AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2009 (3) TMI 1058
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....in Auction) Rules, 1974 (for short, "the Rules") is the question involved in these appeals. They arise out of a common judgment and order dated 17.10.2005 passed by a Division Bench of the High Court of Judicature at Kerala at Ernakulam in O.P. No. 5742 of 1998 (H), W.A. No. 1822 of 1998 (C), O.P. No. 5910 of 1998 (C), O. P. No. 5783 of 1999 (L), O.P. No.10276 of 1998 (W), and W.A. No.1790 of 1998(C). 3. The questions involved herein broadly arise in the following factual matrix in the cases. We would, however, notice the fact involved in the individual cases also. 4. Appellants herein carry on business in toddy. For the purpose of grant of privilege in terms of the provisions of the said Act and the Rules framed thereunder, the State frames policy-decision from time to time. The position of the parties with reference to the name of the licenses and the other relevant dates would appear from the following: Sl. No . S.L.P. No. Licencee of Shop Nos. & Excise Range Date of cancellation of Licence Rule under which licence is cancelled Details of Writ Petition filed before the High Court by the petitioners Details of Criminal Case 1. 25060 of 2005 (V.....
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....ccused No. 3 in S.C. No. 293 of 1999 which case ended in acquittal by judgment dated 15.11.2005 . 7. 6091 of 2006 (Thankam Rama- krishnan) Petitioner is the widow of K.V. Rama- krishnan who was a co-licensee of Shop Nos. 109 to 222 of Irinjalakuda Excise Range. 27.10.1997 vide order of the Assistant Commissione r Rule 6 (28) of the Abkari shops (Disposa l in Auction) Rules. Writ Petition No. 6609 of 1998-dismissed by Single Judge by judgment dated 21.07.1998. W.A. No. 1790 of 1998 dismissed by the judgment impugned in this SLP. Petitioner's late husband was accused No.1 in S.C. No. 210 of 1999 which case ended in acquittal by judgment dated 16.05.2008. 5. On or about 6.3.1997, the Government of Kerala published a notification in its Gazette expressing its intention to part with its privilege of vending toddy through retail shops in the notified Excise Ranges for the year 1997-98 wherefor public auction was proposed to be held on the dates notified therefor. We are concerned with shops situate within Thrissur Range, Irinjalakuda Range, Cherpu Range, Vadanappally Range and Anthikad Range. 6. Indisputably, although the notification for holding auction for on....
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.... Excise entered into negotiations with some of the parties on the basis whereof, the licenses were also granted to the said parties for the remaining period. 12. The matters were referred to the Commissioner of Excise for confirmation of sale. At that stage, the Board purported to have come to the conclusion that in cases where licenses were cancelled in terms of the provisions of Rule 6(30) of the Rules, Rule 6(28) would also be automatically attracted and on the basis thereof, the decision of the Assistant Commissioner was upheld. 13. On or about 19.12.1997, the Assistant Commissioner of Excise issued another order forfeiting the amount of security deposit purporting to act in terms of Rule 6(28) of the Rules, stating: "As per order number first cited, the licences of toddy shops of Cherpu, Thrissur and Anthikad ranges was cancelled under Rule 6 (30) of Abkari Shops (Disposal in Auction) Rules 1974, since the Original purchasers of toddy shops of above ranges for the year 1997-2000 violated the rules and licence conditions and committed the offences punishable under Section 57(a) and 56 of Abkari Act and also Section 22of NDPS Act 1985 consequent on the detection o....
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....) of rule 6 of the Kerala Abkari Shops (Disposal in Auction) Rules was not in existence prior to 30.3.1996 but was substituted on 30.3.1996 which has not conferred any power on the department to cancel the licence. Sri K. Ramakumar appearing for some of the licencees submitted that licences were cancelled without notice to the petitioners and the principles of natural justice have been violated. Further counsel also referred to Section 26 of the Kerala Abkari Act and submitted that only Commissioner has got the power to cancel the licence and the cancellation of the licence by Assistant Commissioner was without jurisdiction. Identical are the contentions raised by Advocate Sri. Premjit Nagendran as well. Additional Advocate General on the other hand supported the action of the department." Holding that the order cancelling the licence having been passed as "diazepam" had been detected on chemical examination of the toddy seized from the business premises of the appellants and furthermore they having defaulted in payment of kist, committed an offence punishable under Section 57A(iii) and Section 55(1) of the Abkari Act. 18. The contention raised before the High Court that the ....
