Lakhanlal Vs. The State of Orissa
& Ors [1976] INSC 249 (15 October 1976)
SHINGAL, P.N.
SHINGAL, P.N.
BEG, M. HAMEEDULLAH
CITATION: 1977 AIR 722 1977 SCR (1) 811 1976
SCC (4) 660
ACT:
Bihar and Orissa Excise Act, 1915 as amended
by Amending Acts of 1970 and 1971--ss. 22 and 29--Power of State to auction
exclusive privilege to vend liquor--Nature of payment received.
HEADNOTE:
Section 22(1) of the Bihar & Orissa
Excise Act, 1915, provides that the States may grant to any person on such
conditions and for such periods as it may think fit, the exclusive privilege of
manufacturing or selling in retail count try liquor. The proviso provides that
a public notice shall be given of the intention to grant such exclusive
privilege and that a decision would be taken after considering objections.
Sub-section (2) provides that no grantee of such a privilege shall exercise it
unless or until he has received a licence in that behalf from the Collector or
the Excise Commissioner.
In the present case the Collector issued a
notice in form GL 10 relating to the auction of the right to open a liquor shop
at the site named in the notice and the payment of the licence fee therefor.
The respondent was a successful bidder at the auction. He deposited the money
under r.
103 of the Excise Rules but the Government
did not grant him the licences. In a writ petition filed by the respondent the
State Government alleged that the bids at the auction were not satisfactory and
that in the interest of revenue the State Government did not accept the bids.
The High Court held (i) that the State Government had no power to interfere
with the auction held by the Collector after it had become final and could not
direct reauction and (ii) that the realisation at the auction was not a fee but
a tax not contemplated by the Act and that the auction price for a licence was
not excise duty within the meaning of Entry 51 of List II and hence r. 103(1)
of the Rules providing for fixation of licence fee by auction was in excess of
the rule-making power of the Board. The High Court also held that what
was-purported to be given under the sale notice of the Collector was not the
grant of exclusive privilege under s. 22.
By the Bihar & Orissa Excise (Orissa
Amendment Ordinance) 1970 which later became the Act, s. 29(2) was amended. The
State Government issued an order for fresh settlement of the shops and the
Collector accordingly called for tenders.
In the respondent's writ petition the High
Court held that the State Government's order was invalid as the authorities for
fixing the procedure. under s. 29(2) as amended had not been specified and the
order left it to the uncontrolled discretion of the authority concerned to
accept or reject any tender and to determine the adequacy of the amount offered
in the tender. The State Government's order and the Collector's tender notice
were quashed and the Collector was directed to issue licence to the respondent.
The High Court accordingly held that the
respondent was entitled to the grant of the exclusive privilege under s. 22
because he was the highest bidder in the auction.
The High Court also held in a petition filed
by another respondent, that in so far as s. 29(2) provided that the sum payable
under sub-s. (1) thereof shall be determined "otherwise" than by
calling tenders or by auction it was unconstitutional; that portion of s.
29(2). should, therefore, be struck down: that s. 6 of the Amending Act, 1970
was ultra vires as there was exercise of judicial power by the legislature and,
therefore, the licence fee collected by the State was illegal; but that as the
respondent had already enjoyed the benefit of the licence and voluntarily
participated in the auction he wag not entitled to its refund.
3--1338S.C.I./76 812 Therefore the Second
Amendment Act, 1971 was passed. The vires of the amended sections 21 and 29 was
challenged in writ petitions but the High Court dismissed them.
In appeals to this Court,
HELD: (1) The provisions of the Act and the
express declarations make clear that the State Government had the power to
reject a bid. In any event no right is created in the bidder by making a bid.
The administration of the Excise Department and the collection of revenue
within the district vest in the Collector. It is not correct to say that the
notice issued by the Collector in form GL 10 was sufficient to show that the
exclusive privilege for retail sale of country liquor was not proposed to be
given to the successful bidders at the auction. The High Court erred in holding
that a condition regarding the opening of additional shops was inserted in the
Form. [821 F; 819D; 820E] (b) It has been held by this Court that the State has
the exclusive right or privilege of manufacturing and selling liquor. The State
grants such right or privilege in the shape of a licence or a lease. The State
has the power to hold, a public auction for grant of such right or privilege
and accept payment of a sum in consideration of grant of lease, that the amount
payable by the bidders as licensees was neither a fee in the technical sense
nor a tax, but was in the. nature of price of a privilege and that auctions
were only a mode or medium for ascertaining the best price obtainable thereof.
Therefore, the right granted to the bidders by public auction and the licences
issued to them was clearly an exclusive privilege within the meaning of s. 22(1
) of the Bihar Act and it was expressly provided in s. 29 that it would be
permissible for the State not to accept payment of a sum in consideration of
the grant of the exclusive privilege. [819 H; 820A-D] Nashirwar etc. v. The
State of Madhya Pradesh [1975] 2 S.C.R. 861; Hat Shankar & ors. v. The Dy.
Excise and Taxation Commissioner & ors. [1975] 3 S.C.R. 254; Thakur Prasad
Sac & ors. v. The Member, Board of Revenue & ors. [1976] 2 S.C.R. 850;
State of Orissa & ors. v. Harinarayan Jaiswal & ors.. [1972] 3 S.C.R.
784 applied.
