of Karnataka & Anr Vs. K.K. Mohandas &
Etc  Insc 788 (1
Mathur & P.K. Balasubramanyan P.K. Balasubramanyan, J.
all these appeals, the defendants, the State of Karnataka and the Deputy Commissioner (Excise) are the appellants.
The four appeals arise from four suits being O.S. No. 1261, 1262, 1263 and 1264
of 1990 on the file of the court of the First Additional Munsif, Mangalore. The
suits were decreed in favour of the plaintiffs who were excise contractors and
bidders of the right to vend arrack in various taluks of Dakshina Kannada
District of the State of Karnataka for the Excise Year 1990-91
covering the period 1.7.1990 to 30.6.1991. Aggrieved by the decrees, the
appellants filed four appeals in the court of the Additional Civil Judge Senior
Division, Mangalore. The appeals were dismissed affirming the decrees of the
trial court. Four Second Appeals filed by the appellants in the High Court of
Karnataka met with the same fate. These Appeals by Special Leave thus challenge
the decrees granted in the four suits.
State of Karnataka every year auctions the right to vend liquor in various taluks
of the State.
them is included trade in arrack. The plaintiffs in the suits, Excise
Contractors on their own showing, had bid the right to vend liquor from the
concerned taluks earlier and even for the Excise Year 1989-90. On 16.3.1990,
the Minister of Finance, Government of Karnataka, during his Budget Speech in
the Assembly, made the following statement.
State has been following a policy of banning the sale of toddy in a phased
manner. At present, the sale of toddy has been banned in seven districts. I
propose to extend the ban to the entire State with effect from 1.7.1990. The
expected loss in revenue is Rs. 60 crores.
hoped that a portion of this loss would be made good by higher arrack rentals
and better enforcement of rules and regulations. The Budget Speech was
marked Exhibit P-1 in the suits which were jointly tried. According to the
plaintiffs, a decision was also taken by the Government in a meeting of the
Cabinet on 2.5.1990 to implement the policy thus announced. But, illegal
tapping and sale of toddy was not put down. On 28.5.1990, the right to vend
arrack in the taluks of Kundapur, Udupi, Bantawal, Sullia, Puttur and Belthangadi
was held for the Excise Year 1990-91. The plaintiffs were the highest bidders
in the respective auctions and the respective bids were knocked down in their favour.
On 29.6.1990, formal contracts were entered into by the plaintiffs with the
defendants. The formal contracts were marked in the suits as defence Exhibits
D-6 etc.. Meanwhile, the toddy tappers took up cudgels and even defied the
attempted ban. This resistance had started even before the plaintiffs entered
their highest bids.
view of the agitation, the Government considered the relevant aspects and
issued an order dated 29.6.1990. While the ban on sale of toddy to the public
was continued, it was decided to arrange for sale of toddy tapped by the toddy tappers
of Dakshina Kannada District, through a centralised society to the fenny units
and permitting the fenny units of Dakshina Kannada to buy the toddy from tappers
of allotted trees at the price to be fixed by the Excise Commissioner till finalising
the purchase by a centralised society as envisaged.
is the case of the plaintiffs that the above order was violated by the toddy tappers
with impunity by selling toddy openly in the District. The State did not take
steps to check this. So, some of the plaintiffs approached the High Court of
Karnataka with Writ Petitions, Writ Petition Nos. 16317 to 16319 of 1990.
main prayer in the Writ Petitions was to issue a writ of mandamus directing the
State Government to take effective and appropriate steps for prohibiting the
tapping or sale of toddy in Udupi, Kundapur and Belthangadi taluks of Dakshina
Kannada District during the Excise Year 1990-91. An interim order was sought
and obtained restraining the State from terminating the contracts of the writ
petitioners. The writ petitioners relied upon the policy statement above quoted
and contended that they had bid the right to vend arrack for the Excise Year
1990-91 on the basis of that assurance and it was the duty of the Government to
enforce that policy. They also sought a direction to the State not to collect
the Kist amount at the rate of rentals bid for the year 1990-91, but to collect
it only at the rates of the bid amount for the Excise Year 1989-90.
