P.P.Naolekar, C.J. - (1.)The facts necessary to indicate the back ground in which the dispute arose and the question raised in the appeal filed by the State and in the writ petition filed by the State of Assam and the Assam State Electricity Board (for short the Board) in brief are - that in the year 1979 the Planning Commission sanctioned a project for production of 100 MW electricity. The project is known as Karbi Langpi (Lower Borapani) Hydro Electric Project in the State of Assam. At that time the approved cost of the project was Rs.34.15 crores. The Board was entrusted with the responsibility of setting up and commissioning of the said project. The Board commenced the work of the project to complete it within the targeted period i.e. by 1985. The Board procured 1.7 million Yen loan from the Overseas Economic Co-operative Fund and the Govt of Assam procured a loan of Rs.58 crores in 1993 from Japan through Govt of India for purchase of Turbo Generator and other equipments at a very low rate of interest. But in spite of such financial assistance taken in the form of loan, for a long time the project work could not be completed, the Board virtually abandoned the project. The project work is entrusted to different contractors, including Rastriya Pariyojna Nirman Nigam Ltd, from time to time by the Board. Though efforts were made by the Board to complete the work within the time stipulated, the work could not be completed within the targeted time and only 50% of the work was completed. Consequently further construction work of the project came to a standstill till the end of year 1992 due to non availability of fund and the project was practically abandoned. At the end of 1992 a policy decision was taken by the State of Assam and the Board commensurate with the Central Govt policy declaration that in order to speedy completion of the project, private participation and capitals should be introduced. The Govt of India changed the policy regarding private participation in power project and the State Govt decided to transfer the project to an assisted Sector Company. At this time, the Bharat Hydro Power Corporation Ltd (herein after referred to as, the company) came forward to undertake the project with participation of the Board and or the State Govt. The State Govt after negotiation approved the policy and gave its approval in the matter entering into a Memorandum of Understanding. The Memorandum of Understanding dated March 25, 1993 was drawn with the consent of three parties, viz., the State of Assam, the Board and M/s Subhash Project & Marketing Ltd (for short 'M/s SPML') and the same was signed by three parties, In accordance with the provisions of said Memorandum of Understanding (MoU) a Deed of Assignment was executed and accordingly all assets and properties of the said project were transferred in favour of the company.
(2.)The relevant portions of the Memorandum of Understanding are as under:
"A. Assam State Electricity Board has undertaken construction of "100 MW capacity Karbi Langpi (Lower Borapani) Hydro Electric Power Generation Project" in the State of Assam. The Contour Map of the entire project area thereof showing all the project features is annexed hereto and marked with the letter 'Z' and the location map of the Project site thereof is annexed hereto and marked with the letter 'Z1' (hereinafter collectively referred to as the 'said Electric Power Generation Project') and that the construction activities of the said Electric Power Generation Project had started in the year 1980, but the said Electric Power Generation Project could not be completed till today due to various reasons. B. The Govt of Assam is desirous to complete the said Electric Power Generation Project as speedily as possible and in line with present liberalised policy of the Govt of India, is desirous to complete the project with private participation. C. M/s SPML in the meantime approached the Govt of Assam to take over the said Electric Power Generation Project in as-it-is where-it-is condition, i.e. in the incomplete form to the extent as mentioned in the report furnished by the Power Department of the Govt of Assam to SPML vide letter No.PEL/184/85/Vol.II/415 dated 19th January, 1993 and annexed hereto and marked with letter 'A' (herein after referred to as the said project) together with all its assets and liabilities as on the date of such take over, and offered to complete the said Electric Power Generation Project by forming a new company having share holding of both ASRR and SPML as and in the manner hereinafter stated. C-I. SPML has submitted a proposal with viability study to the ASRR, vide letter No.0292 : BD 7: AKS dated 5.1.93. The said study is indicative only and all the calculations, tariff rate etc will be governed by the guidelines of Govt of India and revised detailed Project Report. D. ASEB has in order to implement the said project, already incurred the following expenditure and have also committed several liabilities as hereinafter mentioned up to 31 st December, 1992. Particulars Amount (Rs)

(a) Expenditures incurred by ASEB 116,21,12.000.00

(b) Current liabilities 2,49,38,880.27

(c) Outstanding claims of contractors but not yet settled. 4,24,48,051.31

(d) Claim under litigation not yet settled 7,56,31,123.35
E. All the assets and other properties purchased for or acquired by ASEB on account of the said Electric Power Generation Project and as are appearing in the accounts of in respect of the said Electric Power Generation Project are lying at the site of the said Electric Power Generation Project and have not been removed from there and said accounts and lists up to the date of take over will be submitted to SPML by ASEB and the fixed assets and properties will be physically handed over to Company by ASEB. F. The land showing in the maps and plans annexed hereto and marked with the letter 'N' and letter 'N1' respectively are from time to time acquired by ASEB for the purposes of the said Electric Power Generation Project to be used to the extent as hereto stated :
(a) For Dam, Power Houses, Roads and Temporary colony etc 596.10 Hec.

