State of Haryana & Ors Vs. Lal
Chand & Ors [1984] INSC 98 (2 May 1984)
SEN, A.P. (J) SEN, A.P. (J) DESAI, D.A.
ERADI, V. BALAKRISHNA (J)
CITATION: 1984 AIR 1326 1984 SCR (3) 715 1984
SCC (3) 634 1984 SCALE (1)690
ACT:
Constitution of India 1950, Article 299(1)
Condition to be satisfied before a binding contract between the Union or State
comes into existence-What are. Contracts executed in exercise of statutory
power and contracts which are statutory in nature-Existence of distinction
indicated- Article 299(1) inapplicable when Union or State enters into a
contract which is statutory in nature.
Excise Contract-A statutory
contract-Requirements of Article 299(1) cannot be invoked.
Punjab Excise Act 1914, Section 60 &
Punjab Liquor Licence Rules 1956, Rules 32(2), 36(22), 36(23), and 36(23A).
Excise Contract-Reauction-Recovery of
difference between bid amount in original auction and that fetched in
reauction-State whether entitled to recover the differential amount from the
original licencee.
Indian Contract Act 1872, Commercial
Contract- Performance of-Definite time fixed and mode of payment specified-Time
essence of such contract-Excise contract-Time whether essence of contract.
HEADNOTE:
The Deputy Excise & Taxation Commissioner
held an auction for granting the right to sell country-Liquor for liquor vend.
The respondents offered the highest bid which was provisionally accepted and
they were declared the highest bidder under Rule 36(2) of the Punjab Liquor
Licence Rules 1956. Subsequently, the Excise and Taxation Commissioner accepted
the bid as required Rule 36(22) The respondents however failed to deposit the
security amount as required under Rule 36(22A) and thereby contravened conditions
No 15(1) of the conditions of auction and Rule 36(23). The Deputy Excise &
Taxation Commissioner therefore served the respondents with a notice to
show-cause why the licence for country liquor vend, should not be re-auction
under Rule 36(23A) and the deficiency in price and all expenses of such
re-auction recovered from them under Section 60 of the Punjab Excise Act, 1914.
The respondents represented that before the auction it was announced that no
wine shop would be opened within a radius of three miles of the liquor vend but
across the border the State Government of Punjab had sanctioned the
establishment of 716 a liquor shop which was hardly 2-1/2 miles from the border
and this would mean that there would be two country liquor shops one in the State
of Haryana and the other in the State of Punjab and this was in breach of
condition No. 13(iii) read with Rule 37(88) of the Rules. The Deputy Excise and
Taxation Commissioner rejected the representation and directed the re-sale of
the licence for retail vend of the country-liquor shop under Rule 36(23). The
shop was re- auctioned. At the time of re-auction there were 52 bidders and the
shop was re-sold at the highest bid of Rs. 6.65 lakhs. The respondents were
served with a notice of demand of Rs. 3.46 lakhs representing the loss on
re-sale.
In their writ petitions to the High Court the
respondents assailed the notice of demand. Following the decision in Kanhiya
Lal Bhatia & Co. v. State of Haryana & Ors. the High Court held that
the State had no authority to demand the amounts for failure of which the vends
were put to re-auction on the ground that the licence fee levied was in the
nature of excise duty.
In the Appeals to this Court, on the question
whether the State Government was entitled to realise the difference which the
respondents had agreed to pay under the terms of auction of a liquor vend and
the amount realized on reauction of the vend, as also the defaulted instalments
of the licence fee payable in respect of a liquor vend:
Allowing the appeals,
HELD: 1. (i) There is a distinction between
contracts which are executed in exercise of the executive powers and contracts
which are statutory in nature. Under Art.299 (1), three conditions have to be
satisfied before a binding contract by the Union or the State in exercise of
the executive power comes into existence: (1) The contract must be expressed to
be made by the President or the Governor, as the case may be. (2) It must be
executed in writing. And (3) the execution thereof should be by such person and
in such manner as the President or the Governor may direct or authorize. There
can be doubt that a contract which has to be executed in accordance with Art.
299(1) is nullified and becomes void if the contract is not executed in
conformity with the provisions of Art. 299(1) and there is no question of
estoppel or ratification in such case. Nor can there by any implied contract
between the Government and another person. [726C-E] Smt. Nanhibai v. The Excise
Commissioner, M.P. & Ors., AIR (1963) MP 352, referred to.
Ram Ratan Gupta v. State of M.P., AIR (1974)
MP 101.
Ajodhya Prasad Shaw & Anr. v. State of
Orissa & Ors., AIR (1971) Ori. 158, M/S Shree Krishna Gyanoday Sugar Ltd.
& Anr. v. State of Bihar & Anr., AIR (1975) Pat. 123, approved.
