescribed by  the Commission."

Section 16 of the Act provides as follows : "16. Exemptions from the requirement to have a licence:-  (1) The Commission may make regulations to grant  exemption from the requirement to have a supply licence,  but subject to compliance with such conditions, if any, as  may be specified in the order:

       Provided that the Commission shall not, under any  such regulation, grant any exemption except with the  consent,-

(i)     of the local authority, if any, constituted in the  area where energy is to be supplied; (ii)    in any case where energy is to be supplied in  any area forming part of any cantonment,  aerodrome, fortress, arsenal, dockyard or camp  or any building or place in the occupation of the  Central Government for defence purposes, of  the Central Government; (iii)   in any area falling within the area of supply of a  licensee, of that licensee:

Provided that, except in a case falling under Clause  (ii) no such consent shall be necessary if the  Commission is satisfied that such consent has been  unreasonably withheld.

(2) An exemption may be granted,-

(a)     to persons of a particular category; or (b)     to a particular person; or (c)     for a particular period;

and an exemption to persons of a particular category or to  a particular person shall be published in such manner as  the Commission considers appropriate for bringing it to  the attention of that person or persons of that category  and of the public in general.

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(3) The exemption granted may be revoked by the  Commission at any time for reasons to be recorded in  writing.

(4) An exemption, unless previously revoked, shall  continue in force for such period as may be specified in  or determined by or under the exemption.

(5) Every regulation or exemption made by the  Commission under this Act shall be published in the  Official Gazette."   

The State Government granted provisional licence to the  appellant by order dated 30.1.1999 to be effective from 1st February, 1999  for a period of 12 months.  The relevant notification is reproduced below : "G.O.MS.No.23                           Dated: 30.01.1999 ORDER The following notification regarding Provisional Licence  under Section 14(4) of the Andhra Pradesh Electricity  Reform Act, 1998 will be published in the Extra-ordinary  issue of the Andhra Pradesh Gazette dated the 1st  February, 1999.

NOTIFICATION

       In Exercise of the powers conferred by sub-section  (4) of section 14 of the Andhra Pradesh Electricity  Reform Act, 1998 [Act No.30 of 1998], the Governor of  Andhra Pradesh, hereby grants to A.P.Gas Power  Corporation Limited at Vijjeswaram [herein after the  licensee] provisional licence to undertake activities as  specified in G.O.Ms.No.167 EFES&T (Pr.I) Department  dated 15.05.1989 and G.O.Ms.No.158, Energy (Power-I)  Department, dated 21.12.1995 on the following terms  and conditions.

1.      the supply of electricity shall be restricted to the  area and extent to which the licensee was  authorized in terms of the licence granted under  section 3 of the Indian Electricity Act, 1910 in the  above Government Order. 2.      The licensee shall, upon the establishment of the  Andhra Pradesh Electricity Regulatory  Commission (hereinafter the Commission) place  this provisional licence before the Commission as  required under sub-section (4) of section 14 of the  said Act for appropriate orders of the Commission. 3.      This licence shall come into force on the First day  of February, 1999 and shall cease to be valid and  effective. a.      on completion of twelve months from the said  date of enforcement; or b.      on the date notified by the Commission under  clause (b) of sub-section (4) of section (14) of  the said Act; whichever is earlier. 4.      The licensee shall have the same rights, privileges,  duties and obligations as provided in the  G.O.Ms.No.167 dated 15.05.1989 and in  G.O.Ms.No.158 dt.21.12.1995. 5.      The licensee shall comply with the requirements of  the provisions of the said Act and the applicable  provisions of the Indian Electricity Act, 1910 and

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Electrcity (Supply) Act, 1948, the Indian  Electricity Rules, 1956 and other laws and  regulations.

[BY ORDER AND IN THE NAME OF THE  GOVERNOR OF ANDHRA PRADESH]

Sd/- V.S.SAMPATH SECRETARY TO GOVERNMENT"

But before the expiry of the date  of the provisional licence, the appellant  moved an application under Section 16 of the Act for grant of exemption  from licence  for supply of generated power to its shareholders and their  sister concerns.  The reason for seeking exemption, as indicated was that  energy was being supplied to sister concerns and the equity shareholders  only and that the operation and maintenance of the power station is carried  out by APTRANSCO. The  wheeling of the power is also carried on  by  APTRANSCO.  The A.P.Electricity Regulatory Commission, however,  rejected the application by order dated 7.7.2000.         The Regulatory Commission recorded a finding that Govt. of  Andhra Pradesh had granted a licence   to the appellant under Section 3 of  the Act of 1910.  This inference has been drawn  on the basis of a letter  dated 21.12.1995 sent  by the appellant making a request for setting up a  generating plant for captive consumption.  In this connection, however, it  may be indicated that grant of any licence under Section 3 of the Act of 1910  has been denied by the appellant.  No such licence has been placed on  record.  A perusal of Section 3 of  the Act of 1910 would indicate that  licence was   required for supply of  energy in any specified area and to lay   electric supply lines for conveyance and transmission of energy.  The  appellant company was set up  on the proposal of the Government, by the   APSEB and the private industries as participating industries.  It was to  generate power and energy for captive consumption of the participating  industries and its shareholders and sister concerns. The Regulatory  Commission also held that the case of the appellant was not correct that it  was not necessary  for it to have a licence in view of Section 26A of the  Supply Act and Section 14 of the Reform Act, 1998.  The appellant  was not  covered under the above provision.  It is pointed out that in terms of Section  28 of the Act of 1910, no person other than a Licensee could engage in  business of supplying of energy to the public except with the previous  sanction of the State Government.  The Regulatory Commission further   held that prior to coming into force of the Reform Act 1998, a person  intending to supply energy to the public should have had a licence under  Section 3 or Section 28 of the Act of 1910. Exception was provided under  Section 26A (1)  of the Supply Act, namely, no such licence was required  for a generating company.  However, the Commission also observed that  APGPCL is correct in submitting that generation of electricity does not  require a licence under Section 3 of the Act of 1910 or under Section 14 of  the Reform Act 1998.  Referring to the provisions contained under Section  15A and 18A of the Supply Act, it has been held that a generating station  confined to generation of power and their functions do not extend to  distribution and supply of electricity.  Therefore  a generating company  supplying electricity,  would not be covered by the exception provided under  Section 26A of the Supply Act.  The Commission took note of the fact that  the appellant, under the Memorandum of Association, provides for supply  and distribution of power to the sister concern of the participating industries.   It has been  held that in  case of supply of electricity, Sections 26 and 27 of  the Reform Act 1998 would automatically be applicable.  Thus the appellant  would also be subject to tariff and charges as regulated by the Commission.   The Commission then deals with contention of the appellant that a  generating company could with consent  of the competent government sell  electricity to any person  in view of Section 43A(1)(c) of the Supply Act.  In  this connection, the Commission refers to a letter dated 11.5.2000 issued by  the Government of Andhra Pradesh  that the appellant was carrying on  operation of generation and supply of energy to participating industries and

