The new company, APGPCL, as indicated above, cameinto being and started power generation and distribution of the sameaccording to the MOUs to the participating industries in proportion totheir share holding. ...
No Acts & Articles mentioned in this case
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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,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 24
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 24
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.
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