(ii) Art. 299(1) applies to a contract made
in exercise of the executive power of the Union or the State. but not to a
contract made in exercise of statutory power. Art. 299(1) has no application to
a case where a particular statutory authority as distinguished from the Union
or the States enters into a contract which is statutory in nature. Such a
contract. even though it is for 717 securing the interests of the Union or the
States. is not contract which has been entered into by or on behalf of the
Union or the State in exercise of its executive powers.
[726F-G] K.P. Chowdhary v. State of M.P.
[1966] 3 SCR 919, Mulamchand v. state of M.P. [1968] 3 SCR 214, State of M.P. v.
Rattan Lal, [1967] MPLJ 104, State of M.P., v. Firm Gobardhan Dass Kailash
Nath, AIR [1973] SC 1160, referred to.
(iii) In an excise contract, the Collector
acting as Deputy Excise & Taxation Commissioner conducting the auction
under Rule 36(22) and the Excise Commissioner exercising the functions of the
Financial Commissioner accepting the bid under Rule 36(22A) although they act
for and on behalf of the State Government for raising public revenue, have the
requisite authority to do so under the Act and the rules framed there under and
therefore such a contract which comes into being acceptance of the bid, is a
statutory contract falling outside the purview of Article 299(1) of the
Constitution. In such a contract the requirements of Article 299(1) cannot be
invoked. [727B-E] A. Damodaran & Anr. v. State of Kerala & Ors. [1976]
3 SCR 780, referred to, In the instant case, there was unconditional acceptance
of the highest bid of the respondents by the Deputy Excise & Taxation
Commissioner at the time of the auction on March 11, 1969, and also by the
Excise & Taxation Commissioner on March 21, 1969 as required under Rule
36(22A). The respondents could not unilaterally by their letter dated April 12,
1969 rescind the contract on the pretext that the State Government of Punjab
had opened a new liquor shop across the State border. Even though this may have
been in breach of the inter-state agreement between the State Governments of
Punjab and Haryana, the opening of such a liquor vend by the State Government
of Punjab could not justify the respondents in not making the security deposit.
This would not amount to a breach of the
conditions on the part of the State Government of Haryana or furnish a ground
absolving the respondents of their liability to pay the shortfall. [730E-G ;
731A-B]
2. Persons who offer their bids at an auction
to vend country liquor with full knowledge of the terms and conditions
attaching thereto, cannot be permitted to wriggle out of the contractual
obligations arising out of the acceptance of their bids by a petition under
Article 226 of Constitution. [731G] Har Shanker & Ors. v. The Deputy Excise
& Taxation Commissioner & Ors. (1975) 3 SCR 255, State of Haryana &
Ors v. Jage Ram & Ors. (1980) 3 SCR 746,. State of Punjab v. M/s Dial Chand
Gian Chand & Co. [1983] 2 SCC 303: referred to
3. (i) In a commercial contract for the
performance of which a definite time has been fixed and the contract specifies
the mode of payment. i.e. specifies the dates on which the instalments of the
licence fee are to be paid.
time is of the essence of the contract.
[732H] 718 (ii) Rule 36(23)(1) of the Rules specifically makes time of the
essence. It therefore follows that payment of the instalments on the due dates
was a condition pre- requisite to the performance of the contract. [733A] In
the instant case, the failure of the respondents to make payments relieved the
State Government of their obligations. The Excise & Taxation Commissioner
would have been justified if he had cancelled the licence under Rule 36(23) and
put the liquor vend to reauction for the remaining period of the financial year.
Instead of taking this drastic step of cancellation of the contract, the Deputy
Excise & Taxation Commissioner served the respondents with the impugned
notice of demand for payment of the first fortnightly instalment. The
respondents were bound to pay the defaulted instalment on the due date.
[733B-C]
4. The decision of the High Court in
Kanhiyalal Bhatia
Court in State of Haryana v. Jage Ram &
Ors, [1983] 4 SCC 556. [720G] & CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 154 & 155(N) of 1971.
From the Judgment and Order dated the 11th
November, 1969 Civil of the Punjab & Haryana High Court in writ Nos.
1207 and 1607 of 1969 respectively.
Harbans Singh, I.S. Gujral, C.V. Subbarao and
R.N.
Poddar for the Appellants is both the
appeals.
G.K. Arora for the respondents in C.A.
154/71.
T.S. Munjral and Mrs. Urmila Kapoor for the
Respondent in CA 155/1971.
The Judgment of the Court was delivered by
SEN, J. These appeals on certificate are directed against the Judgment and
orders of the Punjab High Court dated November 19,1969 allowing the writ
petitions filed by the respondents and quashing the impugned notices of demand
for recovery of the difference between the amount which they had agreed to pay
under the terms of auction of a liquor vend and the amount realized on
re-auction of the vend as also the defaulted instalments of the licence fee
payable in respect of a liquor vend issued under s. 60 of the Punjab Excise Act
1914 ('Act' for short).