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their sister concerns as per Memorandum of Understanding.  A letter of  formal consent to that effect was also issued by the Government of Andhra  Pradesh on 23.6.2000 consenting to sale of energy by the appellant to  company’s shareholders and their sister concern under Section 43A(1)(c) of  the Supply Act.  It was further mentioned in the letter that the arrangement  was to be continued in future also.  The Commission held that it was  incorrect that APGPCL had any authorization, express or implied, at the  time when the Reform Act of 1998 was enforced and that the letter on the  subject was issued  by the Andhra Pradesh Government   on 11.5.2000 for  the first time and specific authorization  was made on 23.6.2000.  The  Regulatory Commission further held that Section 43A of the Supply Act was  disapplied by Section 56(3)(vi) of the Reform Act 1998, and that the  expression ‘any other person’ used in clause (c) of sub-section(1) of Section  43A is not referable to an individual  consumer like participating industry of  APGPCL company or their sister concern.  The "other person" referred to in  Section 43A could only be any licensee or  an exemptee.   The Commission  has referred to two decisions of this Court viz. AIR 1963 S.C. 1128, Mysore  State Electricity Board versus Bangalore Woolen, Cotton and silk Mills Ltd.  and others on the point as to the meaning of the expression ‘any person’  under Section 43A of the Supply Act and AIR 1979 S.C. 1459, Hindustan  Aluminium Corporation versus State of U.P. where it has been held that  supply of power  to even  a hundred per cent subsidiary would amount to  supply to the public.  An apprehension has been expressed that in case  Section 43A (1)(c) of the Supply Act is interpreted in a manner as to allow a  generating company to supply electricity directly to consumers then all  generating companies will take away the industrial consumers from the area  of supply of licensees,  and it being  more remunerative  to supply electricity  to such consumers, in that event licensee would be left only with domestic  and agricultural consumers  who would pay subsidized rate of electricity.   Such an interpretation would be inconsistent with Section 3 and 28 of the  Act of 1910 and Section 2(6) of the Supply Act.  It also found that any  arrangement as provided by the Government of Andhra Pradesh  by letter  dated 23.6.2000 for supply of energy to sister concern for future was not  permissible after coming into force  of the Reform Act 1998 with effect from  1.2.1999.         The Regulatory Commission, however, in its order, after  referring to some  correspondence exchanged between the parties, observed  that permission was granted by the Govt. of Andhra Pradesh under Section 3  of the Act of 1910 for setting up additional unit which also mentions about  such a permission having been granted earlier  which was only for setting up  and maintenance of generating station.  It is not understandable after having  found that it was not necessary  to have a licence under Section 3 of the Act  of 1910 for establishing a generating station, how could it also be said that  any licence/permission was granted under Section 3 in 1990 and 1995  for  the purpose of establishment of a generating station.  We have already  indicated that grant of any such licence under section 3 of the Act of 1910  has been denied by the appellant and no such licence has been placed on  record by any of the parties for ascertaining that such a licence was ever  granted.  The appellant denies issuance of any such licence.  The  Commission also found that Section 44 does not conceive of a group captive  consumption plant and in any case permission is granted only for  establishment of a generating station and not a supply company.  Initially, in   stage one there were 6 participating industries and 21  new concerns were  added between 1995 to 2000 whereas in the second stage initially 20  participating industries apart from APSEB were there and 10 more were  added.  It shows that participating industries were not availing the supply but  they were diverting the same to theira group/sister concern.         The Commission however considered the fact that the scheme of  generation of electricity for utilization by the participating industries was  approved by  the Government of Andhra Pradesh and also by the Govt. of  India.  In this view of the matter,  equity was in favour of APGPCL and as  an exception, it may be allowed to supply electricity generated by it to the  participating industries only in proportion to their shareholding.  There  would be no   right     to supply      electricity  to others,    including sister  concerns of the participating industries or to other.  It is observed that it

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would be inconsistent with the orders made by the Govt. of Andhra Pradesh  and the Govt. of India.  The Commission also took note of the fact that  sister concerns are not parties to the Memorandum of Understanding. The  equity was in favour of  the participating industries and not in favour of  their group or sister concerns.   It has  also been  directed that all excess power from the project   should be supplied by APGPCL to APTRANSCO at a rate to be mutually  agreed subject to the approval of the Commission.  The Commission further  held that  exemption was separately required from having a supply licence,  to facilitate supply of power to participating industries in proportion to their  shareholding.                 The above order of the Regulatory Commission has been  upheld by the High Court in the writ petition preferred by the present  appellant.        We have heard submissions made at length by APGPCL, the  counsel for the sister concerns and the companies to whom shares have been  transferred by the participating industries as well as the learned counsels  appearing for the A.P.Electricity Regulation Commission and the  APTRANSCO.   On consideration of the rival submissions made by the learned  counsel for the respective parties, in our view, the main question which  obviously falls for consideration in these appeals is as to whether the  APGPCL is required to take a licence under the law for utilization/sale or  supply of power generated by it to the participating industries, their sister  concern and the companies to whom shares of APGPCL have been  transferred by the participating industries.  The undisputed position under  the law, as also found by the Regulatory Commission is that no licence is  required for generation of electricity.  The electricity generated  is to be  consumed, sold, distributed or supplied since there is no way to store it.   According to the appellants, the generation of electricity by APGPCL is for  captive consumption.  That is to say, for own consumption of the generating  company, hence no licence was required.  In the alternative,  the appellant’s  case is that even if any licence is required, it was exempted in view of the  provisions contained under Section 26-A of the Supply Act, 1948  and in  any case there was  consent of the State Government in compliance with the  provision of section 43 A(1)(c) of the Supply Act, 1948. That being so, the  APGPCL was not required to have any licence in view of Section 14 of the  Reform Act 1998.  The finding of the Commission, it is submitted on behalf  of the appellants, that Section 43 A(1)(c) stood dis-applied by virtue of  Section 56(3)(vi) read with Section 21(4) of the Reform Act, 1998, is  erroneous.   We think that it will be appropriate to consider the question  separately in respect of three categories of users of the electricity generated  by APGPCL, namely, the participating industries, their sister concern and  the companies which are transferees of shares by the participating industries  of APGPCL.          The background in which the company APGPCLwas  incorporated has already been noticed.  It was a group captive generating  venture as was also mentioned by the central government/Central Electricity  Authority.  That is to say, the company was set up by a group of persons to  generate electricity for their consumption.  The Regulatory Commission in  its order has found that in equity it would be appropriate that the APGPCL  may not be required to have licence for sale of electricity to the participating  industries.  We, however, feel that it would not be a matter of concession but  under the law as well that there would be no requirement to take a licence  for use or consumption of the electricity which is self-generated. The phrase  "captive consumption", as it may be  commonly understood, would mean  that any thing which is manufactured or produced, would not go out of the  hands of the manufacturers but they consume it for their own purpose.   Certainly, in case such a venture, as established for manufacture of goods or  a thing for its own consumption, sells it to outsiders for use and consumption  by them, it may require to have a licence for such an activity. We may at this  juncture have a look at the provisions for licence under different Acts.   Section 3 of the Act of 1910 provides for grant of licence.  Relevant part of  Section 3 is quoted below :

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Section 3. Grant of Licenses: - (1)  The State  Government may, on application in the prescribed form  and on payment of the prescribed fee (if any) [grant after  consulting the State Electricity Board, a license to any  person] to supply energy in any specified area, and also  to lay down or place electric  supply lines for the  conveyance and transmission of energy:

       (a)     where the energy to be supplied is to be  generated outside such area, from a generating station  situated outside such area  to the boundary of such area,  or  

(b) Where energy is to be conveyed or transmitted  from any place in such area  to any other place therein ,  across an intervening area not included therein, across  such area.