(c) The view of High Court that after the
acceptance of the bid the Collector should have issued the licence and that he
committed an illegality in ordering reauction presupposes that a binding
obligation had come into existence in favour of the bidder by accepting a
deposit from him even though this was done on the express condition that it was
tentative and was not an acceptance of his bid. In the peculiar facts and
circumstances of the auction, the bids were nothing more than offers in
response to an invitation to make tenders and such auctions were the mode. of
ascertaining the highest offers. The basic conditions for the emergence of rights
through offers or conditions made and accepted and acted upon by paying any
specified or agreed price as consideration were wanting in this case. The
express and advertised terms of. the auction made it clear that the money
tendered was to be deemed to be deposited tentatively, pending the acceptance
of the bid. The bids were neither offers nor acceptance' by the Government.
They were only offers by the bidders.to purchase the rights. The essentials of
an agreement and mutuality of obligations were absent altogether. Since auction
is only a mode of ascertaining the highest offer, the State Government can
determine the sum payable by any other method and hence. the High Court was
wrong in striking down the expression "otherwise" from s. 29(2)(a). [820
H; 821 A-C] (d) These auctions are not ordinary auctions where a binding
agreement could be deemed to be concluded at the fall of the.hammer, creating
mutually enforceable obligations but. are a means for ascertaining the highest
offers for the exclusive privileges which the Government alone could grant for
carrying on a trade or business considered noxious under the law, and which,
because of its special character, could be regulated m any way or even
prohibited altogether by the Government. This special character of the trade or
business would appear from the power of the State Government to grant the
exclusive privilege to carry on trade m the manufacture and sale of liquor.
[821 F-G] (e) There is no justification for the argument of the.
respondents that it was not permissible for
the State Government to issue directions for reauction even when it found that
the bids at the auction were unsatisfactory. So long as the powers of the
Government to reject a bid are not used in an unreasonable or mala fide manner,
their exercise cannot be questioned [821 G] 2(a) The High Court's view that r.
103(1) was ultra.
vires was taken under the mistaken impression
that the State was collecting a tax under the garb of a fee and that the
auction price for a licence could not be treated as duty within the meaning of
Entry 51, List II of the Seventh Schedule. But what was sought to be raised was
consideration and not fee. The use of the expression "'fees" in the
rule is inaccurate but that cannot detract from the real nature of the
recovery. [822 A-B] (b) The argument of the respondent that r. 103 continued to
remain invalid even after the promulgation of the Amendment Act is not correct
because s. 5 of the Second Amendment Act has substituted a new sub-s. (2)for
the old subsection providing for auction and this sub-section stated that it
shall be deemed always to have been substituted". Section 17 has validated
all grants made by way of licences for manufacture and retail sale of country
liquor and the amounts paid or payable there for. [824 G-H; 825 C] (c) The
power to accept or reject a tender without assigning any reason cannot be said
to be arbitrary as s.
29(2) (which has been amended with
retrospective effect) itself provides that (i) it shall be exercised in the
interest of the Excise revenue, (ii) by the specified authority and (iii) under
such control as may be specified. In the instant case the 'State Government
retained the power of accepting or rejecting the tender or for calling of a
fresh tender, to itself, and such an order cannot be said to be an absolute or
naked power of the nature apprehended by the High Court. Moreover, the power to
accept or reject the highest o,r any bid was expressly reserved under the impugned
sale notification. [823 A-C] (3) Even though no authority was specified for
taking action under s. 29(1) it was the Collector who is in charge of the
Excise Administration that took action in the present case and his action was
approved by the State Government. Moreover, the State Government issued a
modified order under s. 29 nominating itself as the authority to determine the
sufficiency of the. sum payable. [822 D] (4) It has been held by this Court
that there is no fundamental right to do trade or business in intoxicants and that
in all their manifestations these rights are vested in the State and without
such vesting there can be no effective regulation of various forms of
activities in relation to intoxicants. There is no inherent right in a citizen
to sell intoxicating liquors by retail. [823 H] Krishan Kumar Narula etc. v.
The State of J & K & ors [1967] 3 S.C.R. 50; Nashirwar etc. v. The
State of M.P. [1975] 2 S.C.R. 861; Har Shankar & ors. v. The Dy. Excise
& Taxation Commissioner & ors. [1975] 3 S.C.R. 254; Coovetlee Bharucha
v. The Excise Commissioner [1954] S.C.R. 873 followed.
(5) Since the Bihar & Orissa Excise
(Second Orissa Amendment) Act, 1971 has made good the deficiency, if any, by
stating that the amending provisions in ss. 2 to 5 of the Amending Act, 1970
shall be deemed always to have been so added or inserted or substituted, the
High Court was wrong in holding that there was any exercise of judicial power
by 'the Legislature. [824 C-D]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 351-359/72.
Appeals from the Judgment and Order dated
7-5-1971 of the Orissa High Court in O.J.C. Nos. 1185 to 1190, 1223 and 1224 of
1970 and 41/71 and CiviI AppeaI Nos. 1855-1863, 2091/72 and 1802/74.
Appeals by Certificate/Appeals by Special
Leave from the Judgments and Orders dated 7-5-1971, 3-2-1971 and 28-3-1974 of
the 814 Orissa High Court in O.J.C. Nos. 1185-1190, 1223, 1224 and 1226/ 70,
850/70, 589/72 and Civil Appeals Nos. 1892-1893 of 1971, 1302, 2071 and
12351236 of 1972.
Appeals from the Judgment and Orders dated 15-5-1970,
16-41971, and 6-9-1971 of the Orissa High Court in O.J.C.
