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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 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.

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 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.

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 :