Xxx             xxx                     xxx"

       The above noted provision is only in respect of supply of  energy in any specified area.  The other relevant provision under the Act of   1910 is Section 28 which reads as under : "Section 28. Sanction required by non-licensees in  certain cases:

(1)     No person, other than a licensee, shall  engage in  the business of supplying energy to the public  except with the previous sanction of the State  Government and in accordance with such  conditions as the State Government may fix in this  behalf, and any agreement to the contrary shall  be  void. Xxx             xxx             xxx"

       The above provision  is also for the purposes of being engaged  in the business of supply of energy to public and does not cover the cases of  generation of electricity or its use and consumption by the generating group  itself.                 We find that the term "generating company" was introduced for  the first time in the Supply Act, 1948 by the Amending Act 115 of 1976 and  substituted by Act 50 of 1991.  Clause (4-A) of Section 2 as amended in  1991, defines "generating company" as below :  "A "generating company" means a company registered  under the Companies Act 1956 (1 of 1956) and which  has among its objects establishment, operation and  maintenance of generating stations;"

       The word "licensee" has been defined under clause (6) of  Section 2 which reads as under : Section 2 (6) "Licensee" means a person licensed under  Part II of the Indian Electricity Act, 1910 (9 of 1910) to  supply energy or a person who has obtained sanction  under section 28 of that Act to engage in the business of  supplying energy [but the provisions of section 26 or 26A  of this Act notwithstanding, does not include the Board  or a Generating Company].          Section 26-A was also introduced by the Amending Act 115 of 1976.   Relevant part of Section 26-A is quoted below : "26A.   Applicability of the provisions of Act 9 of 1910  to Generating Company.  (1) Notwithstanding   anything contained in sub-section (2), nothing in the  Indian Electricity Act, 1910 shall be deemed to require a  Generating Company to take out a license under that Act,

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or to obtain sanction of the State Government for the  purpose of carrying on any of its activities.

(2)     Subject to the provisions of this Act, Section 12 to   19  (both inclusive) of the Indian Electricity Act 1910  and Clauses XIV to XVII (both inclusive)  of the  Schedule thereto, shall, as far as may be, apply in relation  to a Generating Company as they apply in relation to a  licensee under that Act(hereinafter in this section referred  to as the licensee) and in particular a Generating  Company may, in connection with the performance of its  duties, exercise:

(a)     all or any of the powers conferred on a licensee by  sub-section (1) of Section 12 of the Indian Electricity  Act, 1910, as if

(i)     the reference therein to licensee were a reference  to the Generating Company;  

(ii)    the reference to the terms and conditions of license  were reference to the provisions of this Act and to the  articles of association of the Generating Company; and

(iii)   the reference to the area of supply were a reference  to the area specified under sub-section (3) of Section 15- A in relation to the Generating Company.

Xxx                     xxx             xxx"     

       It is thus clear from the above provision that a generating  company is not required to have a licence under the Act of  1910 for  carrying on any of its activities.  The provisions regarding jurisdiction and  duties of generating company have also been introduced under Section 15-A  and 18-A of the Supply Act. Thus looking to the relevant provisions under  the law, we are of the view that no licence is required to be taken by  a  generating company consuming the electricity generated by itself.  The  activity of generating electricity may be by an individual or by a  group of  persons,  no distinction is envisaged on that account to exclude a group of  persons, coming together to establish and generate electricity for their own  purpose.           Needless to emphasise that by virtue of sub-section (2) of  Section 26-A of the Supply Act, no inference can be drawn that any licence  is required to be taken by a generating company under the provisions of the  Act of 1910 merely because Sections 12 to 19 and certain provisions of the  schedule of the said Act have been made application to the generating  company as well. Such a provision as contained under sub-section (2) of  Section 26-A of the Supply Act has been made only with a view that a  generating company may also have to lay electricity lines for carrying  electricity from the point of generation to the place of its consumption or  from where it may be diverted to the place of consumption of other  participating industries.  Therefore, for such matters the same requirements  may be applicable as are applicable to the licensees etc. but by no stretch of  imagination it can be contended that a licence is required to be taken by the  generating company under the Act of 1910. The captive consumption may  be in the same premises or at some distance is immaterial.         We find that later on, the term "captive generating plant" has  been defined under clause (8) of Section 2 of Electricity Act, 2003, which  reads as under : ""Captive generating plant means" a power plant set up  by any person to generate electricity primarily for his  own use and includes the power plant set up by any co- operative society or association of persons for generating  electricity primarily for use of members of such co- operative society or association."

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       It is pointed out by the learned counsel for the respondents that  this definition of captive generating plant which came later on  in the  provisions of the Electricity Act, 2003, cannot be taken aid of to assign any    meaning to the expression "captive consumption" or "group captive  consumption generating plant".  We, however, find that there is nothing to  exclude the natural and obvious meaning which flows from the expression  itself.  Therefore, even before the term "captive generating plant" was  defined it would carry the same meaning. That is to say, generation of power  for the use of the holder of the plant, maybe one single person or a joint  venture collectively by many as one unit.  We, therefore, hold that the   electricity generated by APGPCL and consumed by the participating  members setting up the plant under the Memorandum of Association  incorporating the company, does not require to have any licence for self- utilisation of the power generated by the company.  All that we want to  clarify is that it is not in view of equity in favour of the participating  industries as held by the Regulatory Commission and the High Court but  under the law there is no  such requirement for them to have a licence.         We then come to the next question regarding the sister concern,  as to whether there was any requirement to have a licence for supply of  electricity to them or not.  It is no doubt mentioned in para 4 of the  Memorandum of Understanding  dated October 17, 1988 as follows : "The participating industries may transfer their share of  energy and power from APGPCL to their sister concern  subject to the sister concern being located within the  State of Andhra Pradesh and is a HT consumer of  electricity of APSEB.  Provided also such transfer shall  be on month to month basis viz. from the beginning of  the month to the end of the month and not a part of the  month. For such transfer, application shall be made to  APGPCL and prior approval of APGPCL shall be  obtained before actual availment.  Such transfer shall also  be informed to APSEB in advance.   

Explanation A - "Sister concern" means  "a concern  under the same group".   