Nos. 329 and 357/70, 786/.70, 242/67, 859 and
863/70.
Vinoo Bhagat for the Appellants in CAs.
351-359/72 and RR. in CAs. 1859-1862/72.
Gobind Das and G.S. Chatterjee for the
Appellants in rest of the Appeals, except 1802/74 and RR. in CAs. 351359/72.
R.K. Garg and S.C. Agarwal for Appellants in
CA 1802/74 and B.P. Maheshwari and Suresh Sethi for Respondents in CAs. 12351236/72.
B. Parthasarthy for RR in CA. 1802/74.
The Judgment of the Court was delivered by
J.---These appeals by certificate or special leave are directed against
judgments of the Orissa High Court dated May 15, 1970, February 3, 1971, April
16, 1971, May 7, 1971, September 6, 1971 and March 28, 1974. They arise out of
several writ petitions. The facts which gave rise to the petitions changed from
time to time largely because of amendments in the law, and that was the reason
for the filing of separate writ petitions resulting in the impugned judgments
of the High Court, but we have heard them together at the instance of the
learned counsel for the parties and will dispose them off by a common judgment.
The nature of the controversy in these cases is such that it will be enough to
state the basic facts for the purpose of appreciating the arguments of counsel
for the parties.
The Collector of Mayurbhanj issued a notice
on February 3, 1970 by which he invited tenders for the grant of licences for
establishing 70 outstill shops for 1970-71.
Ajodhya Prasad Shah gave the highest bid for
a group of seven shops, in one lot, for Rs. 34,000/-per month. His bid was
accepted and his name was entered in the prescribed register, and the entry was
signed by the successful bidder and the Collector. Ajodhya Prasad accordingly
deposited Rs.
68,000/on account of two months'
"fees", in advance, as required by rule 103 of the Board's Excise
Rules, 1965. Raghunandan Saha, who was the unsuccessful bidder, felt aggrieved
and filed an appeal, but it was dismissed by the Excise Commissioner on March
16, 1970. The Board of Revenue also refused to interfere. Ajodhya Prasad
claimed that in the mean time he made arrangements for establishing his shops
and incurred an expenditure of about Rs. 1,50,000/-. He therefore approached
the authorities concerned for the issue of the licenses for running the shops
from April 1, 1970. He approached , the Superintendent of Excise for depositing
Rs. 34,000/for the month of April, but the Superintendent did not pass the
deposit challan. Ajodhya Prasad thereupon filed a writ petition (O.I.C. No. 329
of 1970) in the High Court with the allegation that the Collector 815 was not
acting according to the law as the State Government had issued instructions to
him not to. issue the licenses.
Ajodhya Prasad prayed in his petition for the
issue of directions for' the issue of licenses and quashing the State
Government's instructions to the contrary. Raghunandan Saha also filed a
petition (O.J.C. No. 357 of 1970) on April 13, 1970. The Collector issued a
notice for reauction on May 1, 1970 and Ajodhya Prasad amended his petition for
quashing the notice also.
The State Government and the other
respondents traversed the claim in Ajodhya Prasad's writ petition and pleaded,
inter alia, that the bids at the auction were not satisfactory and, in the
interest of the State revenue, the State Government had passed the orders for
not accepting Ajodhya Prasad's bids. The High Court examined the questions
whether Ajodhya Prasad was entitled to the issue of the licenses for the seven
shops and whether the State Government had the authority to direct the
withholding and reauctioning of the licenses, and held, inter alia, that the
State Government had no power to interfere with the auction held by the
Collector after it had "become final in appeal and revision", and
could not direct a reauction. The High Court examined the nature of the
realisation at the auction and held that it was a tax which was not
contemplated by section 38 of the Bihar and Orissa Excise Act, 1915, hereinafter
referred to as the Act, and that rule 103(1) of the Board's Excise Rules in
regard to the fees for the licenses was not authorised by the Act and was in
excess of the rule-making power of the Board. The High Court also held that the
"auction price for a license is not excise duty within the meaning of
Entry 51 of List II of the Seventh Schedule to the Constitution" and it
was not open to. the Collector "to follow the process of auctioning for
determining the license fee" which was really a tax in the garb of a fee.
It held that the aforesaid rule 103 was incompetent and ultra vires the Act. On
the question of grant of the "exclusive privilege" under section 22
of the Act, the High Court held that what was purported to be given under the
sale notice was not the grant of .an exclusive privilege. In taking that view
the High Court stated that notice had not been issued under section 22 (1) of
the Act and the Collector had no authority to issue such a notice In that view
of the matter, the High Court did not express any final opinion as to whether
the licence was to be granted for an exclusive privilege to manufacture and
sell 'liquor.
The High Court accordingly quashed the
direction of the State Government dated April 15, 1970 for reauctioning the license
and declared that rule 103(1) of the Board's Excise Rules was ultra vires the
Act. Appeals Nos. 1892 and 1893 of 1971 are directed against that judgment of
the High Court dated May 15, 1970, on certificates.
The State Government issued the Bihar and
Orissa Excise (Orissa Amendment) Ordinance of 1970 and the State Government
issued a fresh order dated August 19, 1970 under the provisions of the amended
section 29(2) of the Act for fresh settlement of the shops, and wrote to the
Collector of Mayurbhanj to call for tenders in accordance with that order. The
Collector called for tenders within a week.