learned single judge of the High Court dismissed the Writ Petitions. An appeal
was filed by the plaintiffs before a Division Bench. A case of promissory estoppel
was also put forward against the Government in support of the prayers in the
Writ Petitions. The Division Bench noticed that what was complained of was
nothing more than hazardness of any business. On the plea of promissory estoppel
put forward, the Division Bench stated :
promissory estoppel cannot arise because where it is a matter of policy, and
Government of Karnataka by filing statement of objections has stated that it
has been doing whatever is possible within its means to stop the illegal
trade. At the prayers of the plaintiffs, the attempted termination of the
contract by the State was restrained for a specific period by the court directing
the State not to give effect to the proposed termination of the contract until
30.9.1990. The matter was brought up to this Court by way of Petitions for
Special Leave to Appeal.
Court by Exhibit P-29 Order dismissed the petitions thus:
prejudice to the petitioners right to approach the appropriate Civil Court for relief and subject to the
interim stay granted by the High Court staying the operation till 15.10.1990,
these petitions are dismissed. It is thereafter that these suits have been
filed in the trial court. Since the averments in the various plaints are more
or less identical and the factual situation is also the same, it is sufficient
if the pleadings in one of the suits are referred to.
the plaints, after setting out the factum of the concerned plaintiff being the
successful bidder in respect of the auction for the Excise Year 1990-91 and
setting out the extract of the Budgets Speech already adverted to and
pleading that in spite of repeated representations, the defendants had failed
to take action to curb illegal tapping and sale of toddy and after referring to
the order of the Government dated 29.6.1990 authorising the tapping of toddy
and its sale in the concerned district, it was pleaded that the State had
committed breach of the promise earlier held out and as a consequence, the
State was estopped from collecting higher Kist amount. After admitting that the
Kist amount for the month of July 1990 as per the bid for the previous year
1989-90 had been paid and after pleading that the Kist amount for the month of
August 1990 has also been paid on the same basis, it was further pleaded that
the plaintiff was willing to remit even future Kist amounts at the same rate as
he has no other alternative. We think it appropriate to set out paragraph 10 of
the plaint in O.S. No. 1261 of 1990:
the Excise Commissioner demanded the Kist amount from the plaintiff for the
month of July 1990, the plaintiff remitted the Kist for July 1990 at the rate
for which he had bid during the previous year in the said Taluks, namely at
Rs.31.00 lakhs for Karkala Taluk and at Rs. 35.00 lakhs for Bantwal Taluk.
shows the bonafides of the plaintiff in the contentions advanced by him. The
plaintiff has also remitted the kist amount for August 1990. The plaintiff is
willing to remit even future kist amount at the same rate, as he has no other
alternative. The plaintiff has no intention whatsoever to deprive what is
legitimately payable but the plaintiff cannot be compelled to pay higher amount
for which the plaintiff had offered the bid, based entirely on Governments
announcement to ban toddy. Under the circumstances already explained above and
as the said circumstances have been totally changed, it is unfair to claim the
said amount from the plaintiff by the defendants who are the defaulting
parties. Then follows the plea that in view of the developments,
performance could not be insisted upon. This is what is pleaded in paragraph 11
of the plaint:
any view of the case and irrespective of the aforesaid aspects of fundamental
breach, the plaintiff submits that the purpose of the obligation to sell liquor
has been rendered impossible to the extent expected consequent upon the illegal
tapping and sale of toddy which the plaintiff could not prevent and which the
defendants did not prevent though they were obliged to do so. Therefore, there
is supervening impossibility of performance of contract to sell liquor and to
pay higher kist amount, realisation of which is rendered impossible by the breach
of promise held out by the defendants as well as their failure and negligence
to maintain law and order.
the plaintiff is excused from the obligation to perform as per contract for
sale of liquor in the taluks for which the plaintiff is the successful bidder.