Put very shortly, the essential facts are
these. On March 11, 1969, the Deputy Excise & Taxation Commissioner, Hissar
held an 719 auction for grating the right to sell country liquor for Mandi
Dabwali for the year 1969-70 at the Collectorate. At the commencement of the
auction, the Deputy Excise & Taxation Commissioner had read out the auction
announcements and conditions of auction as required under r. 36(4) of the
Punjab Liquor Licence Rules, 1956 ('Rules' for short). The respondents Messrs
Lal Chand Bal Raj etc. offered the highest bill of Rs. 10,11,000 and their bid
was provisionally accepted by the Deputy Excise & Taxation Commissioner and
they were declared to be the highest bidder as required under r. 36(22) of the
Rules. Subsequently, the bid was accepted by the Excise & Taxation
Commissioner exercising the powers of the Financial Commissioner on March 21,
1969 as required under r. 36(22) of the Rules. The respondents however failed
to deposit Rs. 50,550 as security amount as required under r. 36(22A) and
thereby contravened condition No. 15(i) of the conditions of auction and r.
36(23) of the Rules. They were accordingly
served with a notice dated April 9, 1969 by the Deputy Excise & Taxation
Commissioner requiring them to show cause why the licence for country liquor
vend, Mandi Dabwali should not be put to re-auction under r. 36(23A) of the
Rules and the deficiency in price and all expenses of such re-auction recovered
from them in the manner laid down in s. 60 of the Punjab Excise Act, 1914. in
response to the same, the respondents by their letter dated April 12,
1969-tried to wriggle out of their contractual obligations by saying that
before the auction it was announced that no wine shop shall be opened within a
radius of three miles of liquor vend, Mandi Dabwali, but across the border the
State Government of Punjab had sanctioned the establishment of a Iiquor shop at
village Killianwali which was hardly 2-1/2 miles from the State border and this
would mean that there would be two country liquor shops one at Mandi Dabwali in
the State of Haryana and the other at village Killianwali in the State of
Punjab and this was in breach of condition No. 13(iii) read with r.
37(8B) of the Rules, as applicable to the
State of Haryana.
Upon this basis, the respondents represented
that before requiring them to deposit the security amount, they should be given
an assurance that no other liquor shop would be opened.
Although in the show-cause notice, the
respondents were intimated that in case they desired to be heard in person,
they should appear before the Deputy Excise & Taxation Commissioner at
Chandigrah on April 14, 1969, but none of them turned up on 720 that date. On
the same day, the Deputy Excise & Taxation Commissioner rejected the
representation of the respondents and directed re-sale of the licence for retail
vend of the country liquor shop at Mandi Dabwali for the year 1969-70 under r.
36(23) of the Rules. The respondents have purposely kept back the reply that
they received from the Deputy Excise & Taxation commissioner conveying the
rejection of their representation which intimated to them that the licence for
retail vend of country liquor shop at Mandi Dabwali would be re-auctioned on
April 23, 1969 at the Collectorate, Hissar. By his letter dated April 15, 1969
addressed to all the Excise & Taxation Officers in the State, the Deputy
Excise & Taxation commissioner forwarded the notice of re-auction asking
them to give wide publicity to the notice alongwith the announcements to be
made at the time of re-auction. Copies of the circular letter and the notice of
re-auction were sent not only to the commissioner, Ambala and all the Deputy
Commissioners in the State but also to the Chief Secretaries and the Excise
Commissioners of different States and they were also requested to give wide
publicity in their States regarding the re-auction of the licence. At the time
of re-auction held on April 23, 1969, there were as many as 52 bidders and
ultimately the liquor vend, Mandi Dabwali was re-sold at the highest bid of Rs.
6,65,000 for the remaining part of the financial year.
On May 8, 1969, the respondents were served
with a notice of demand of Rs. 3,46,000 representing the loss on re-sale. The
High Court by the judgement under appeal, quashed the notice of demand
following the decision in Kanhiya Lal Bhatia & Co.
v. State of Haryana & Ors.
The High Court following its decision in
Kanhiya Lall's case, supra, held that the State Government had no authority to
demand the amounts for failure of which the vends were put to re-auction on the
ground that the licence fee levied was in the nature of excise duty. Recently,
this Court has in State of Haryana v. Jage Ram & Ors. reversed the decision
of the High Court in Kanhiya Lal's case, supra, and held that the amounts which
the State Government had changed to the respondents were neither in the nature
of a tax nor in the nature of an excise duty but were in the nature of a price
which the State Government were entitled to charge as consideration for parting
with its privilege in favour of the licensees. That being so, the appeals must
succeed on this short ground alone. Normally, this would have entailed
remitting the writ petitions to the High Court for a decision on merits but
looking 721 to the fact that the demands raised were for the financial year
1969-70, we felt that no useful purpose would be served in remitting the matter
to the High Court and heard the parties on merits.
Apart from the question of validity of the
charge which is common to both the appeals, the questions raised in the two
appeals are distinct and separate and they will have to be dealt with
separately.