(b) For permanent colony at Lengery 4.50 Hec. - Total 641.60 Hec.
(hereinafter referred to as the said land ) and since then the said Electric Power Generation Project is the sole and exclusive owner of land otherwise well and sufficiently entitled to the said land and is in peaceful possession thereof; Now this Memorandum of Understanding Witnesseth and it is hereby Agreed Record, Confirmed and Declared by and between the parties that the Terms and Conditions shall be as follows : 2. The parties hereto shall form and get registered a Public Company with limited liabilities under such name as may be mutually agreed and approved by the concerned Registrar of Companies in the State of Assam (hereinafter referred to as the 'Company') for the principal purpose of completion of the said Project Generating Power from the completed Project and also for the marketing of the power and to conduct all other business directly or indirectly related to and/or auxiliary and/or incidental thereto. The parties shall apply for clearance of the name of the Company to the concerned Registrar of Companies within 60 (sixty) days from the date of these presents and the registered office of the Company shall be located in the State of Assam. The Company shall be registered within a period of three months from the date of approval of the name of the Company by the concerned Registrar of Companies. 4. The share holding of the ASEB in the paid up capital of the Company will be 11% and that of SPML and of its list of associates attached as Annexure II shall be 40% and the balance 49% share capital of the said company would be offered to the General Public for subscription. The public issue of the Company shall be handled by an established Merchant Banking Division of the Nationalised Bank and the Manager of the Public Issue will be any leading competent company and/or banks selected by Company. The shares of the Company will be listed in the Guwahati Stock Exchange along with other leading Stock Exchanges in India, such as, Bombay, Calcutta, Delhi and Ahmedabad. Bankers to the issue will also be a leading Nationalised Bank having a Branch at Guwahati. SPML and its associates shall subscribe to and agree to be bound by the terms of this MoU to the same extent and in the same manner as the parties hereto agree and unless they do so they shall not be entitled to hold shares of Company. 5. The management of the Company shall vest in the Board of Directors to be constituted for the purpose. The Chairman and Managing Director of the Company shall be selected by SPML and shall act under the over all control, supervision, direction and guidance of the Board of Directors. 6. (a) The Board of Directors of the Company, other than nominees of the financial institutions extending term loan, shall consist of 6 Directors (hereinafter referred to as 'Promoter Directors'). The ASEB shall be represented by two Directors and SPML shall be represented by four Directors one of whom shall be the Managing Director of the Company. (b) ASEB and SPML shall have the right to remove their respective nominees in the Board of Directors and they will have the right to appoint/ nominate their nominees in place of Director so removed. (c) The total number of nominee Directors appointed by the parties thereto shall not exceed 6 except with the mutual consent of the ASEB and SPML. However, this restriction shall not apply to the Directors who have been appointed pursuant to or under any agreement with the debenture holders or with other financial institutions giving them a right to appoint Directors on the Board of required broad basing of the Board. (d) Provided always that at all stages the Ratio of promoter Directors of ASEB & SPML shall be defined in SI. No.6 (a) above. 7. The parties hereto shall clause the Company to ratify and confirm these presents. 19. It is recorded that all the rights, title, interest, benefits, liberties, advantages and/or obligations whatsoever of the Govt of Assam, the ASEB under and/or in respect of the said Project as also in respect of and/or to the said land and of all the assets equipments, plants, machineries, tools, articles, properties and/or goods forming part of the said Project as also all the structures and/or buildings so far erected and/or constructed by ASEB on the said land (all hereinafter collectively referred to as the 'said properties') together with all the said liabilities in as-is-where-is condition shall stand assigned, transferred and conveyed in favour of the company, free from all encumbrances, charges and/or hindrances whatsoever, for the total consideration of Rs. 116,21,12,000 (Rupees one hundred sixteen crore twenty one lakh twelve thousand only) to be paid by the Company as aforesaid as and in the manner hereinafter stated, subject to the undertaking of the Company that the Company shall carry out at is own costs, charges and expenses all further works to be done for completion of the said Project exactly in accordance with the drawings and/or maps and/or departmental reports and/or specifications and/or Guidelines and/or designs and sketch or layout prepared by the consultants to be appointed by the Company, subject to such modification and/or alterations as may be made from time to time therein with the approval of ASEB (hereinafter collectively referred to as the 'said Guidelines') and shall also subject to what are herein stated, pay all the liabilities and shall indemnify ASEB against payments thereof. It is however, made clear that the Company shall be at liberty to settle and/or enter into any compromise with any contractors or creditors of the said Electric Power Generation Project to reduce their claim against the said Project and in case such claims are reduced, then and in that event ASEB shall not he entitled to claim refund of such reduced claim......... 