The plaintiff is entitled to claim injunction as plaintiff has no other remedy.
In view of the urgency involved this suit may be revived without previous
Section 80 Notice.
we understand the plaint, what appears to be pleaded is the failure of the
Government to impose the ban on sale of toddy and the contract being rendered
impossible of performance in the matter of payment of Kist by the plaintiff.
The plea of estoppel is based on the budgetary speech of the Minister already
quoted. After quoting it, it is pleaded:
Government thus made a promise to the public that the vending of toddy will be
banned thereby enabling higher sales of liquor. The plaintiff, having been
aware of the said promise, assumed it as a fundamental obligation of the
defendants and as an essential term of offer while auctioning right to vend
liquor in the district of Dakshina Kannada. On 28.5.1990, when the Excise
auction took place at Mangalore, the plaintiff was having foremost in its mind
the aforesaid fundamental representation of the defendants This is
followed by a plea that it was based on this that a sum higher than that for
the previous year was offered by the concerned plaintiff - bidder. The
defendants filed a written statement raising various objections. The bona fides
of the suits were questioned. It was pointed out that the attempt to get an
injunction was an attempt to obtain something that was denied by the High Court
and the Supreme Court. It was pleaded that on the bid of the plaintiff being
accepted, a formal contract had been entered into termed Guttige Patra
and the plaintiff was bound to perform the contract as thus entered into and
the plaintiff was bound by the terms of the contract. The written contract did
not contain any term regarding ban on sale of toddy or cast an obligation on
the State to effectively bring about such a ban. The plea that a prohibition in
the tapping and sale of toddy would increase the sale in arrack was also
denied. It was denied that the Government had made any promise to the public
that the vending of toddy will be banned. It was denied that the plaintiffs had
bid the right to vend arrack for the Excise Year 1990-91 based on that promise.
It was also denied that the plaintiffs offer for vending of arrack was
solely on the assurance that there will be a ban on tapping and sale of toddy.
facts which compelled the Government not to ban altogether the sale of toddy
and making the new arrangement, were all set out. The plaintiffs were aware of
the fact of attempts to defy the ban by toddy tappers and they had entered into
the contract thereafter with eyes open. Even at the time the plaintiffs
bid, the agitation by toddy tappers was going on. The plaintiffs were bound by
the terms of the contract and to perform their obligations. It was further
submitted that, as a matter of fact, the tapping of toddy for sale to the
public was banned, but illegal tapping was going on and the Excise Department
was trying its best to prevent illegal tapping. The plaintiffs were bound to
pay the amount which was the consideration for the right to vend arrack
obtained by them from the Government which had the exclusive privilege of
selling liquor. The dismissal of the Writ Petition, the appeal therefrom and of
the Petitions for Special Leave to Appeal were pleaded. It was pleaded that the
sale of arrack was not dependent on the tapping of toddy or sale of toddy. It
was pleaded that the Government has the right to change its policy with regard
to the banning of tapping of toddy and the banning of sale of toddy was not a
condition precedent for the sale of arrack. It was submitted that the
plaintiffs could not avoid payment of the agreed Kist, after they had entered
into formal contracts with the State, had carried on the sale of arrack in
terms of the right given to them for the concerned Excise Year and they were
not entitled to any relief. It was also pleaded that the increase in the bid
amount for the Excise Year 1990-91 was normal and the percentages of increase
in other places, 13 in number, were set out. In some of those centres, the
increase was above 300 per cent from that of the previous year. The suits were
liable to be dismissed. The plaints were then amended by seeking the relief of
declaration that the excise contract existing between the plaintiffs and the
State is enforceable by rectification to the effect that the monthly kist
payable shall be at the rate prevailing during Excise Year 1989-
further plea in support was added. An additional written statement was filed
that the written contract concluded the parties and declaration as sought for
to modify the obligation of the plaintiffs under the terms of the contract
while retaining the right conferred thereby, was not permissible.