It is convenient at this stage to set out the
relevant statutory provisions. s.27 of the Punjab Excise Act, 1914 empowers the
State Government to 'lease' no such conditions and for such period as it may
deem fit the right of selling by whole-sale or retail any country liquor or
intoxicating drug within any specified local area. On said lease being granted
the Collector, under sub-s.(2) thereof, has to grant to the lessee a licence in
the from of a lease. S.34 of the Act provides inter alia that (1) Every licence
granted under the Act shall be subject to payment of such fees, if any, as the
Financial Commissioner may direct; and (2) The authority granting such licence
may require the licensee to give such security for the observance of the terms
of his licence, or to make such deposits by way of security as he may think
fit. s.58(1) of the Act confers power on the State Government, by notification,
to make rules for the purpose of carrying out the provisions of the Act. In
particular and without prejudice to the generality of s. 58(1), sub-s. (2)
thereof provides that the State Government may make rules with respect to
matters enumerated therein. Under cl.(f) the State Government may make rules
regulating the manner of holding auctions of liquor shops. S.59 provides that
the Financial Commissioner may, by notification, make rules by cl. (a) to
regulate the manufacture, supply, storage or sale of any intoxicant, cl.(d)
prescribing the scale of fees or the manner of fixing fees payable in respect
of any such licence and by cl.(f) prescribing the authority by, the
restrictions under, and the conditions on which, any licence may be granted.
The licences, in a large measure, owe their existence to the rules framed by
the Financial Commissioner under S.59. S.60 of the Act, insofar as material,
reads:
"60 (1) Recovery of dues-The following
moneys namely:
(a) all excise revenue;
(b) * * * * * * *.
722 (c) all amounts due to the Government by
any person on account of any contract relating to the excise revenue;
may be recovered from the person primarily
liable to pay the same, or from his surety (if any), by distress and sale of
his moveable property or by any other process for the recovery of arrears of
land revenue due from land holders or from farmers of land or their
sureties." The Punjab Liquor Licence Rules, 1956 framed by the Financial
Commissioner in exercise of his powers under s.59 of the Act make detailed
provisions regulating the manner in which a licence for the retail vend of
country liquor shall be granted by public auction, and the conditions to which
it shall be subject. R.36(22A) of the Rule provides that a person to whom a
country liquor shop has been sold shall deposit by way of security an amount
equivalent to one- twenty-fourth of the amount of licence fee determined under
r.36(16) within a period of seven days of the date of auction. R.36(23)(2)
provides that a person to whom country liquor shop is sold shall pay the amount
of licence fee so calculated in 22 equal installments, each installment being
payable on tho 10th and 26th of each month starting from the month of April. In
the event of failure to pay the instalment by the due date, his licence may be
cancelled.
R.36(23A) interdicts that any person whose
bid has been accepted at the auction fails to make the deposit of the amount of
security equivalent to one-twenty-fourth of the total licence fee as required
under r.36(22A), the Collector may resell the licence by public auction and
deficiency in licence fee and all expenses for such resale shall be recoverable
from the defaulting bidder in the manner laid down in s.60 of the Punjab Excise
Act, 1914.
In Har Shanker & Ors. v. The Deputy
Excise & Taxation Commissioner & Ors., this Court held that the writ
jurisdiction of the High Courts under Art.226 was not intended to facilitate
avoidance of obligations voluntarily incurred. It was observed that one of the
important purpose of selling the exclusive right to vend liquor in wholesale or
retail is to raise revenue. The licence fee was a price for acquiring such
privilege. One who makes a bid for the grant of such privilege with a full
knowledge of the terms and conditions attaching to the auction cannot be
permitted to wriggle 723 out of the contractual obligations arising out of the
acceptance of his bid. Chandrachud, J. (as he then was interpreting the
provisions of the Punjab Excise Act, 1914 aud of the Punjab Liquor Licence A
Rules, 1956 and speaking for the Court, said:
"The announcement of conditions
governing the auction were in the nature of an invitation to an offer to .
those who were-interested in the sale of country liquor. The bids given in the
auctions were offers made by the prospective vendors to the Government. The
Government's acceptance of those bids was the acceptance of willing offers made
to it. On such acceptance, the contract between the bidders and the Government
became concluded and a a binding agreement came into existence between them.
The powers of the Financial Commissioner to
grant liquor licence by auction and to collect licence fees through the medium
of auctions cannot by writ petitions be questioned , by those who, had their
venture succeeded, would have relied upon those very powers to found a legal
claim. Reciprocal right and obligations arising out of contract do not depend
for their enforceability upon whether a contracting party finds it prudent to
abide by the terms of the contract.
By such a test no contract could ever have a
binding force." To the same effect are the decisions of this Court in
State of Haryana & Ors. v. Jage Ram & Ors. and the State of Punjab v.