816 Ajodhya Prasad thereupon filed another
writ petition (O.J.C. 'No. 850 of 1970) for quashing the Collector's tender
notices and for a direction to the authorities concerned to grant a license to
him on the basis of the earlier auction.
The Bihar and Orissa Excise (Orissa
Amendment) Act, 1970 was passed on October 5, 1970 and the ordinance was repealed.
That was followed by the Orissa Excise (Exclusive Privilege) Rules, 1970, which
were made under section 89 of the Act.
The respondents in Ajodhya Prasad's writ
petition No. 850 of 1970 pleaded that the amendments to the Act were valid and
that the State Government had the right to grant an exclusive privilege for the
purposes mentioned in section 22 of the Act. The money so realised was
consideration for the exclusive privilege under section 22 and was neither an
excise duty nor a tax nor a fee. It was also pleaded that the tender was in
accordance with the rules as the authority to accept the tender was the State
Government.
The High Court examined Ajodhya Prasad's writ
petition (No. 850 of 1970 in its Judgment dated February 3, 1971. It held that
the order of the State Government dated August 19, 1970 for inviting tenders
was invalid as the authorities for fixing the procedure under the amended
section 29(2)(b) had not been specified, the Government had "appropriated
for itself absolute and naked and arbitrary power' to accept any tender or
reject any tender for any reason whatsoever or without any rhyme or
reason" and the order left it to the uncontrolled discretion of the
authority concerned to determine the adequacy of the amount offered in the
tender.
As regards the claim for the issue of a license
under section 6, the High Court held that as the petitioner was the highest
bidder on February 20, 1970 and his name was entered in the bid register and
the entry was signed, the petitioner was entitled to the grant of the exclusive
privilege under section 22 by virtue of section 6(a) of the Amending Ordinance
irrespective of the validity of rule 103 (1) of the Board's Excise Rules. The
High Court accordingly held that section 6(a) of the Amending Ordinance was
valid and the grant of seven' shops to the petitioner, for the manufacture and
retail sale of country liquor was therefore validated "as the grant of an
exclusive privilege under section 22 of the Act" and he was entitled to
license under sub-section (2) of that section.. The Order of the State
Government dated August 19, 1970 and the Collector's tender notice were quashed
and the Collector was directed to issue the license for the seven shops to him.
Siba Prasad Saha who filed the writ petition
(No. 786 of 1970) in August 1970, after the first judgment of the High Court
dated May 15, 1970 for refund of the license fee and for non-payment of any fee
in the future, as he was a licensee for several liquor shops, amended it in the
light of the subsequent developments. The High Court took the view in its
judgment dated April 16, 1971 that sections 2 to 5 of the Amending Ordinance,
or the Amending Act (17 of 1970) were not made retrospective. It took note of
this Court's 817 decision in Krishna Kumar Narula etc. v. The State of Jammu
and Kashmir and others(1) that a citizen had the fundamental right to carry on
business in liquor and all that the State could do. was to impose reasonable
restriction thereon. It also held that in so far as section 29(2) of the Act
provided that the sum payable under sub-section (1) thereof shall be determined
"otherwise" than by calling tenders or by auction, it was
unconstitutional That portion ,of sub-section (2)(a) was therefore struck off.
The High Court held further that what was realised by the State was not a fee
or tax, as the primary purpose of the Act was to. restrict the manufacture and
sale of country liquor. It accordingly held as follows,--"We are,
therefore, satisfied that the provision in Section 22 of the Act for grant to
any person of the exclusive privilege of manufacture and sale of country liquor
for a sum, the method of determination of which is provided in Section 29, are
provisions which are calculated to restrict and control trade in liquor
although incidentally revenue is earned for the State thereby and that Entry in
List II of the Seventh Schedule confers power on the State Legislature to enact
such a regulatory measure and consequently the State Legislature has
legislative competence to enact Sections 22 and 29." The High Court accordingly
held that section 22 and section 29 without the expression "or
otherwise" in clause (a) of sub-section 2 were valid and constitutional.
The High Court then examined the effect of section 6 of the Amending Act of
1970, and held that as retrospective effect was not given to sections 2 to 5 of
that Act, the validity of the money realised by the State had to be judged with
reference to the unamended provisions, and held as follows,-"It,
therefore, follows that by reason of the fact that Sections 2 to 5 of the
Amending Act were not made retrospective in operation, the effect of Section 6
is that thereby the Legislature had directed the State to disregard the
decision given by this Court in Ajodhya Prasad's case (I.L.R. 1971 Curt. 51 )
that the amount realised by the auction is illegal.
This virtually amounts to judicial exercise
of power by the legislature a power which the Legislature does not possess. We,
therefore hold that Sections 2 to 5 of the Amending Act having not been made
retrospective, Section 6 is ultra vires the powers of the Legislature."
The High Court however held that although the' license fee collected by the
State was illegal, the petitioner had already enjoyed the benefit under the
license and had voluntarily participated in the auction, and was not entitled
to an order for its refund.
A similar view was taken in the judgment
dated April 16,1971 in O.J.C. No. 242 of 1967 and the judgment dated May 7,
1971 in (1) [1967] 3 S.C.R. 50.
818 O.J.C. NOS. 1185-1190, 1223, 1224 and
1226 of 1970. Those judgments have given rise to civil appeals Nos. 2071, 18551863
and 351-359 Of 1972 (cross-appeals). O.J. Cs. Nos. 859 and 863 of 1970 were
diposed of by separate judgments dated September 6, 1971 which followed the
earlier judgment dated April 16, 1971 in Siba Prasad Saha's case and that has
given rise to appeals Nos. 1235 and 1236 of 1972.