At this very juncture it may also be relevant to have a look at  the provision as contained under para 17(a) of the Memorandum of  Understanding.  It reads as follows : "It is agreed that if the power generation by APGPCL  could not be utilized by the Participating Industries either  in full or in part, then APSEB shall have first claim to  utilize such power.  The price for such surplus energy  shall be mutually settled between APSEB and APGPCL  based on fuel cost plus O & M charges plus depreciation  but not exceeding rate for energy as per HT category-I of  APSEB"

From a perusal of para 4 of the Memorandum of Understanding  it is clear that a participating industry has been given a right to transfer its  share of energy and power to its sister concern. The term "sister concern"  has been explained as "a concern under the same group".  There is no further  clarification or clue as to which are those concerns which may be considered  under the same group.  The expression ’sister concern’ used in para 4 of  Memorandum of Understanding certainly does not mean a concern which is  owned or is a subsidiary of the participating industry.  It would be a concern  or unit different from the participating industry and not a part of it.  Maybe  that the same group may manage two different independent units carrying on  the same nature of activities.  They may be addressed as sister concerns  but  would definitely have  separate entity and identity of their own.   Consumption of power, generated by a generating company, by a concern  which may be under the same group as any of the participating industry  cannot be said to be consumption or use of the power by the participating

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industry itself.  In absence of the element of self-consumption by the  generating company, it would not fall in the category of "captive  consumption".  It would surely be a supply to a non-participating industry  and in that event it would be necessary to have a licence under the relevant  provisions of law.  If there is such a legal requirement, merely an agreement  amongst certain parties would not exclude the application of law.  Provisions  of law regulating the situation, would prevail over any kind of agreement  amongst some individuals as a group or otherwise.  We are, therefore, of the  view that such a clause in the Memorandum of Understanding would not do  away with the requirement of having a licence for supply of electricity  generated by APGPCL to such concerns which may be under the same  group as the participating industries but not the participating industries  themselves. To support the view taken by us, a decision of this Court  referred to by the respondents may be cited as reported in 1988(4) SCC p.  59, State of Uttar Pradesh & Ors. Vs. Renusagar Power Company & Ors.   This case, however, was decided in a slightly different fact situation.   M/s.Hindustan Aluminium Corporation Ltd. was established in 1959 on  assurance of providing cheap electricity to it.  In the year 1964 however,  M/s.Renusagar Power Co. Ltd. was established as a wholly owned and  subsidiary of M/s.Hindustan Aluminium Corporation Ltd.  It was generating  electricity,  but incorporated separately and had its own separate  Memorandum of Understanding and Articles of Association.  To raise the  revenue for the State, the U.P.Electricity (Duty) Act, 1952, was enforced to  levy a duty on the consumption of electricity.  Several amendments were  however, incorporated from time to time and ultimately a provision was  inserted providing that there would be levied and paid to the state  government the duty called electricity duty on the energy sold to a consumer  by a licensee/board/the Central Government.  The duty on consumption of  electricity was leviable even though it may be from his own source of  generation.  The   Renusagar   Power   Co.   Ltd.   had also obtained a  licence under Section 28 of the Act of  1910.  In such circumstances, it was  held that even though Renusagar Power Co. Ltd. was a subsidiary company  owned by M/s.Hindustan Aluminium Co. Ltd. yet it would amount to supply  of electricity by a licensee to a consumer in view of the provisions of the  U.P. Act of 1952 which levied duty on consumption of electricity.  The  situation in the case in hand is similar only to the extent that the participating  industries and the sister concerns are different entities and separately  incorporated.  Distinction may be there in view of the statutory provisions  intervening under the U.P.Act of 1952 but that is not material for this case. .  Yet another case, namely, (1979) 3 SCC 229, State of U.P.  Vs. Hindustan Aluminimum Corpn. Ltd., was referred to on behalf of the  respondent in which same parties are  involved namely, M/s.Hindustan  Aluminium Corporation Ltd. and the Renusagar Power Co. Ltd.  The  company held licence under Section 28 of the Indian Electricity Act, 1910.   Here also the case was considered in the light of the provisions of the  U.P.Electricity (Regulation of Supply, Distribution, Consumption and Use)  Order, 1977 and certain provisions were made even in regard to the energy  utilized out of its own generating sources etc. This case will not be relevant  for the case in hand.   On behalf of the appellant it has been submitted that the  participating industry would be transferring energy to the sister concern only  out of its own share of the energy and not over and above to what,  it would  be entitled to, depending upon the investment in the company, namely,  APGPCL.  Therefore, it is immaterial that the participating industry itself  utilizes the electricity or allows it to be utilized by the sister concern.  The  argument is though attractive, but it does not bear  scrutiny.  Supply,  distribution and utilization of electricity is a matter covered under the  statutory provisions of different enactments.  Therefore, any transaction or  any understanding will only have to be subject to such statutory provisions.   There cannot be any mutual settlement on a subject which would otherwise  be a matter to be governed by the provisions of an Act.  A generating  company,  as soon as it allows  another separate entity, company or  establishment to utilize the power generated by it,  the matter would be  covered by the provisions of  different Acts on the subject.

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    There is yet another aspect of the matter that normally a  participating industry  would  not allow its share of electrical energy to be  utilized by any other company even though it may be a  sister concern,   unless the energy  may be over and above its own requirement.   For such  surplusage there is yet another clause in the Memorandum of Understanding  dated 17.10.1988 namely, clause 17(a),   quoted earlier, which says that if  power generation by APGPCL could not be utilized by the participating  industries in full or part then APSEB shall have first claim to utilize such  power.  The two clauses of the Memorandum of Understanding may not  perhaps  go together smoothly. We are, therefore, for the reasons indicated  above, unable to accept the contention raised on behalf appellant that it  would be permissible to transfer or  supply of electrical energy to a sister  concern out of the share of the participating industry.  We may now come to the question relating to the industries to  whom shares have been transferred by the participating industries. So far transfer of shares is concerned clause (6) of  Memorandum of Understanding -I provides as follows : "(6) The participating industries may transfer all of  their capital or part thereof only with the prior  approval of the Board of Directors of APGPCL  and subject to the condition that (a) the transferee  shall be a HT consumer of APSEB and shall agree  to abide by all the obligations regarding use and  payment for power which shall be guaranteed by  the transferor viz. participating industry, who  proposes to transfer the share(s). (b) in case of  such transfer wheeling charges (dealt with  separately in para 10 hereinafter) will then be with  reference to the voltage of supply of the  transferee."

Clause 15(a) which also relates to the shareholders provides as  follows : "15(a) it is agreed that such of the consumers of  APSEB who become shareholders of APGPCL  and who desire to reduce their Contracted  Maximum Demand (CMD) with APSEB up to the  extent of their share of power in APGPCL, may  apply to APSEB for reduction of CMD, APSEB  will examine and agree for reduction of CMD.   From the day the revised CMD comes into force  the contractual obligations shall be as per revised  CMD."

The above quoted two provisions of Memorandum of Understanding I  indicate that subject to the approval of the Board of Directors the  participating industry is entitled to transfer their shares or capital subject to  condition that the transferee should be a HT consumer of APSEB and must  abide by all the obligations regarding use and payment for power which  shall be guaranteed by the transferor and further that such consumers may  reduce their contracted maximum demand. Thus it is clearly envisaged that  the transferee of the shareholders of APGPCL who are HT consumers of  APSEB shall get electrical power generated by APGPCL to the extent of  their share value transferred to them.  In the Memorandum of Understanding  II under Article 4 titled as "Contribution to Capital etc.", provides under  clause (5) as follows : "5. Right of participating industries to transfer  shares : Subject to the provisions of clause (2) of  Article - 3, the participating industries may  transfer all or part of their shares to outsiders only  with the prior approval of the Board of Directors  of the Company and subject to the conditions that :

a)      the transferee shall be a HT consumer of  APSEB and shall agree to abide by all the

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obligations regarding use and payment of power  charges, which shall also be guaranteed by the  transferor viz., participating industry, who  proposes to transfer the share(s).

b)      in case of such transfer, wheeling charges  (mentioned above in clause (1) of Article - 3) will  then be with reference to the voltage of supply of  the transferee."