M/s Dial Chand Gian Chand & Co. laying down that persons who offer their
bids at an auction to vend country liquor with full knowledge of the terms and
conditions attaching thereto, cannot be permitted to wriggle out of the
contractual obligations arising out of and acceptance of their bids by a
petition under Art. 226 of the Constitution.
The observations in Har Shankars case, supra,
did not touch upon the question whether such a contract must be in compliance
with Art. 299 (1) of the Constitution. The question whether the process of
licensing by public auction of liquor vend involves a contract at all or is
merely the grant of a privilege and the bidding at a public auction is with a
view merely to fix the price for the purchase of the privilege, has been
engaging the 724 attention of the High Courts for quite some time. In Smt.
Nanhibai v. The Exercise Commissioner, M. P.
& Ors. the Madhya Pradesh High Court held that the State Government has the
exclusive privilege of manufacturing, selling and possessing intoxicants which
it has power to lease for consideration under s. 18 of the M.P. Excise Act,
1915 and that every auction of excise contract for sale of intoxicants is a
leasing of the Government's right of selling intoxicants. P.V. Dixit, C.J.
speaking for the Court made following observations on this point which are
pertinent : - "The principle that the State Government has exclusive right
of manufacturing, selling or possessing intoxicants or , any country liquor
intoxicating drug runs through ss. 13 to 18 of the Act.
The important condition that must be
satisfied before any licence can be granted to a person for manufacture or sale
by any country liquor intoxicating drug is that the person must first obtain
the privilege or the right of manufacturing or selling the intoxicating drug.
In every auction sale of a liquor shop at
which liquor is sold in wholesale, or retail, there is a sale of the lease of
the Government's right of selling country liquor intoxicating drug. On the
acceptance of a bid of a person at an auction sale, contract for the demise of
the Government's interest is brought into existence and this is 'followed by
the grant of a licence to the person whose bid has been accepted." These
observations of the learned Chief Justice have since been approved of by a Full
Bench of the High Court in Ram Rattan Gupta v. State of M.P. The other two
cases on the point which we must notice are: Ajodhya Prasad Shaw & Anr.
v. State of Orissa & Ors. and M/s Shree
Krishna Gyanoday Sugar Ltd. & Anr. v. State of Bihar & , Anr.
725 In Ajodhya Prasad Shaw's case, the Orissa
High Court and in M/s. Shree Krishna Gyanoday's case, the Patna High Court interpreting
like provisions of the Bihar & Orissa Excise Act, 1915 held that where the
State Government in exercise of its powers under s. 22 of that Act grants
exclusive privilege to any person on certain conditions under s. 22 (1) and a
licence is received by that person under s. 22 (2), it cannot be contended that
it amounts to a contract made in exercise of the executive power of the State
within the meaning of Art. 299 (1) of the Constitution. R.N. Misra, J. speaking
for the Court in Ajodhya Prasad Shaw's case tried to highlight the problem in
these words:
"Law is well settled and parties before
us do not seek to canvass that this constitutional requirement is not
mandatory. In the field it covers it is a prerequisite to bring into existence
a valid contract.
The question for examination in the present
case is, however, different. Is there a contract at all and in case it involves
a contract is it one purported to be made in exercise of the executive power of
the State Government is the question for examination" The learned Judge
went on to say:
"In case the result of our investigation
is that it is not a contract in exercise of the executive power of the State in
terms of the language used in the Article, it would follow that this
constitutional requirement has no application. I have already indicated that
the settlement of the shop, the collection of the fee and the grant of the
licence are all statutory acts by the prescribed authority. The intention of
the Constitution is not to extend the principles in Art. 299 (1) to cover all
possible contracts. This is why specific reference has been made to contracts
"in exercise of the executive power". It is not necessary for the
present purpose to examine whether the licensing process involves a contractual
agreement. Possibly there is an element of contract in the settlement, but
certainly it is not one entered into in the executive power of the State but is
regulated by the statute or the rules made thereunder.
In the circumstances in the case. Of a
statutory licence even based upon a contract the requirements of this Article
can not be invoked." 726 In M/s. Shree Krishna's case, supra, N.P. Singh,
J.
speaking for the Court rightly observed that
when the State Government in exercise of its powers under s. 22 of the Act
grants the exclusive privilege of manufacturing, or supplying or selling any
intoxicant like liquor to an person on certain condition, there comes into
existence a contract made in exercise of its statutory powers and such a
contract does not amount to a contract made by the State in exercise of the
executive powers.
There is a distinction between contracts
which are executed in exercise of the executive powers and contracts which are
statutory in nature. Under Art. 299(1), three conditions have to be satisfied
before a binding contract by the Union or the State in Exercise of the
executive power comes into existence :(1) The contract must be expressed to be
made by the President or the Governor, as the case may be. (2) It must be
executed in writing. And (3) The execution thereof should be by such person and
in such manner as the President or the Governor may direct or authorize. There
can be no doubt that a contract which has to be executed in accordance with
Act. 299(1) is nullified and becomes void if the contract is not executed in
conformity with provisions of Art. 299(1) and there is no question of estoppel
or ratification in such cases. Nor can there be any implied contract between
the Government and another person: K.P. Choudhary v. State of M.P., Mulamchand
v. State of M.P., State of M.P. v. Ratfan Lal and State of M.P. v. Firm
Gobardhan Dass Kailash Nath.