the trial, various issues were raised. But the trial court ultimately held that
the defendants were estopped from claiming the Kist amounts as per the bids of
the plaintiffs by the doctrine of promissory estoppel. This was on the basis
that the Budget Speech made by the Minister amounted to a promise to the
intending bidders, that the bidders had acted on that promise and had offered
higher amounts. Since the State had failed to implement successfully the policy
of banning tapping and selling of toddy to the public, the State was estopped
from claiming the Kist amount in terms of the contract entered into between the
State and the contractor. The court did not ask itself whether the plaintiffs
had proved any detriment because of the State not banning the trade in toddy.
The court also did not ask itself the question whether a part of the contract
containing the obligation of the plaintiffs alone could be rectified as claimed
in the plaint, or whether at best the plaintiffs were in a position to
repudiate the contract as a whole and whether the suit of this nature would be
maintainable. On appeal by the defendants, the lower appellate court proceeded
on the same lines and dismissed the appeals. It does not appear that the lower
appellate court properly applied its mind to the pleadings and the principles
of law governing the matter. On Second Appeals being filed by the defendants,
the High Court, we must say with respect, did not properly apply its mind to
the questions that arose for decision and merely ended up by dismissing the Second
Appeals upholding what it called the plea of promissory estoppel. The decisions
thus rendered in the four suits are challenged in these appeals.
following decree has been granted.
is hereby declared that the Excise contract existing between plaintiffs and
first defendant is enforceable by rectification to the effect that monthly kist
payable shall be at the rate prevailing during excise year 1989-90.
the defendants are restrained from giving effect to or enforcing the terms of
contract entered into between the plaintiffs and the defendants in relation to
the retail vend of liquor in Karkala, Bantwal, Puttur, Sullia, Kundapura, Udupi
and Belthangady Taluks of Dakshina Kannada District for the excise year 1990-91
with regard to the kist amount payable thereunder or alternatively, the
defendants are restrained from claiming kist at the rates higher than what was
stipulated for 1989-90 in the said Taluks by way of perpetual injunction.
Under Section 26 of the Specific Relief Act, an instrument or contract may be
rectified when through fraud or a mutual mistake of the parties, a contract or
other instrument in writing does not express their real intention. According to
Dr. Banerjee in his Tagore Law Lectures on the Law of Specific Relief,
if the parties had deliberately left out something from the written
instrument, that cannot be put in. by resort to the remedy of
rectification. Here, the parties have entered into written contracts and
admittedly no term is incorporated therein regarding enforcement of the ban on
trade of toddy to the public in the District of Dakshina Kannada. Nor is there
any case pleaded in the plaint of any mutual mistake in the matter of setting
down the terms of the contract. There is also no plea of fraud on the part of
the State in entering into the contract. On the terms of the contract, the
plaintiffs had obtained the right to vend arrack for the Excise Year 1990-91 on
their obligation to pay the bid amount in monthly instalments. In the absence
of any foundation in the pleadings being laid by the plaintiffs establishing a
ground for the grant of the relief of rectification, the mere adding of a
prayer by way of an amendment could not be considered sufficient to grant them
the relief of rectification.
What is pleaded in this case at best is that in his Budget Speech the Minister
concerned had held out to the public at large that he was proposing to ban sale
of toddy in the whole of the State and this had induced the plaintiffs to
believe that the sales in arrack would go up resulting in their offering higher
bid amounts for the right to sell arrack for the Excise Year 1990-91. On facts,
the written statement of the State shows that in a number of centres, the
prices have gone up by considerable sums and compared to those increases in
other places, the increase in the relevant taluks were only marginal. It may be
noted that the plaintiffs had not established that they had suffered any losses
in view of the inability of the State Government to put down what the
plaintiffs called the illegal tapping and sale of toddy in public as opposed to
the fenny units as indicated in the Government order. P.W. 1 examined on behalf
of the plaintiffs could not show with reference to any accounts of any such
loss having been incurred.
not here considering the question of the plaintiffs having shown detriment in
connection with their plea of estoppel which will be dealt with separately.