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.... by Rule 6(30) and not Rule 6(28). 20. Mr. T.L.V. Iyer, learned Senior Counsel appearing on behalf of the State of Kerala, on the other hand, would contend: i. Keeping in view the scheme of the Act and the Rules, appellants having with their eyes wide open took part in the bid for a period of three years and having entered into agreements for the said period cannot be permitted to contend that the contract was for one year. ii. Having regard to the provisions contained in Rule 5(10) of the Rules read with conditions of the Agreement as contained in Form I and Form II appended thereto, the mode of determination of the quantum of damages being fixed, namely, the original amount minus resale amount plus cost of resale, the amount which was payable to the State and the amount which was offered by the new purchasers together with interest at the rate of 18% per annum, the losses suffered during the period 1998-99 and 1999-2000 can also be recovered by the State having regard to the terms as contained in the agreement as it is not denied or disputed that the appellants executed agreement for a period of three years. 21. The Act was enacted by Maharaja of Cochin By....
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....ads as under: "7(2). No toddy other than that drawn from the Coconut Plamyrah or Choondapana palms shall be sold by the licensees. All toddy kept or offered for sale should be of good quality and unadulterated. Nothing shall be added to it to increase its intoxicating power or for any other purpose." Rule 2(d) defines the term "Assistant Excise Commissioner" to mean an Officer in executive charge of an Excise Division and includes any officer appointed by the Government under clause (b) of Section 4 of the Act to exercise the powers and to perform the functions of an Assistant Excise Commissioner under these rules. Rule 2(db) defines the term "Auction purchaser" to mean an open bidder or a tenderer declared as an auction purchaser in the auction. The term "Board of Revenue" is defined by Rule 2(e) to mean the Board of Revenue, Kerala constituted under the Kerala Board of Revenue Act, 1957. Rule 3 empowers the State to take policy decisions for grant of privilege for any period in all or any of the independent shops within the tracts or taluks to be notified in the Gazette by way of public auction shop by shop or in lot or lots, inter alia, by the Collectors of the Di....
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....y sum due from a licensee on account of kist, tree-tax or otherwise may be recovered from his deposit, if any made by him at the commencement of the lease or collected under the Revenue Recovery Act. If any adjustment is made from the deposit the licensee shall be bound to replace the sum adjusted from his deposit within fifteen days of receipt of notice from the Excise Officer in charge of the Division in which his shop is situated. Interest on account of loss by resale shall be calculated from the date of confirmation of the resale of the shop. Provided that the Assistant Excise Commissioner concerned may before confirmation of cancellation by the Board of Revenue, restore the licence cancelled by him subject to confirmation by the Board of Revenue, if the defaulter pays up the amount defaulted by him before the expiry of one month from the date of such cancellation." Rule 6(30) reads as under: "6(30) Infraction of any of the rules or the conditions of the licence either by the licensee or by any person in his employment shall entail on the licensee or his agent or both, a fine of Rs. 5,000 or cancellation of the licence or both. An officer of and above the r....
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....l be resold or otherwise disposed of at the risk of the licensee." Chapter VI of the Rules contains special conditions applicable to licensees for the privilege of vending toddy in independent shops. 23. The Government of Kerala issued a notification on 6.3.1997 expressing its intention to part with its privilege of vending toddy and foreign liquor in respect of several Ranges including Thrissur, Irinjalakuda, Cherpu, Vadanappally, Anthikad. 24. Indisputably, a fax message was received from the Excise Commissioner by the District Collectors of all the districts which are in the following terms: "Please refer to your fax message No. R5-381/97 dated 17.3.1997 regarding the Abkari auction held on 17.3.1997. As the Gazette Notification was only for 97-98, confirmation can also be only for 97-98, provided the bidders are willing to pay 1/3rd of total bid amount as rental for 97-98. For 98-99 and 99-2000 separate Government approval will be obtained for extension of agreement at the same rates, without fresh auction. If the bidders are willing to accept these conditions Board of Revenue will confirm the bids for 97-98 and take action for exten....