Coming to the relevant provisions of the Articles of Association,  "participating industries" has been defined as :  "(g) "Participating Industries" means member  Companies who have agreed to subscribe to the  share capital of the Company."

Clause (3) provides as under :  "3. The Members of the Company have entered  into a Memorandum of Understanding interse,  which entered being the basis upon which the  power generation shall be shared between the  Participants.

The New MOU shall form part of Articles of  Association, as in the case of existing MOU and  shall be referred to as MOU-II, whereas the  existing MOU shall be named as MOU-I on and  from the date of signing of the new MOU."

The Memorandum of  Understanding provides for the basis upon which  power generation is to be shared by the participating industries.                 With the above provisions in the Memorandum of  Understandings and the Articles of Association, it is submitted that the  participating industries have been defined as those companies who have  subscribed to the share capital of the APGPCL.  Such companies have been  given a right to transfer their shares to any other company who fulfils certain  conditions, mainly that it should be a HT consumer of APSEB and abides by  all obligations of the Memorandum of Understandings and Articles of  Association.  It is submitted that transferee of shares to the extent of shares  transferred  by the participating industries  enters into  the shoes of the   participating industry.   Therefore, if the transferee companies utilize the  power for their own industry,  their position would be the same as that of the  participating industry.  The  utilization of power generated by APGPCL to  the extent of the shareholding of  a transferee company,  would be on the  same footing as captive consumption and does not amount to supply of  electricity.  The Regulatory Commission, after discussing various provisions  has arrived at a conclusion that if a generating company wants  to carry out  the activity of supply of electricity which is beyond the scope as specified  under Sections 15-A and 18-A of the Supply Act,  1948,  it shall have to  obtain a licence under Section 3 or a sanction under Section 28 of the Act of  1910 or under Sections 15 and 16 of the Reform Act 1998.  It has been  found that the Memorandum of Association of the APGPCL provides for  supply and distribution of power to the participating industries and the sister  concern.  As a fact it is also held  that it is being done  so by the APGPCL.           We have however, already discussed about the participating  industries that consumption of electricity by them in their units to the extent  of their shareholding amounts to captive consumption for which no licence  would be required as it would neither be a supply nor distribution of the  electricity produced.  It is utilization of the product by the manufacturer  itself.  There would be no sale, supply or distribution to the self  so long as  the power produced is utilized by  those who are participating in the activity  of generating electricity. In a case where it is not a single owner but a joint  or collective venture for generation of electricity for their own captive  consumption obviously the self-consumption of the power generated would

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be amongst those who are participating in the activity of generation and it  shall not be confined to any one industry.  A participating industry subject to  certain conditions as agreed upon is entitled to transfer its shares to any other  company who is necessarily to be a HT consumer of APSEB.  Any existing  participating industry may decide to transfer all of its shares or part thereof.   We are not concerned here, as discussed by the Regulatory Commission,  about the activities of APGPCL which may have been indicated in the  Memorandum of Association.  We are particularly dealing with the  consumption or utilization of power generated by APGPCL by those to  whom the participating industry have transferred their shares. After transfer  of shares of APGPCL the transferee company or industry would not remain  an outsider but a shareholding company and it is entitled to utilize the power  generated by APGPCL and would be confined to the extent of the value of  the shares transferred to it.   Holding of share capital in the APGPCL is the  basis of participating in the generating activity of APGPCL and utilization of  the power produced to  the extent of the shareholding, it would only amount  to captive consumption and self supply or distribution of the power and it  would not  require a licence under Section 3/28 of the Act of 1910 or under  Sections 15 and 16 of the Reform Act, 1998. We may, however, clarify here  that as soon as the electricity generated by APGPCL goes to any one who  has no shareholding in the company or beyond the extent of the shareholding  it would certainly amount to supply or distribution to the public entailing the  liability of obtaining a licence under Section 3/28 of the Act of 1910 or for  that matter under Sections 15 and 16 of the Reform Act, 1998.          It has been submitted on behalf of the respondents, including  APTRANSCO that even self-consumption of power generated by APGPCL  should not be allowed to a company which has obtained shares by  transfer  by a  participating industry and in that connection certain figures have been  placed before the Court to indicate that number of such transferee industries  has substantially increased.  On that basis it is submitted that APGPCL is  expanding its net which shall be detrimental to the interest of APSEB and  the public at large.  It is submitted that if the energy is supplied to more and  more consumers it  shall attract many bulk consumers and APSEB may be  left with only domestic or agricultural consumers in respect of whom there  are subsidies which are meted out from supply of energy to the industrial  sector. We are not impressed by the argument.   So long the amount of  power supply is confined to the extent of the shareholding,  it is immaterial  as to the number of such transferee companies.  Once they are in the  category of those whose capital in the shape of shares is invested in the  APGPCL they cannot be treated as outsiders and self-consumption/  utilization of electricity by them within the limits of their shareholding,   would not amount to sale, supply or distribution of electricity. The  prohibition under the  legal provisions is as against sale, supply or  distribution of electricity without a licence.  Captive consumption being  outside the pale of the above expressions, there is no justification for raising  such an objection that the number of  shareholders is increasing so long it is  restricted within the shareholding of the participating industry. This apart, it  has also been indicated on behalf of the appellant that taking the total  figures,   it will make  negligible difference on the subsidies provided to the  agricultural sector or any other sector.           As a matter of fact, no such argument has been  raised nor even an  effort was made to submit that  captive consumption by a generating  company, would require a lincence under any provision of the law and we  think rightly.  It is one industry setting up its own generating plant or more  than one jointly doing so for catering their needs of self-consumption,   would not be of any real difference.  The reality of situation cannot be and it  has  not been denied that most of the part of the country suffers from scarcity  of power.  There are breakdowns and load-shedding of power affecting the  industries.  There may be number of examples where some small industries  remained a non-starter because of non-availability of power.  In such a  situation if an individual industry or some of them collectively  generate  power for their own consumption,  there is no reason to  subject them to  licences,  which, under the law are not required.  But the power so generated  cannot be supplied to or consumed by the outsiders without a license to  supply electricity.