21. The aforesaid consideration of Rs. 116,21,12,000.00 (Rupees one hundred crores twenty one lakh twelve thousand only) being the total expenditure so far incurred by ASEB for and in respect of the said Electric Power Generation Project (hereinafter referred to as the said amount of 'deferred liability') shall so long the same is not paid or liquidated as in the manner herein stated be treated as deferred liability by ASEB to Company upon its formation. It is hereby clarified that the consideration for transfer of the said assets and projects of the said Project has been determined at Rs.116,21,12,000 (Rupees one hundred sixteen crores twenty one lakh twelve thousand only) (hereinafter called the consideration amount) in the manner hereinafter stated. If there shall be any further liability of whatsoever or howsoever nature, prior to the take over of the said Project by the said Company in terms of this Moll the same shall be discharged by ASEB and ASEB shall keep the Company indemnified against in respect thereof and if Company will be made to pay such liabilities then the same will be adjusted and appropriated out of the said consideration amount. 22. The said amount of deferred liability mentioned in Clause 21 hereof shall be liquidated by supply of minimum 30% of the total Generated Power by the said Project by the Company upon completion until the time the said deferred liability is fully not repaid and/or liquidated. For this purpose the Power Tariff rate chargeable to ASEB for supply of power shall be on the basis of the Guideline fixed and stipulated by the Govt of India and/or Govt of Assam for the lime being in force (hereinafter referred to as the said rate). It is however, made clear that it will be discretionary on the part of the Company to increase the percentage of Power Generated to he supplied to ASEB from time to time. ASEB undertakes that all such extra supply of power by the Company to ASEB shall be purchased by the ASEB at the said rate. To finalise the tariff rate, the rate of depreciation of the units already procured/erected/constructed, will be determined in each case having regard to the nature and condition of the assets at the time of its acquisition by the Company as per guidelines of Govt of India. Notwithstanding anything to the contrary anywhere contained, the entire liability of the Company towards ASEB on account of said deferred liability shall be liquidated within a period of 8 years. However, the said period may be altered by the parties by agreement. 31. It is made clear that the share holding to the extent of 11% of the total paid up capital of the Company shall he issued in favour of ASEB as referred to in Clause 4 hereof out of the said consideration of Rs. 116,21,12,000.00 (Rupees one hundred sixteen crores twenty one lakh twelve thousand only) being the total expenditure incurred by ASEB till date of taking over and the said consideration amount i.e. the said amount of deferred liability, shall be reduced by the amount covered by the Equity Share Capital issued in favour of ASEB."
(3.)From the clauses of the Memorandum of Understanding it is apparent that the Govt of Assam was desirous to complete the said project, viz 100 MW capacity Karbi Langpi (Lower Borapani) Hydro Electric Power Generation Project and the expenditure incurred till the date of Memorandum of Understanding was estimated to be Rs. 116,21,12,000 The project work was to be handed over to a public company with limited liabilities, which shall be formulated with the principal purpose of completion of the project and for marketing of the power generated and also to conduct all other business directly or indirectly related to and/or ancillary or incidental thereto. The share holding in the said company, which is to be created and held would be 11 % by the Board, 40 % by M/s Subhash Projects & Marketing Ltd and 49% would be offered to the general public for subscription. The Board of Directors shall manage the affairs of the company. The Board of Directors of the company, other than nominees of the Financial Institutions extending term loan shall consist of 6 Directors, out of which the Board shall be represented by two Directors and M/s Subhash Projects & Marketing Ltd shall be represented by four Directors, one of whom shall be the Managing Director of the company. All the rights, title, interest, benefits, liberties, advantages or obligations of the Govt of Assam, the Board in respect of the project or in respect the assets equipments, plants, machineries, tools, articles, properties and/or goods form part of the project and also all the structures, building so far erected/constructed on the land together with all said liabilities in as-is-where-is condition shall stand assigned, transferred and conveyed in favour of the company, free from all encumbrances, charges and/or hindrances for the total consideration of Rs. 116,21,12,000/-. It is further provided that share holding to the extent of 11 % of the total paid up capital of the company shall be issued in favour of the Board out of the consideration of Rs. 116,21,12,000. Thus 11 % share shall be adjusted from the value of the property handed over to the company. The balance amount shall be liquidated by the company by supplying 30% of the total generated power by the company upon completion of the project until the said deferred liability is fully repaid and or liquidated and for that purpose the power tariff rate chargeable to the Board for supply of power shall be on the basis of the guidelines fixed and stipulated by the Govt of India or the Govt of Assam for the time being in force. Under the MoU, the project was to be completed in the year June 1999.