I think what this is say is that encryption is really only a transport mechanism. Thus encryption should not be use as a mechanism to 'pretend' or to be seen to have satisfied the legal responsibility under GPL to distribute the code upon request.
In this case, C could request the code from either A or B. Depending on who 'distributed' the application to him in the first place. So in B's case, they'd just re-encrypt the code and send it to C. Furthermore, its likely under GPL that B would have the 'freedom' to distribute the code however they wish. ie. send the code unencrypted, put simiply put it up on a web page.
Another example one could think of were this would work is a company putting an encrypted zip file on a website, but only providing the 'password' (key file or whatever) to clients who receive the application.
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