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               As a result of the discussions held above and the findings as  recorded by us, the position that emerges is that participating industries and  the industries to whom participating industries have transferred their shares,   consumption of electricity by them within the limits of the value of their  share capital in APGPCL would only amount to captive consumption and for  such utilization or consumption of self-generated electricity no licence  would be required under any provision of law. So far the sister concern or  concerns which have been defined as those under the same group as  participating industries,  it would require to have a licence if the electricity is  made available or provided to them for consumption as, in our view, it shall  fall within the ambit of distribution, sale or supply of the electricity and not  captive consumption of power.  It would be permissible without licence only  in case of exemption,  if granted in that behalf, by the competent authority.   Hereinafter we shall discuss that aspect of the matter.                  The  submission made on behalf of the appellant is that even  though it may be taken that a  licence was required to be taken, they would  be treated as having been authorized to sell electricity to sister concern of  participating industries with the  consent of the Government of Andhra  Pradesh as provided under Section 43-A(1)(c) of the Supply Act, 1948.  In  this  connection Section 14 of the Reform Act, 1998 has been pressed into  service which provides as under : "Licensing 14 : (1) No person, other than those  authorized to do so by licence or by virtue of  exemption under this Act or authorized to or  exempted by any other authority under the  Electricity (Supply) Act, 1948, shall engage in the  State in the business of,-

(a)     transmitting electricity; or (b)     supplying electricity,

(2) where any difference or dispute arises as to  whether any person is engaged or is not engaged or  about to engage in the business of transmitting or  supplying electricity as specified in sub-section  (1), the matter shall be referred to the Commission  and the decision of the Commission shall be final.

Xxxx                    xxx                     xxx"

               The case of the appellant is that they were authorized by the  State Government  for sale and supply of the electricity to the sister concern  of the participating industries and the companies holding shares  of the  APGPCL,  under Section 43 A(1)(c) of the Supply Act which provides as  under : "Section 43-A: Terms, conditions and tariff for  sale of electricity by Generating Company:  

(1)     A Generating Company  may enter into a  contract for the sale of electricity generated by it-

(a)     with the Board constituted for the State or  any of the States in which a generating  station owned or operated by the company is  located;  

(b)     with the Board constituted for any other  State in which it is carrying on its activities  in pursuance of sub-section (3) of  Section  15A; and   

(c)     with any other person with consent of the  competent government or governments."

The fact  as to whether there was any such authorization/consent or not, we

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may examine the argument raised on behalf of the respondents and the  findings as recorded by the Regulatory Commission,  that Section 43 A(1)(c)  stood dis-applied in view of Section 56(3)(vi) of the Reform Act, 1998,  which provides as under: "56(3)subject to sub-section (1) and (2) of this  section upon the establishment of the Commission  the provisions of the Indian Electricity Act, 1910  and the Electricity (Supply) Act, 1948 shall in so  far as the State is concerned, shall be read subject  to the following modifications and reservations.

Indian Electricity Act, 1910 xxx        xxx     xxx

Electricity (Supply) Act, 1948

(vi) in respect of matters provided in sections 5 to  18, 19, 20, 23 to 27, 37, 40 to 45, 46 to 54, 56 to  69, 72 and 75 to 83 of the Electricity (Supply) Act,  1948, to the extent this Act has made specific  provisions, the provisions of the Electricity  (Supply) Act, 1948 shall not apply in the State;

xxx                     xxx             xxx"

In view of the above provision, it is clear that  Section 43-A(1)(c) , would  not be applicable to the extent the Reform Act, 1998  makes a specific  provision in respect of matters  as contained under Section 43-A(1)(c).  It is  to be examined, as to whether the Reform  Act, 1998 makes any specific  provision in respect of the matters covered under Section 43-A(1)(c) or not.   In this connection our attention has been drawn to Section 21(4) of the  Reform Act, 1998 which provides as under : "21.Restrictions on licensees and generating  companies.(1) No licensee or Generating  Company shall at any time, without the previous  consent in writing of the Commission, acquire by  purchase or otherwise the licence or the  undertaking of, or associate himself with, so far the  business of generating, transmitting distribution or  supply of energy is concerned, any other licensee  or person generating, transmitting, supplying or  intending to generate, transmit or supply  electricity;

       Provided that before granting the consent the  Commission shall hear such person or authority as  the Commission shall consider appropriate. Xxx                             xxx             xxx

(4) A holder of a supply or transmission licence  may, unless expressly, prohibited by the terms of  its licence, enter into arrangements for the  purchase of electricity from, -

(a)     the holder of a supply licence which permits  the holder of such licence to supply energy  to other licensees for distribution by them;  and

(b)     any person or Generating Company with the  consent of the Commission. Xxx             xxx                     xxx"

It is submitted that a holder of a supply  license  or a transmission licence  may enter into an arrangement for purchase of electricity from any person or  a generating company with the consent of the Commission.  Therefore, the

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aforesaid provision covers the subject matter as provided under Section 43- A (1)(c) of the Supply Act.  It is submitted on behalf of the appellant that the  two provisions deal with different situations; whereas Section 43-A(1)(c)  enables a generating company to sell electricity to any person with the  consent of the state government, Section 21(4) is meant for holder of a  supply or transmission licence to purchase the electricity from a generating  company.  It is not the same thing as provided for under Section 43-A(1)(c).   Sub-section (4) of Section 21 of the Reform Act 1998 is restricted to the  holder of a licence for supply or  transmission of the electricity but it would  not apply to any other purchaser, whereas Section 43-A(1)(c) permits a  generating company to sell electricity to any person, which is a wider   connotation    not necessarily a licencee. A generating company will not be  able to sell electricity on the basis of permission taken by a licensee under  Section 21 (4) of 1998 Act for purchase of electricity. Therefore, sale of  electricity to any person other than a licencee as provided under Section 43- A(1)(c) is not covered by Section 21(4) of the Reform Act 1998.  The  difference between the two provisions is that while a licensee would  purchase electricity from a generating company it shall have to obtain the  permission of the Commission whereas a generating company while entering  into a contract to sell electricity to any person, will have to obtain the  consent of the state government.  The two provisions have different  implications altogether. The provision under Section 43 A(1)(c) of the  Supply Act is an enabling provision to sell  electricity to any person with the  consent of the state government, whereas the provision contained under  Section 21(4) of the Reform Act, 1998 pertains to the prohibition on  purchase of electricity which is restricted to a licensee.  Hence, it is  submitted, and in our view rightly, that Section 43-A(1)(c) is not dis-applied  by virtue of Section 56(3)(vi) of the Reform Act 1998 and the consent  granted by the state government will hold good for sale of electricity to any  person.   The next contention is that "any person" as provided under  clause (c) of sub-section (1) of Section 43-A of the 1948 Act would not  mean an individual or an end-consumer of the electricity. By application of  the doctrine of ejusdem generis it would mean a body or an organization like  one as enumerated in the preceding clauses, namely, any organization or  body like Board constituted for the State or States.  The term "board" has  been defined under clause(2) of Section 2 of the Supply Act,  1948  to mean  a State Electricity Board constituted under Section 5 of the Act.  Apart from  other functions, the Board may undertake generation of electricity or the  supply of the same.  Learned counsel for the respondents have relied upon a  decision of this Court reported in AIR 1963 SC p.128, Mysore State  Electricity Board Vs. Bangalore Woollen, Cotton and Silk Mils Ltd. and  others, wherein,  the Regulatory Commission observes,  this Court  held that  the Supply Act, 1948  does not deal with, other matters relating to supply  and use of  electricity which are governed by the Act of 1910. Consumers  find no place in the Supply Act and hence the words "other  person"  occurred in the 1948 Act would invariably mean those who generate or  supply electricity and not those who consume it.           We, however, find that this is not a correct position depicted by the  Regulatory Commission about the ratio of the decision in the case of Mysore  State Electricity   Board (supra).  Firstly, it may be noted that the reason as  to why the expression "other person" occurring in Section 76 of the Supply  Act be read ejusdem generis was that the word preceding the expression  ’other person’ was  ’licensee’.  Therefore, the meaning of the word ’other  person’  would take  colour from the word used preceding the aforesaid  expression.  This Court did not express any opinion on the aforesaid  question in the judgment.  S.K.Das, J. on his behalf and on behalf of other  three Hon’ble Judges of the Bench, concluded as follows : "These contentions urged on both sides would  require careful consideration in a more appropriate  case where a dispute arises under the 1948 Act.  In  view of our finding, however, that the dispute in  the present case does not arise under the 1948 Act,  the question whether the rule of ejusdem generis  applies or not in interpreting S.76 is purely