What is intended to be conveyed here is that the plaintiffs have not shown that
they had suffered any detriment by entering into the contracts in question
based on the promise held out to them, though not reflected in the written
Administrators [8 Wheaton 174) speaking through Chief Justice
Marshall indicated the position in law thus:
is a general rule, that an agreement in writing, or an instrument carrying an
agreement into execution, shall not be varied by parol testimony, stating
conversations or circumstances anterior to the written instrument.
rule is recognised in courts of equity as well as in courts of law; but courts
of equity grant relief in cases of fraud and mistake, which cannot be obtained
in courts of law. In such cases, a court of equity may carry the intention of
the parties into execution, where the written agreement fails to express that
we have seen, the sum and sub-total of the case of the plaintiffs is that they
entered into the written contracts on their belief that the policy of
prohibition of sale of toddy to the public would be implemented and under the
expectation that they would get more profit from the sale of arrack. We may
notice that there is also no evidence adduced to show that the sale of toddy
has any direct connection with the sale of arrack or has any influence on the
quantum of the sale of arrack. The State has clearly pleaded that the tapping
and sale of toddy has nothing to do with the sale of arrack and that arrack
drinkers do not generally take to toddy. There is no material on the basis of
which the stand adopted by the State can be found to be wrong or unsustainable.
event, except suggesting that this will happen, the plaintiffs have not adduced
any legal or acceptable evidence to establish this plea.
Thus, on facts, we find that no case has been made out for rectification of the
instrument only as regards the obligation of the plaintiffs to pay the Kist.
best, the plaintiffs may have a right to sue for damages against the State on
establishing that they had suffered losses in view of the alleged failure of
the Government to impose its policy of prohibition and sale of toddy to the
public and by establishing the quantum of such losses. Even if any loss has
been suffered, it does not grant the plaintiffs a right to have the instrument
rectified and that too, to the effect that their obligation to pay the Kist
should be based on their bids for the previous Excise Year 1989-90. There is no
case for the plaintiffs that the State Government at any time held out to them
that in case of its failure to enforce the ban on sale of toddy to the public,
the plaintiffs need pay only the Kist amounts of the year 1989-90. There was no
such agreement or contract during any negotiation preceding the bids by the
plaintiffs. In fact, it was a case of open auction on set down terms in the
light of a statute and the plaintiffs entered their bids.
was therefore no occasion for mutual mistake as to terms or fraud in execution
of the contracts. Thus, it appears to us that a grant of relief in the manner
done by the courts below purporting to rectify a part of the contracts is
totally unwarranted and clearly unsustainable in law. That part of the decree
has necessarily to be set aside.
What is left is the case of promissory estoppel.
promise is said to be the budgetary speech of the Minister concerned that he
proposes to ban the sale of toddy to the public in the District of Dakshina
Kannada. Firstly, the Division Bench in the Writ Petitions filed by some of the
plaintiffs, while dismissing them, clearly held that no question of promissory estoppel
would arise in these cases. The Petition for Special Leave to Appeal
challenging the said decision was dismissed by this Court reserving liberty in
the plaintiffs to approach the Civil Court. The question arises, to approach
the Civil Court for what? According to us, the approach to the Civil Court is
for the purpose of suing for damages on establishing that they had suffered
loss because of the expectations raised by the speech in the Assembly and the
failure of the State to enforce the prohibition it had envisaged as a policy.