It is well settled that Art. 289(1) applies
to a contract made in exercise of the executive power of the Union or the
State, but not to a contract made in exercise of statutory power, Art. 299(1)
has no application to a case where a particular statutory authority as
distinguished from the Union or the States enters into a contract which is
statutory in nature. Such a contract, even though it is for securing the
interests of the Union or the States, is not a contract which has been entered
into lay or of behalf of the Union or the State in exercise of its executive
powers. In respect of forest contracts which are dealt with by this Court in
K.P. Choudhary's, Mulamchand's, Rattan Lal 's and Firm Gobardhan Dass's cases,
supra, 727 there are provisions in the Indian Forest Act,
1927 and the Forest Contract Rules framed thereunder for entering into a
formal deed between the forest contractor and the State Government to be
executed and expressed in the name of the Governor in conformity with the
requirements of Act. 299(1), whereas under the Punjab Excise Act, 1914; like
some other State Excise Acts, once the bid offered by a person at an
auction-sale is accepted by the authority competent, a completed contract comes
into existence and all that is required is the grant of a licence to the person
whose bid has been accepted. It is settled law that contracts made in exercise
of statutory powers are not covered by Art. 299(1) and once this distinction is
kept in view, it will be manifest that the principles laid down in K.P.
Chowdhary' Mulamchand's, Rattan Lal's and Firm Gobardhan Dass's cases are not
applicable to a statutory contract. In such a case, the Collector acting as the
Deputy Excise & Taxation Commissioner conducting the auction under r.
36(22) and the Excise Commissioner exercising the functions of the Financial Commissioner
accepting the bid under r. 36(22A) although they undoubtedly act for and on
behalf or the State Government for raising public revenue, they have the
requisite authority to do so under the Act and the rules framed thereunder and
therefore such a contract which comes into being on acceptance of the bid, is a
statutory contract failing outside the purview of Art. 299(1) of the
Constitution.
We are clearly of the opinion that in the
case of a Statutory contract like the one under the Excise Act, the requirements
of Art. 299(1) cannot be invoked. In A.
Damodaran & Anr. v. State of Kerala &
Ors, the Court interpreting s.28 of the Kerala Abkari Act, 1967 which was in
pari materia with s.60 of the Punjab Excise Act, 1914 held that even if no
formal deed had been executed as required under Art. 299(1), still the
liability for payment of the balance of the licence amount due could be
enforced by taking recourse to s.28 of the Act. The Kerala High Court rejected
the contention of the appellants by holding that the liability to satisfy the
dues arising out. Of a bid was enforceable under s.28 quite apart from any
contractual liability and this view was upheld by this Court on the ground that
the word 'grantee' in s.28 has a wide connotation to mean a person who had been
granted the privilege by acceptance of his bid. It was further held that the
statutory duties and liabili- 728 ties arising on acceptance of the laid at a
public auction of a liquor contract may be enforced in accordance with the
statutory provisions and that it was not condition precedent for the recovery
of an amount due under s.28 of the Act, that the amount due and recoverable
should be under a formally drawn up and executed contract. This is in
recognition of the principle that the provisions of Art.299(1) of the
Constitution are not attracted to the grant of such a privilege to vend liquor
under the Act.
In Kishori Lal Minocha's case, supra, there
was reauction of a liquor vend on the highest bidder's failure to deposit
one-sixth of the bid amount as security deposit and the question was whether
the State was entitled to recovery in a suit the deficiency on reauction. The
decision in Minocha's case is clearly distinguishable for two reasons: first,
there was nothing to show that the bid had been accepted by the Excise
Commissioner under r. 359(2) of the U.P. Excise Manual. Further, r. 357 under
which the excise authorities put the vend to reauction had not been published
in the official gazette as required by s.77 of the U.P. Excise Act, 1910 and thus
had no statutory force. No such question arises in these cases as the liability
that is sought to be enforced against the respondents by the impugned notices
of demand is a statutory liability in terms of condition 15(1) of the
conditions of auction read with r.36(23) of the Rules and the amount is
recoverable from them in the manner laid down in s.60 of the Act.
The short question that falls for
determination in these appeals is whether the State Government was entitled to
realise the difference which the respondents had agreed to pay under the terms
of auction of a liquor vend and the amount realised on reauction of the vend,
as also the defaulted instalment of the licence fee payable in respect of a
liquor vend. The first of these questions arises in Civil Appeal No.154(N) of
1971 while the second in Civil Appeal No. 155(N) of 1971. We will deal with
them in that order.