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academic.  We do not propose to determine that  academic question here."

Hidayatullah, J. in his opinion recorded separately, has made such  observations as indicated in the order of the Regulatory Commission.  But at  the same time it was also observed that one of the sections which deals with  consumers is Section 49 which requires the Board to supply electricity to  any person not being a licensee and ultimately, it was  also observed, the  learned Judge would not wish to pronounce any opinion upon the question,  the character of the dispute being different in nature.  The order of the High  Court was set aside but on different grounds.  Thus, a whole reading of the  decision in the case of Mysore State Electricity Board (supra) makes it clear  that no pronouncement has been made on the question relating to meaning   of the expression ’any person’ occurring in the Supply Act applying the  doctrine of ejusdem generis to mean a ’licensee’ or a body of the same  colour and character.                 It is submitted that literal meaning of words and certain phrases  cannot always be assigned to it and sometimes it becomes necessary to  assign a meaning to a particular word keeping in view the whole purpose  and intent of the legislation.  If the plain meaning of a word is far and distant  from the purpose for which the legislation has been made it would only be  appropriate to give meaning to a particular phrase or word considering the  company of the expression it keeps preceding the use of the word. A  particular term or word takes colour from the expressions used in earlier part  or the clauses of the particular phrase as used in a given provision.  As  indicated earlier, so far the expression used "any person" in clause (c) of  Section 43-A(1) of the Supply Act,  it is submitted that in previous two  clauses, i.e. clauses (a) and (b), a reference has been made to the Electricity  Board to whom a generating company can sell the electricity.  Therefore, the  term used ’any person’ in clause (c) will have the meaning having the same  colour i.e. denoting somebody similar in character  as the Electricity Board.   It is submitted that the end-consumer of  electricity is not subject matter of  the legislation of  the Supply Act, 1948.  It mainly deals with generation of  electricity, its management, distribution and transmission and the licensees  who are given licenses for supply of electricity to a particular area.  The  aims and objects of the Supply Act are : "The co-ordinated development of electricity in India on  a regional basis is a matter of increasingly urgent  importance for post-war reconstruction and development.   The absence of co-ordinated system, in which generation  is concentrated in the most efficient units and bulk supply  of energy centralized under the direction and control of  one authority is one of the factors that impedes the  healthy and economical growth of electrical development  in this country.  Besides, it is becoming more and more  apparent that if the benefits of electricity are to be  extended to semi-urban and rural areas in the most  efficient and economical manner consistent with the  needs of an entire region, the area of development must  transcend the geographical limits of a Municipality, a  Cantonment Board or a Notified Area Committee, as the  case may be. It has, therefore, become necessary that the  appropriate Governments should be vested with the  necessary legislative powers to link together under one  control electrical development in contiguous areas by the  establishment of what is generally known as the "Grid- System".  In the circumstances of this country such a  system need not necessarily involve inter-connection  throughout the length and breadth of a Province; regional  co-ordination inclusive of some measure of inter- connection may be all that is needed.  An essential pre- requisite is, however, the acquisition of necessary  legislative power not only to facilitate the establishment  of this system in newly licensed areas but also to control  the operations of existing licensees so as to secure fully

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co-ordinated development.

       Government feel that it is not possible to legislate  for this purpose within the framework of the Indian  Electricity Act, 1910, which was conceived for a very  different purpose.  In their view what is needed is  specific legislation on the broad lines of the Electricity  (Supply) Act, 1926, in force in the United Kingdom,  which will enable Provincial Governments to set up  suitable organizations to work out "Grid Schemes"  within the territorial limits of the Provinces.  Although  executive power under the proposed Bill will necessarily  vest in the Provinces, two considerations indicate the  necessity for Central legislation,-

(i)     the need for uniformity in the organization and  development of the "Grid System", and (ii)    the necessity for the constitution of semi- autonomous bodies like Electricity Boards to  administer the "Grid Systems".  In the view of  Government it is bodies like these which are  likely to be the most suitable organizations for  working the "Grid Systems" on quasi- commercial lines.  Such Boards cannot,  however, be set up by Provincial Governments  under the existing Constitutional Act as they  would be in the nature of trading corporations  within the meaning of Entry 33 of the Federal  Legislative List."

The purpose of legislation is to establish and strengthen the Grid System so  as to make the electricity available by co-ordination and inter-connecting the  distribution system in the entire region in a most efficient and economical  manner for co-ordination of all the activities for the purposes of generation  of electricity and for establishment of Grid System and control of operation  of existing licensees with a view to achieve and secure fully coordinated  development the electricity boards sought to be established for the above  purpose to oversee the broad activities relating to electricity.  The learned  counsel appearing for the respondent Regulatory Commission has drawn our  attention to the decision reported in Mysore State Electricity Board case  (supra).  The said decision has also been noticed by the Regulatory  Commission.  The question in the above case was as to whether a dispute  between the electricity board/licensee and an individual consumer can be  referred for arbitration under Section 76 of the Supply Act and would an  individual consumer  be covered under the expression "other person" or not.   Hidayatullah, J. while separately dealing with the question,  made some  observations throwing light on the above point, which we quote as follows : "34.The Electricity (Supply) Act 1948 (54 of 1948) was  passed in 1948 and it was a measure, as the long title and  the preamble show, to rationalize the production and  supply of electricity and generally for taking measures  conducive to electrical development.  The Act deals with  the supply of electrical energy and its rationalization,  whether such energy be generated by a State  Government, State Electricity Board, a licensee under the  Indian Electricity Act, 1910 (9 of 1910) or a person  whom having obtained sanction under S.28 of the 1910  Act, engages in the supply of electrical energy.  The  Electricity (Supply) Act 1948 does not deal with other  matters relating to the supply and use of electrical energy  which are governed by the earlier Act of 1910.  The latter  Act deals with the grant of licenses to produce electrical  energy, and contains provisions for the supply,  transmission and  use of electrical energy by licensees  and non-licensees and generally with matters connected

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thereto.......

35........It is, therefore, quite plain that one must read a  qualification into the section that the dispute must be one  touching a matter within the Supply Act..........."

