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[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 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.
""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."

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 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 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 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 :