The Bihar and Orissa Excise (Orissa Second
Amendment) Act, 1971 (10 of 1971) was passed to set right the defects in the
law. Stated briefly that Act made the amendments to sections 2, 7, 29, 37' and
90 retrospective and validated the earlier acts.
A writ petition (O. J.C. No. 589 of 1972) was
filed to challenge the vires of section 22 and 29 of the Act. The main judgment
in the matter was delivered in O.J.C. No. 1036 of 1971, on January 3, 1974. In
that judgment the High Court examined the challenge to the vires of sections 22
and 29 of the Act and the claim for refund of the money already paid with
reference to the amendments to the Act. It followed the earlier decision in
Siba Prasad Saha's case of April 16, 1971 (I. L.R.1971 Cuttack 777) and
dismissed the writ petitions and that/ms led to the filing of civil appeals
Nos. 1235 and 1236 of 1972.
The last judgment was delivered on March 28,
1974 in O.J.C. No. 589 of 1972, in Siba Prasad saha's case. The petitioner
there was the grantee of the exclusive privilege for sale of country liquor:
during the year 1972-73 for some shops in Mayurbhanj district. The' petitioner
challenged the vires of sections 22 and 29(2) as amended, and prayed for the
consequential reliefs. The High Court held that the case was completely covered
by its decision dated January 3, 1974 in O.J.C. No. 1036 of 1971 and dismissed
the petition.
It will tires appear that these appeals are
inter-connected and that is why we have thought it desirable to examine them in
a common, judgment.
As has been stated, Civil Appeals Nos. 1892
and 1893 of 1971 arise out of' O.J. Cs. Nos. 392 and 357 of 1970 which have
been decided by the judgment of the High Court dated May 15, 1970. It has been
argued by Mr. Govind Das on behalf of the appellants that the High Court erred
in holding that the sale notice issued by the Collector was not for the grant
of an exclusive .privilege under subsection (1) of section 22 of the Act
because the Collector had no authority to issue a notice under that
sub-section, as the power of the' State Government in that respect had been
delegated to the Board of Revenue.
Sub-section (1) of section 22 of the Act
provides that the State Government may grant to any person, On such conditions
and for such periods as it may think fit, the exclusive privilege, inter alia,
of manufacturing or selling retail any country liquor. The proviso to the
sub-section requires that public notice shall be given of the intention 819 to
grant any exclusive privilege of that nature and that a.
decision would be taken after considering the
objections made in that respect. Once a decision is taken under ,subsection (1)
to grant the exclusive privilege within any specified area, sub-section (2)
provides that no grantee of such a privilege shall exercise the same
"unless or until he has received a license in that behalf from the
Collector or the Excise Commissioner." It has been stated at the Bar by
Mr. Govind Das, and has not been controverted that, as. had been averted in'
the memorandum of appeal, the requirement of sub-section (1) of section 22 had
already been complied with by the State Government, and that the Collector was
not concerned and did not in fact issue any public notice for purposes of
sub-section (1) of section 22. A reading of the Collector's notice, which
admittedly was in Form G.L.
10, shows that it related to the auction of
the right to open a shop at the site named in the notice and the payment of the
license fee therefor. The High Court therefore went wrong in holding that the
issue of the notice in Form G.L.
10 negatived the contention that what was
proposed to be given was the exclusive privilege to manufacture and sell
country liquor. By virtue of section 7(1), the administration of the Excise
Department and the collection of excise revenue within the district vested in
the Collector, and we are unable to think, that his notice in Form G.L. 10 was
sufficient to show that the exclusive privilege for retail sale of country
liquor, under the outstill system, was not proposed to be given to the
successful bidders at the auction.
The true nature of the proceeds of the
auction held by the Collector in such a case has been examined by this Court in
Nashirwar etc. etc. v. The Slate of Madhya Pradesh, C) Har Shankar and others
v. The Dy. Excise and Taxation Commissioner and others(2) and Thakur Prasad Sao
and others v.
The Member, Board of Revenue and others
etc.(?'). In Nashirwar's case (supra) this Court examined the constitutional
validity of the provisions in the Central Provinces Excise Act for granting
leases in respect of liquor by public auction, and of the Abkari Act of the
Kerala State placing restrictions on the manufacture and sale etc. of liquor.
After considering all the decided cases including Narula's case (supra) in
which it was held that a citizen had a fundamental right to. do business and
deal in liquor, this Court referred to its decision in State of Orissa and
others v. Harinarayan Jaiswal and others(4) in which Narula's case was
explained, and held as follows,"For these reasons we hold that the State
has the exclusive right or privilege of manufacturing and selling liquor. The
State grants such right or privilege in the shape of a licence or a lease. The
State has the power to hold a (1) [1975] 2 S.C.R. 861.
(2) [1975] 3 S.C.R. 254.
(3) [1976] 2 S.C.C. 850.
(4) [1972].3 S.C.R. 784.
820 public auction for grant of such right or
privilege and accept payment of a sum in consideration of grant of lease."
