SC Overturns HC Decision: Rule 6(28) Not Automatically Applicable for License Cancellations Under Rule 6(30), Upholds Natural Justice

The SC set aside the HC's judgment, ruling that the automatic application of Rule 6(28) upon cancellation of licenses under Rule 6(30) was incorrect. The court highlighted the necessity for adherence to principles of natural justice and accurate calculation of damages. It was determined that the forfeiture of deposits under Rule 6(28) was not intended for cancellations under Rule 6(30). The appeals were allowed, and the writ petitions were granted to the extent indicated, with no order as to costs.

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Issues Involved:
1. Interpretation of the Kerala Abkari Act and the Kerala Abkari Shops (Disposal in Auction) Rules, 1974.
2. Validity of the cancellation of licenses under Rule 6(30) and its consequences.
3. Applicability of Rule 6(28) in cases where licenses were canceled under Rule 6(30).
4. Requirement of compliance with principles of natural justice.
5. Calculation of damages and forfeiture of deposits.

Issue-wise Detailed Analysis:

1. Interpretation of the Kerala Abkari Act and the Kerala Abkari Shops (Disposal in Auction) Rules, 1974:
The Supreme Court examined the provisions of the Kerala Abkari Act and the Kerala Abkari Shops (Disposal in Auction) Rules, 1974, particularly focusing on Rules 6(28) and 6(30). The court noted that the Act regulates the manufacture and sale of liquor, including toddy, and that licenses are granted under strict conditions. The auction for toddy shops was held for three years, but licenses were issued for one year only.

2. Validity of the Cancellation of Licenses under Rule 6(30) and its Consequences:
The court acknowledged that the cancellation of licenses under Rule 6(30) was valid due to the detection of "diazepam" in the toddy samples, which constituted a violation of the Act and the rules. However, the court emphasized that Rule 6(30) and Rule 6(28) operate in different fields. Rule 6(30) pertains to the cancellation of licenses due to infractions, while Rule 6(28) deals with the failure to pay kist (rent) and other dues. The court held that the consequences of Rule 6(28) do not automatically apply to cancellations under Rule 6(30).

3. Applicability of Rule 6(28) in Cases Where Licenses Were Canceled Under Rule 6(30):
The court found that the Board of Revenue's decision to apply Rule 6(28) automatically upon cancellation under Rule 6(30) was incorrect. The deletion of the forfeiture clause from Rule 6(30) indicated a clear legislative intent not to apply such consequences. The court applied the Heydon's Rule to interpret the legislative intent behind the amendment, concluding that the forfeiture of deposits under Rule 6(28) was not intended for cancellations under Rule 6(30).

4. Requirement of Compliance with Principles of Natural Justice:
The court stressed the importance of adhering to the principles of natural justice, especially in cases involving severe civil consequences like the cancellation of licenses and forfeiture of deposits. The court noted that the Commissioner of Excise had failed to provide the licensees with an opportunity to be heard, thus violating the principles of natural justice. The court also highlighted that any proceeding for forfeiture should have been initiated by the Assistant Commissioner of Excise, not the Commissioner, to ensure compliance with due process.

5. Calculation of Damages and Forfeiture of Deposits:
The court examined the calculation of damages and the forfeiture of deposits. It was found that the demand for damages was based on the assumption of a three-year contract, which was incorrect as the licenses were granted for only one year. The court emphasized that damages should be calculated based on actual losses and in accordance with the provisions of the Indian Contract Act, particularly Section 74, which limits the recovery to reasonable compensation. The court also noted that the amount of security deposited should have been considered in calculating the damages, and the State should have recouped its losses from this amount.

Conclusion:
The Supreme Court set aside the judgment of the High Court, holding that the automatic application of Rule 6(28) upon cancellation under Rule 6(30) was incorrect. The court emphasized the need for compliance with principles of natural justice and proper calculation of damages. The appeals were allowed, and the writ petitions were granted to the extent indicated, with no order as to costs.

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