               It is rightly submitted on behalf of the appellants that no such  proposition has been laid down in the above noted case i.e. Mysore State  Electricity Board (supra) holding that the expression ’other person’  occurring in Section 76 of the Supply Act would not mean any individual  consumer but a person like a licensee.  Yet the fact remains that from the  discussion which has been made, the purpose of enactment of the Supply  Act has been clarified that the Act is not on the subject of consumption of  electricity by end-consumer or an individual consumer.  It is also rightly  observed that the meaning which is to be assigned to a particular phrase or  word should be such as may be covered by the subject dealt with or sought  to be brought within the sweep of the legislation in question.                  This Court, while considering the application of principle of  ejusdem generis in Kavalappara Kottarathil Kochuni vs. State of Madras,  AIR 1960 SC 1080 p.1103, observed that "when particular words pertaining  to a class, category or genus are followed by general words, the general  words are construed as limited to things of the same kind as those specified".   In the case in hand, we find that clauses (a) and (b) of Section 43-A(1)  specify  as to with whom a generating company can enter into a contract to  sell electricity namely, the electricity board of the State concerned or in  given circumstances to the electricity board of another State and the said  clauses (a) and (b) are followed by clause(c) providing for having the  contract of sale with "any person"  with the consent of the State  Government. It is to be noticed that in case contract of sale of electricity  could be entered into by a generating company with  any person,   whomsoever it may be, an individual consumer or any one else,  it was then  not at all necessary to have specified class of persons as indicated under  clauses (a) and (b) preceding clause (c).  If the intention was to include all  under the expression ’any person’ it was not necessary to specify Electricity  Board in clauses (a) and (b).  The principle of interpretation in such matters  as laid down in Tribhuwan Prakash Nayyar vs. Union of India, AIR 1970 SC  540 is that "to reconcile incompatibility between the specific and general  words in view of the other rules of interpretation that all words in a statute  are given effect if possible, that a statute is to be construed as a whole and  that no words in a statute are presumed to be superfluous."  In the case of  Amar Chandra v. Collector of Excise, Tripura AIR 1972 SC 1863 it is held  that "the rule applies when "(1) the statute contains an enumeration of  specific words; (2) the subjects of enumeration constitute a class or category;  (3) that class or category is not exhausted by the enumeration; (4) the  general terms follow the enumeration; and (5) there is no indication of a  different legislative intent".  In the case in hand, we find the above  ingredients present barring the one  mentioned as condition no.3 above that  the class or category is not exhausted by enumeration but that by itself may  not lead to the reverse inference.  The fact remains that the legislation in  question has not dealt with nor purpose of its being legislated is to deal with  supply of electricity to the  end consumers. Rather the subject dealt with in  the Supply Act is different.  It is to be noticed that the power generation was  initially  confined to government companies, maybe central or the state  government.  Later by an amendment in 1976 it could be jointly, both by the  central and the state government.  Later, however, generation was opened up  for any company registered under the Companies Act.  Earlier, therefore, the  sale of electricity generated was confined to the electricity boards but in  view of opening up generation to any company a third category was  introduced by the amendment of 1991 as contained in clause (c) of Section  43-A (1) of the Supply Act, namely, to any other person.  But looking to the  provisions of the Act in totality it can’t mean an individual consumer since  such a supply to individual consumers is not envisaged nor dealt with under  the Supply Act.  We find that the functions and duties of the electricity board  are enumerated under Section 18 of the Supply Act.  The same reads as  under :

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"Powers and Duties of [State Electricity Boards and  Generating Companies] - 18. General duties of the  Board.- Subject to the provisions of this Act, the Board  shall be charged with the following general duties,  namely:_

(a)     to arrange, in co-ordination with the Generating  Company or Generating Companies, if any,  operating in the State, for the supply of electricity  that may be required within the State and for the  transmission and distribution of the same in the  most efficient and economical manner with  particular reference to those areas which are not  for the time being supplied or adequately supplied  with electricity;

(b)     to supply electricity as soon as practicable to a  licensee or other person requiring such supply if  the Board is competent under this Act so to do;

(c)     to exercise such control in relation to the  generation, distribution and utilization of  electricity within the State as is provided  for by or  under this Act;

(d)     to collect data on the demand for, and the use of,  electricity and to formulate perspective plans in  co-ordination with the Generating Company or  Generating Companies, if any, operating in the  State, for the generation, transmission and supply  of electricity within the State;

(e)     to prepare and carry out schemes for transmission,  distribution and generally for promoting the use of  electricity within the State; and

(f)     to operate the generating stations under its control  in co-ordination with the Generating Company or  Generating Companies, if any, operating in the  State and with the Government or any other Board  or agency having control over a power   system."

The above provision deals with supply of electricity as may be required  within the State for transmission and distribution in a most efficient and  economical manner.  Further, to supply electricity as soon as practicable to a  licensee.  With the aid of the above provision, read with clauses (a) and (b)  of sub-section (1) of Section 43-A it can well be inferred that the expression  ’any person’ used maybe persons or bodies discharging the functions of  generation, transmission, distribution or supply of electricity.  Clause (c) of  sub-section (1) of Section 43-A does not envisage a generating company  selling/supplying electricity for use in household or domestic purpose or to  the small shops, to the show-rooms or an individual running a flour mill or a  welding workshop etc.  Therefore, to assign a wide meaning to the word  ’any person’, meaning thereby, to any end consumer would be spreading the  meaning too wide going beyond the subject matter dealt with under the  Supply Act and not connected with the intent and object of legislating the  said legislation.  It is true that as a general principle a plain meaning is to be  attached to a word or expression used in the legislation but it cannot be  divorced of the context and an isolated meaning attached to it. In such  circumstances, it becomes necessary to assign a meaning which may be  reasonably and harmoniously derived from the   company of the words and  phrases preceding such expression.  In this view of the matter, it can well be  said that the meaning of the expression ’any person’ as used in clause (c) of  sub-section (1) of Section 43-A denotes such bodies or entities which would

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further the purpose for which the electricity boards have been constituted.  It  is for the board to coordinate different activities in discharge whereof to  make available the electricity to the licensees, distributors or those who  transmit the electricity. It would be reasonable to infer that the consent of the  state government  may be necessary  to have a contract of sale of electricity  generated by it with any of such bodies discharging any of such functions  like that  of the Board indicated above or any other body or entity  established for similar purpose.                  In view of the finding recorded above regarding meaning of the  word ’any person’ occurring in clause (c) of sub-section (1) of Section 43-A  of the Act, it becomes wholly unnecessary to go into the question as to in  fact any consent was given by the state government, if so, when and the  effect of the same for supply of electricity to the sister concern of the  participating industries.                   We, therefore, hold that no licence is necessary for utilization of  energy generated by APGPCL and utilized by the participating industries  and the concerns holding shares of APGPCL transferred to them by the  participating industries to the extent of value of the shares so transferred.  It  would, however, be necessary to have a licence for supply of energy to the  sister concerns. In the result, the appeals are partly allowed and the judgment  and order passed by the High Court stands modified in the manner indicated  above.  Parties to bear their own costs.