While taking this view this Court held that the State Legislature was
authorised to make a provision for public auction by reason of the power
contained in Entry 8 List II of the Seventh Schedule to the Constitution and
that there was "no fundamental right of citizens to carry on trade or to
do business in liquor." The matter again came up for consideration in Har
Shankar's case (supra) with reference to the provisions of sections 27 and 34
of the Punjab Excise Act, 1914, where the appellants gave bids at public
auctions. It was held that the amount payable by them, as licensees, was
neither a fee in the technical sense nor a tax, but was in' the nature of
"price of a privilege" and that auctions were only a mode or medium
for ascertaining the best price obtainable therefore.
Thakur Prasad's (supra)was a case directly
under the provisions of the Act. It also related to the outstill system. It was
held that "the State has the exclusive right and privilege of
manufacturing and selling liquor" and that it has the "power to hold
a public auction for the grant of such a right or privilege and to accept
payment of a sum therefore." It was accordingly held that the right
granted to the appellants by public auction and the licenses issued to them was
"clearly an exclusive privilege within the meaning of section 22(1) of the
Act" and that it has expressly been provided in section 29 that it would
be permissible for the State Government to accept payment of a sum in "consideration"
of the exclusive privilege under section 22.
There can be no doubt therefore that the High
Court erred in taking a contrary view.
The High Court has tried to support its view
by referring to the condition stated in Form G.L. 10 for the opening of
additional shops during the currency of the license, and has stated that an
exclusive privilege under section 22 "cannot comprehend exercise o[ such
power once it is granted for a specified period." This was clearly an erroneous
view because it is not disputed before us that no such condition was inserted
in the license at all. What the licensee therefore received under the license
was an exclusive privilege of manufacturing and selling liquor under the out
still system within the meaning of section 22 of the Act.
The High Court has held that after the
acceptance of the bid all that remained was to issue a license and that the
Collector committed an illegality in ordering a re-auction under the directions
of the State Government. Such a view presupposes that a binding, obligation had
come into existence in favour of the bidder by accepting a deposit from him
even though this was done on the express condition that it was tentative and
was not an acceptance of his bid.
We do not think that what the High Court held
to be an "acceptance of the bid" at the "auction", even
after the announcement of an express condition 821 attached to it that the
knocking down of the bid would not really be an acceptance of it by the
Government, could be an acceptance of the bid at all. In the peculiar facts and
circumstances of the auction, the bids were, apparently, nothing more than
offers in response to invitation to make tenders, and such auctions were the
mode of ascertaining the highest offers. The basic conditions for the emergence
of rights through offers or conditions made and accepted, and acted upon, by
paying any specified or agreed price as consideration, were thus wanting in
this case. In fact the express and advertised terms of the auction made it
clear that the money tendered was to be deemed to be deposited tentatively,
pending the acceptance of the bid. So what we have before us are neither offers
nor acceptance by the Government. There were only offers by the bidders to purchase
the rights, subject expressly to their acceptance or rejection by the State
Government. The essentials of any agreement and the mutuality of obligations
were thus absent altogether.
Moreover it was not an ordinary auction where
binding agreement could be deemed to be concluded at the fall of the hammer,
creating mutually enforceable obligations. Those were only so called auctions,
adopted as means for ascertaining the highest offers for the exclusive
privileges which the Government alone could grant for carrying on a trade or
business. considered noxious, under the law and which, because of its special
character, could be regulated in any way, or even prohibited altogether, by the
Government. This special character of the trade or business would appear from
the power of the State Government to grant the exclusive privilege to. carry on
trade in the manufacture and sale of liquor. It will be recalled that section
22(1) provides that the State Government "may grant to any person, on such
conditions and for such periods as it may think fit, the exclusive
privilege" in question: Sub-section (2) of section 22 enacts that a
grantee of such a privilege shah not exercise it "unless or until he has
received a license in that behalf from the Collector or the Excise Commissioner."
The powers of the Government to reject a bid were thus reserved both under the
provisions of law and by the express declarations made before the auction. At
any rate we do not find any basis for the creation of a right merely by making a
bid. The extent of the powers of the government in such matters has been
indicated by this Court in State of Orissa and others vs..Harinarayan Jaiswal
and others (supra). So long as these powers are not used in an unreasonable or
mala fide manner, their exercise cannot be questioned. In the cases before us,
it could not be said that either the Government or any of its officers abused
the power by acting either unreasonably or in a mala fide manner, and we find
no justification for the argument that it was not permissible for the State
Government to issue.the directions for reauction even when it found that the
bids at the auction were unsatisfactory.
The High Court has taken the view that rule
103(1) of the Board's Excise Rules regarding the manner of fixation and
realisation 822 of the consideration for the grant of a license for the
exclusive privilege of retail vend of country spirit was "incompetent and
ultra vires the act." The High Court took that view under the mistaken
impression that the State was not entitled to collect a tax "under the
garb of a fee" and the "auction price for a license is not duty
within the meaning of Entry 51 of List 11 of the Seventh Schedule to the
Constitution." But, as has been shown, what was sought to be raised was consideration
and not "fee". The use of the expression "fees" in the rule
is therefore inaccurate, but that cannot detract from the real nature of the
recovery. Mr. S.C.. Agarwal has challenged the validity of rule 103 on another
ground, and we shall deal with it when we come to the judgment of the High
Court dated April 16, 1971.
The next judgment of the High Court is that
dated February 3, 1971, in O.J.C. No. 850 of 1970, which has given rise to
civil appeal No. 209/of 1972 by the State of Orissa.
We have already stated the findings of the
High Court in regard to it.