The right reserved for approaching the Civil Court even while dismissing the
Petition for Special Leave to Appeal, does not clothe the plaintiffs with a
right to approach the Civil Court with a plea of promissory estoppel already negatived
in the writ petitions filed by some of the plaintiffs. Nor does it enable the
court to go behind what has been held by the High Court in the Division Bench
and proceed to accept a case of promissory estoppel.
apart, this Court in Express Newspapers S.C.C. 133] has held that the principle
of estoppel does not operate at the level of Government policy. In Union (9) SC
51], this Court had categorically held that a speech made in Parliament by a
Minister cannot be treated as a promise or representation made to a person
attracting the principle of promissory estoppel. In M/s & Ors. [(1992) 2
S.C.C. 683], this Court held that a Finance Ministers statement referring
to a proposal to continue the grant of exemption from payment of sales tax for
a period of ten years is merely a budget proposal which could not give rise to
any right to the parties and it did not amount to a decision, order or
notification extending the period of exemption which was required to found a
plea based on promissory estoppel. The manner in which the courts below
including the High Court got over the principle enunciated by these decisions
leaves much to be desired.
Thus, it would seen that the plaintiffs are not entitled to found any case of
promissory estoppel merely on the basis of the speech made by the Minister in
the Assembly of a proposal to ban sale of toddy in the State.
Moreover, it is to be seen that it is not the case of the plaintiffs that the
sale of toddy to the public was permitted. Their case is that a subsequent
notification was issued proposing to have the purchase of toddy through
Cooperatives and for being supplied to fenny units. It is not seen that the
Government had resiled even from its policy objective. But the case of the
plaintiffs appears to be that the Government could not fully implement the
policy it had evolved of preventing sale of toddy by toddy tappers to the
according to us, at best would only give a right to the plaintiffs to claim
damages from the State on establishing that they had suffered damages by virtue
of such failure of the Government.
Here, we must remember that the plaintiffs are all experienced Excise
contractors who are bidding for the right to vend liquor at open auctions. It
is notorious that these auctions are highly competitive and every attempt is
made by an existing contractor to preserve his bastion. It is also notorious
that the prices fetched in these auctions show a tendency to go up because of
competition. The State has pointed out that the increase in the figures for
various other centres even exceeded by 300% the amounts for the year 1989-90.
is nothing to show that the bids by the plaintiffs were not based on their
calculations and with a view to ward off competition to preserve their right to
vend arrack in their respective areas.
What the plaintiffs have gone for was a commercial venture with attendant
risks. If they felt that the risk could not be taken, it was for him to
repudiate the contract as a whole. In fact, when the Government apparently
tried to terminate the contracts because of the failure of the plaintiffs to
remit the Kist amounts as agreed to for the months of July and August 1990, the
plaintiffs obtained interim orders from the High Court interdicting such
termination and went ahead with vending arrack in exercise of their right under
the agreements. Having insisted on performance of the contract and having
exercised their rights under it, the plaintiffs are not entitled to repudiate
their obligations under the contract. No case of estoppel, conventional or
promissory, would arise here.
The finding on estoppel is based merely on the promise made or the proposal
made by the Minister concerned in his speech in the Assembly and the failure of
the Government to implement the policy of prohibition of sale of toddy in
public. We are of the view that the plea raised by the plaintiffs does not lay
an adequate foundation for accepting the plea of estoppel justifying their
being relieved of the obligation undertaken by them based on their bids and as
contained in the written contracts entered into by them with the Government.
There is no case that the contract contains any term which is a mistake or that
it contains any term that casts an obligation on the State which obligation the
State had failed to fulfil.
this situation, we do not think that it is necessary to discuss all those
decisions on promissory estoppel, its ambit and whether in a case like the ones
before us, detriment need not be shown before the plea could be upheld to
relieve one of the parties alone of its obligation. We are satisfied that no
foundation for sustaining the prayers made in these cases has been laid and no
case in support established. Hence, we refrain from further discussing the
question of promissory estoppel and its availability in these cases.
it to say that the finding that the appellants are estopped from claiming the
Kist amounts in terms of the contracts between the parties is found to be
For the reasons stated above, we allow the appeals, set aside the judgments and
decrees of the courts below and dismiss the suits filed with costs throughout.
The costs payable in each of these appeals by the respondents to the appellants
is quantified at Rs. 50,000/-.