Civil Appeal No. 154 (N) of 1971 There is no
substance in the contention that the respondent were not served with a notice
under r.36(3) of the Rules. The date of reauction was fixed by the Excise &
Taxation Commissioner under r.36(2). On April 14, 1969, the Deputy Excise &
Taxation Commissioner rejected the representation made by the respondents and
directed resale of the licence for retail vend of country liquor shop, 729
Mandi Dabwali for the year 1969-70. It is accepted before us that the Deputy
Excise & Taxation Commissioner had conveyed to the respondents that their
representation had been rejected and that the Iicence for retail vend for Mandi
Dabwali shop would be reauctioned on April 23, 1969, at the Collectorate,
Hissar. The respondents have withheld the document and an adverse inference
"must necessarily be drawn against them. It is quite obvious that the
respondents were duly given notice of re-auction as under r.36(3). It is
evident from the return filed by the State Government that copies of circular
letter dated April 15, 1969 by the Deputy Excise & Taxation Commissioner
and the notice of re-auction, of even date issued by him were vent not only to
the Commissioner, Ambala but to all the Deputy Commissioners as well as to all
the Excise & Taxation officers in the State but also to the Chief
Secretaries and the Excise Commissioner of different State. From this, it is quite
apparent that wide publicity was given throughout the State of Haryana as well
as in other State regarding the date and place of re-auction as enjoined by
r.36(3) of the Rules. As already stated, there were as many as 52 bidders
present at the time of re-auction. The decision in Jage Ram's case supra is
clearly distinguishable on facts. There, the Court on a consideration of the
material on record found that there was nos substantial compliance either in
the letter or in spirit with the requirements of r.36(3) of the Rules.
Since the re-auction in that case did not
conform to the rules, the Court held that the defeating bidders could not be
held liable to make good the difference between the amount which was payable by
them and the amount which was fetched at the re-auction. The principle laid
down in Jage Ram's case, supra is clearly not attracted in the facts and
circumstances of the present case. The first contention regarding the
invalidity of reauction held on April 23, 1969 based on r.36(3) of the Rules
must therefore fail.
Equally futile is the contention that the
respondents had withdrawn their bid and therefore they could not be mulcted for
the difference between the amount which they were liable to pay and the amount
realized by re-sale of the vend. This is not a case of the type reported in
Union of India & ors. v. M/S. Bhim Sen Walati Ram which laid down the
well-settled principle that an offer can always be withdrawn before it is
finally accepted and that a conditional acceptance is not an acceptance in law.
In Bhim Sen Walati 730 Ram's case, supra, the Court held that the contract of
sale was not complete till the bid was confirmed by the Chief Commissioner and
till such confirmation the person whose bid had been provisionally accepted was
entitled to withdraw his bid and that when the bid was withdrawn before the
confirmation of the Chief Commissioner, the bidder was not liable for damages
on account of any breach of contact or for the shortfall on the re-sale: It was
observed:
"It is not disputed that the Chief
Commissioner has disapproved the bid offered by the respondent. If the Chief
Commissioner had granted sanction under 'cl.33 of Ex. D-23 the auction sale in
favour of the respondent would have been a completed transaction and he would
have been liable for any shortfall on the resale. As the essential
pre-requisites of a completed- sale are missing in this case there is no
liability imposed on the respondent for payment of the deficiency in the
price." It is urged on the strength of these observations that the
respondents were entitled to withdraw their bid by declining to make the
security deposit. The contention cannot be accepted. For onething, this was not
a case where there was mere conditional acceptance of the highest bid of the
respondents by the Deputy Excise & Taxation Commissioner at the time of the
auction on March 1, 1969, but their kid was also accepted by the Excise &
Taxation Commissioner on March 21, 1969 as required under r. 36(22A).
The respondents could not. unilaterally by
their letter dated April 12, 1969 rescind the contract on the pretext that the
State Government of Punjab hail opened 2 new Iiquor shop at village Killianwali
across the State border which was contrary to condition No. 13(iii) of the
conditions of auction read with r. 37(8B) of the Rules. Even though this may
have been in breach of the inter-State agreement between the State Governments
of Punjab and Haryana, the opening of such a liquor vend by the State
Government of Punjab at village Killianwali could not justify the respondents
in not making the security deposit of Rs. 50,550. It appears from the return
filed by the State Government that although condition No. 13(iii) had been read
out before the auction began as required under r. 36(4), there was no mention
that there was an inter-State agreement between the two State Governments and
that 731 it was a condition of sale that the State Government of Punjab would
not open a liquor vend within a radius of three miles from the State border.
Nor would this amount to a breach of the conditions on the part of the State
Government of Haryana or furnish a ground absolving the respondents of their
liability to pay the shortfall. The second contention that the respondents had
withdrawn their bid and were therefore not liable for the loss of re-auction of
liquor vend at Mandi Dabwali cannot be sustained.