It has been argued by Mr. Govind Das that
even if the State Government failed to specify the authority which was to
determine the mode of determining the sum payable under sub-section (1) of
section 29, that could not be said to matter because it was the Collector, who
was in-charge of the administration of the Excise Department and Collection of
the excise-revenue under section 7 of the Act, who took the action to issue the
auction notice for the grant of the license for the retail sale of country
liquor. Moreover, the State Government did not object to his authority to do
so. and, on the other hand, directed him to make a reauction merely on the
ground of the insufficiency of the bids. The Collector called for fresh.
tenders. It was not in dispute before the High Court that the State Government
issued a special order under section 29 by which it nominated itself to be the
authority to determine the sufficiency of the sum payable under section 29(1)
of the Act. There is nothing in sub-section (2)(b) to show that that was not
permissible.
The other question in this respect is whether
the following direction in the State Government's order dated August 19, 1970
was valid, --"It shall be at the discretion of the State Government to
accept or reject any tender without assigning any reason therefore to order for
calling of fresh tender or otherwise as the case may be." It will be
recalled that the High Court has taken the view that the order dated August 19,
1970 and the tender notice issued in pursuance thereof were bad in law and were
liable to be quashed. The High Court has taken the view that section 29(2)(a)
did not authorise the exercise of "such absolute and naked power in determining
the sum of money" as was sought to be done by the order dated August 19,
1970.
It appears to us however that the power to
accept or reject a tender without assigning any reason cannot be said to be 823
arbitrary as section 29(2) (which has been amended with retrospective effect)
itself provides. that (i) it shall be exercised in the interest of the Excise
revenue", (ii) by the specified authority, and (iii) under such control as
may be specified. As has been stated, the State Government retained the power
of accepting or rejecting the tender, or for calling of a fresh tender, to
itself, and such an order cannot be said to be an "absolute" or
"naked" power of the nature apprehended by the High Court. Reference
in this connection may be made to the decision in Jaiswal's case (supra)
mentioned above. Moreover it is not disputed before us that the power to accept
or not to accept the highest or any bid was expressly reserved under the
impugned sale notification. Sub-section (2) of section 79 of the Act was also
amended by the Bihar and Orissa Excise (Second Orissa Amendment) Act 1971 (Act
10 of 1971) with full retrospective effect. Section 17 of the Act validated
both the licenses granted and amounts paid or payable therefor, and its
validity has not been challenged before us.
It will be remembered that Siba Prasad Saha
had filed O.J.C. No. 786 of 1970 after the first judgment of the High Court
dated May 15,1970, for refund of the license fee and for non-payment of the fee
in future. The State of Orissa feels aggrieved against the decision of the High
Court in that case dated April 16,1971 that a citizen has a fundamental right
to deal in liquor. In taking that view the High Court relied on this Court's
decision in Narula's case (supra). The decision in Narula's case was considered
and explained by this Court in Nashirwar's care (supra) and it has been held as
follows,-"It is not correct to read in the decision in Narula's case that
there is a fundamental right to do business in liquor. The decision is that
dealing in liquor is business and a citizen has a right to do business in that
commodity and the State can impose reasonable restrictions on the right in
public interest. If the State can prohibit bussiness in liquor as is held in
State of Bombay and Another v.F.N. Balsara (1951 S.C.R.682) this establishes
that the State has exclusive right of privilege of manufacture, possession,
sales of intoxicating liquor and therefore the Slate grants such a right of
privilege to persons in the shape of license or lease." In reaching this
conclusion this Court took note of the decision in Bharucha's case(1) that
there was no inherent right in a citizen to sell intoxicating liquors by
retail, and that it is not a privilege of a citizen of the State, and observed that
as Bharucha's case was a Constitution Bench decision like Narula's case, the
latter could not be said to have overruled the former. As has been stated, the
matter again came up for consideration in Har Shankar's case (supra) with
specific reference to Narula's case, and it was reiterated that "there is
no fundamental right to do trade or business in intoxicants" and that
"in all their manifestations, these rights are vested in the State and
indeed without such vesting there can be no effective regulation of 824 various
forms of activities in relation to intoxicants." The contrary view of the
High Court in impugned judgment is incorrect and must be set aside.
The other grievance of the appellant State is
that the High Court struck down the expression "or otherwise" from
clause (a) of subsection (2) of 29 of the Act as unconstitutional. We have
given our reasons for the contrary view, and the High Court therefore went
wrong in striking down the expression "or otherwise".
The High Court has also held that as sections
2 to 5 of the Amending Act of 1970 were not made retrospective in operation,
the effect of section 6 amounted to a direction by the Legislature to the State
to disregard the decision in Ajodhya Prasad's case that the amount realised by
auction was illegal and that section 6 was therefore ultra vires the powers of
the Legislature. It will be sufficient to say in this connection that the Bihar
and Orissa Excise (Second Orissa Amendment) Act, 1971 (Act 10 of 1971) has made
good the deficiency, if any, by stating that the amending provisions shall be
deemed always to have been so added or inserted or substituted. In this respect
also, the impugned judgment of the High Court must be rectified.
Mr. S.C. Agarwal has argued that the amount
realised by the State for grant of the exclusive privilege under sections 22
and 29 was nothing but a tax and no such tax was permissible under Entries 45
to 63 of List II of the Seventh Schedule to the Constitution and that it was
not excise duty within the meaning of Entry 51 or a fee under Entry 66. It has
also been argued that Entry 8 embodying the Police powers of the State could
not be invoked to sustain such an imposition. Mr. Bhagat has also argued that
the collection was in the nature of a tax and section 29 was therefore ultra
vires the Constitution. Mr. Bhagat has also urged that the State was not the
owner of the exclusive privilege to manufacture or sell liquor and that the Act
did not empower it to part with that right on payment. We have given our
reasons already for taking a contrary view, with reference to. the decisions in
Nashirwar's case and Har Shankar's case. The State has the exclusive right or
privilege to manufacture, store and sell liquor and to grant that right to its
license holders on payment of consideration, with such conditions and
restrictions for its regulation as may be necessary in the public interest. The
argument to the contrary is futile and is rejected.
It has been argued by Mr. Agarwal that
although the Amending Act of 1970 (Act 17 of 1970) was enacted for the purpose
of getting over the High Court's declaration in O.J.C.No. 357 of 1970 that rule
103 of the Board's Excise Rules, 1965, in so far as it directs that fees for
license for the retail vend of excisable articles shall be fixed by auction,
was ultra vires the Act, rule 103 continued to remain invalid even after the
promulgation of that Act because. such a rule could not be made under section
90(7) of' the Act. Counsel has argued that as the rule was invalid, it was not
permissible to hold the impugned public auction because that was not
permissible under any other provision of the Act. This argument is also futile
because section 5 of the Bihar and Orissa Excise (Second Orissa Amendment) 825
Act, 1971 (Act 10 of 1971) has substituted a new sub-section (2) for the old
sub-section as follows, providing for auction, and it has been stated that it
shall be "deemed always to have been substituted"."(2) The sum
payable under sub-section (1) shall be determined as follows,(a) by auction or
by calling tenders or otherwise as the State Government may, in the interest of
excise revenue by general or special order direct." Then follow other
clauses with which we are not concerned.
Moreover section 17 of that Act has validated
all grants made by way of licenses for manufacture and retail sale of country
liquor in respect of any place on or after the 7th day of August, 1965, on
which date the Board's Excise Rules (including rule 103) admittedly came into
force. In this view of the matter, it is not necessary for us to examine the
other arguments of Mr. Agarwal Which have been adopted by Mr. Bhagat regarding
the invalidity of rule 103.
It is not necessary to deal separately with
the judgment of the High Court dated April 16, 1971 in O.J.C. No. 242 of 1967,
which has given rise to civil appeal No. 2071 of 1972, or with its decision
dated May 7, 1971 in O.J.Cs. No. 11851190, 1223, .1224 and 1226 of 1970 (which
has given rise to civil appeals Nos. 1855-1863 of 1972 and cross-appeals Nos.
351-359 of 1972) because they are based on the aforesaid decision dated April
16, 1971 in O.J.C. No. 786 of 1970. So also, it is not necessary to deal
separately with the decision dated September 6,1971 in O.J.C.No. 859 of 1970
and 863 of 1970 which have given rise to civil appeals Nos.
1235 and 1236 of 1972, for the same reason.
This takes us to the judgment of the High
Court dated March 28, 1974 in O.J.C.No.589 of 1972 which has given rise to
civil appeal No. 1802 of 1974. That decision is based on the decision dated
January 3,1974 in O.J.C.No. 1036 of 1971.
The petitioner in that case was a licensee
for the retail sale of country liquor in Mayurbhanj district. He challenged the
vires of sections 22 and 29 of the Act and claimed that the monthly
consideration for the license was not due from him and that he was entitled to
a refund of the money already paid by him. The High Court followed that
decision and dismissed the writ petition. In doing so it relied on its decision
dated April 16, 1971 in Siba Prasad Saha v. State of Orissa and other (I.L.R.
1971 Cuttack 777) and the decision of this Court in Jaiswal's case (supra) and
dismissed the petition. We have already dealt with the points which arise for
consideration in this case while examining the earlier cases and we see nothing
wrong with the impugned judgment of the High Court by which the writ petition
has been dismissed.
In the result, we order as follows,Civil
Appeals Nos. 1892 and 1893 of 1971 are allowed, the impugned judgment of the
High Court dated May 15,1970 is set aside and writ petitions Nos. O.J.C. 329
and 357 of 1970 are dismissed.
826 Civil Appeal No. 2091 is allowed, the
impugned judgment of the High Court dated February 3, 1971 is set aside and the
writ petition No. 850 of 1970 is dismissed.
Civil Appeal No. 1302 of 1972 is allowed, the
'impugned judgment of the High Court dated April 16, 1971 is set aside and the
writ petition No. 786 of 1970 is dismissed.
Civil Appeal No. 2071 of 1972 is allowed, the
impugned judgment of the High Court dated April 16, 1971 is set aside and the writ petition No. O.J.C. 242 of 1967 is dismissed.
Civil Appeals Nos. 1855-1863 of 1972 are
allowed, the impugned judgments of the High Court dated May 7, 1971 are set
aside and O.J. Cs. Nos. 1185-1190, 1223, 1224 and 1226 of 1970 are dismissed.
Cross-appeals Nos. 351-359 of 1972 are dismissed.
Civil Appeals Nos. 1235 and 1236 of 1972 are
allowed, the impugned judgments of the High Court dated September 6, 1971 are
set aside and O.J. Cs. Nos. 859 and 863 of 1970 are dismissed.
Civil Appeal No. 1802 of 1974 fails and is
dismissed.
In the circumstances of these cases there
will be no order as to he costs.
P.B.R.
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