In Har Shanker's case, supra, this Court held
that the writ jurisdiction of the High Courts under Art. 226 was not intended
to facilitate avoidance of obligations voluntarily incurred. It was observed
that one of the important purposes of selling the exclusive ar right to vend
liquor in wholesale or retail is to raise revenue. The licence fee was a price
for acquiring such privilege. One who makes a bid for the grant of such
privilege with full knowledge. Of the terms and conditions attaching to the
auction cannot be permitted to wriggle out of the contractual obligations
arising out of the acceptance of his bid. In dealing with the question,
Chandrachud, J. said: .
"The powers of the Financial
Commissioner to grant liquor licences by auction and to collect licence fees
through the medium of auctions cannot by writ petitions be questioned by those
who held their venture succeeded, would have relied upon those very powers to
found a legal claim. Reciprocal rights and obligations arising out of contract
do not depend for their enforceability upon whether a contracting party finds
it prudent to abide by the terms of the contract. By such a test no contract
could even have a binding force." To the same effect are the decisions of
this Court in State of Haryana & Ors. v. Jage Ram & Ors. and the State
of Punjab v. M/s Dial Chand & Gian Chand & Co. laying down that persons
who offer their bids at an auction to vend country liquor with full knowledge
of the terms and conditions attaching thereto, cannot be permitted to wriggle
out of the contractual obligations arising out of the acceptance of their bids
by a petition under Art. 226 of the Constitution.
732 Civil Appeal No. 155 (N) of 1971 At an
auction for the licence of retail vend for Butana in the Rohtak district for
the financial year 1968-69 held by the Deputy Excise & Taxation
Commissioner on March 11, 1968 at the Collectorate, Rohtak, the respondents
Messrs Ram Kishan Pritiam Singh & Co. Offered the highest bid of Rs.
1,40,000. The Deputy Excise & Taxation
Commissioner accepted their bid at the conclusion on the auction. On the same
day, the respondents deposited Rs. 5,811 equivalent to one- twentieth of the
licence fee representing the security amount and started operating the said
licence w.e.f. April 1 1968. It appears that they drew their supplies by making
applications to the a Excise & Taxation Officer, Rohtak for the issuance of
challans for deposits of still-held duty in the treasury, and after crediting
into the treasury a sum equivalent to the excise duty payable on the strength
of permits issued by him. Admittedly, the respondents worked the contract
throughout the period without making any payment of Rs. 1,40,000 towards the
licence fee which was payable in 23 fortnightly instalments. The respondents on
being served with a notice of demand for payment of Rs.
13,000 representing the first of such
fortnightly installments filed a writ petition in the High Court and the High
Court following its decision in Kanhiya Lal's case, supra, struck down the
notice of demand. It is accepted at the bar that the respondents have not paid
anything towards the licence fee of Rs. 1,40,000 due and payable by them.
Upon these facts, the Excise & Taxation
Commissioner would have been justified in cancelling the licence in terms of
r.36(23)(2) of the Rules which is in these terms :
"A person to whom a country spirit shop
is sold shall pay the annual licence fee in 23 equal instalments, each
instalment being payable on the 10th and 26th of each month starting from the
month of April. In the event of failure to pay the instalment by the due date,
his licence may be cancelled." There was a fundamental breach of an
essential condition by the respondents. In a commercial contract of this
nature, for the performance of which a definite time has been fixed and the
contract specifies the mode of payment i.e. specifies the dates on which The
installments of the licence fee are to be paid, time is of the essence 733 of
the contract. R.36(23)(1) of the Rules specifically makes time of the essence.
It therefore follows that payment to the instalments on the due dates was a
condition pre- requisite to the performance of the contract, and that the failure
of the respondents to make such payments relieved the State Government of their
obligations. The Excise & Taxation Commissioner would therefore have been
justified if he had cancelled the licence under r. 36(23) and put the liquor
vend to reauction for the remaining period of the financial year. Instead of
taking this drastic step of cancellation of contract, the Deputy Excise &
Taxation Commissioner served the respondents with the impugned notice of demand
for payment of the first fortnightly instalment of Rs. 13,000. The respondents
were bound to pay the defaulted instalment on the due date but without
complying with the notice of demand moved the High Court under Art. 226 of the
Constitution challenging the demand on the ground that the licence fee partakes
of the nature on an excise duty. As already stated, the High Court following
its decision in Kanhiya Lal's case struck down the notice of demand. The result
has been that the respondents enjoyed the privilege of retail vend of country
liquor, Butana for the entire period without payments of any licence fee. On
merits, learned counsel appearing for the respondents had nothing to urge
against the impugned notice of demand.
The result therefore is that the appeals
succeed and arc allowed with costs throughout. The judgment and, orders of the
High Court dated November 11, 1969 quashing the impugned notice of demand
served on the respondents are set aside and the writ petitions filed by the
respondents are dismissed.
N.V.K. Appeals allowed.
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