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....of the original clause (b) was deleted is a clear pointer to show that a conscious step was taken not to take recourse of forfeiture of deposit in a case where licence is cancelled in terms of Rule 6(30). The principles contained in the Heydon's Rule shall squarely be attracted in this case. It is a settled principle of interpretation of statute that when an amendment is made to an Act, or when a new enactment is made, Heydon's rule is often utilized in interpreting the same. {See Philips Medical Systems (Cleveland) Inc. vs. Indian MRI Diagnostic and Research Ltd. & Anr. [2008 (13) SCALE 1]}. For the purpose of construction of Rule 6(30), as it stands now, the Court is entitled to look to the legislative history for the purpose of finding out as to whether the mischief prior to such amendment is sought to be rectified or not. Applying the Heydon's rule, we have no other option but to hold that such was the intention on the part of the Rule making authority. 27. We may furthermore notice that the legal position becomes explicit having regard to the provisions of Rule 6(32) and Rule 6(34). They provide for similar consequences but in absolutely different situations. Rule 6(32) pro....
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....to have noticed that apart from violating the conditions of licence as also the Rules wherefor proceedings for cancellation of licence was initiated, appellants have also allegedly failed and/or neglected to pay their kist and as such they made themselves liable for action in terms of Section 6(28) of the Rules. It is neither denied nor disputed that apart from the lack of inherent jurisdiction to initiate such a suo motu proceeding, neither any notice was issued to the licensees nor any proceeding was initiated therefor. The principles of natural justice had, thus, not been complied with. A bare perusal of the provisions contained in Rule 6(28) would clearly show that the order of cancellation of licence need not be passed only because it is lawful to do so. The Licensing Authority in such matters exercises a discretionary jurisdiction. The proviso appended to the said rule is a clear pointer to the said effect. In a given case, it is possible for a licensee to show that although in fact he had not paid the kist, he could not do so for sufficient or cogent reasons; he also could raise a plea which could have been accepted by the Licensing Authority that interest of justice woul....
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....restrictions and on such conditions and shall be in such form and contain such particulars as the Government may direct either generally or in any particular instance in this behalf. The said provisions are also subject to the inherent limitations of the statute. Such an inherent limitation is that rules framed under the Act must be lawful and may not be contrary to the legislative policy. The rule making power is contained in Section 29 of the Act. At the relevant time, Sub-section (1) of Section 29 of the Act provided that the government may make rules for the purpose of carrying out the provisions of the Act which has been amended by Act No. 12 of 2003 with effect from 1.4.2003 empowering the State to make rules either prospectively or retrospectively for the purposes of the Act." Referring to State of M.P. VS. Nandlal Jaiswal [(1986) 4 SCC 566] and Khoday Distilleries Ltd. vs. State of Karnataka [(1995) 1 SCC 574], it was held: "27. The State may have unfettered power to regulate the manufacture, sale or export-import sale of intoxicants but in the absence of any statutory provision, it cannot, in purported exercise of the said power, direct a particular class of wo....
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....tion on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice are required to be followed. In such an event, although no express provision is laid down in this behalf compliance of principles of natural justice would be implicit. In case of denial of principles of natural justice in a statute, the same may also be held ultra vires Article 14 of the Constitution." 33. We have noticed hereinbefore that the Commissioner of Excise being a higher authority had already expressed his opinion that application of Rule 6(28) of the Rules is automatic consequent upon the cancellation of licence in terms of sub-rule (30) of Rule 6. Assistant Commissioner of Excise could not have taken a different view. If only the Assistant Commissioner of Excise had the original authority to issue such a notice and not the Commissioner of Excise being an higher authority, the law laid down by this Court in Commissioner of Police, Bombay vs. Gordhandas Bhanji [AIR 1952 SC 16] would have been applicable. The proceeding, thus, in a case of this nature should have been initiated by the Assistant Commissioner of Excise and not by the Commissioner of Excise. Where ....
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....administrative law. Today with tremendous expansion of welfare and social service functions, increasing control of material and economic resources and large scale assumption of industrial and commercial activities by the State, the power of the executive Government to affect the lives of the people is steadily growing. The attainment of socio-economic justice being a conscious end of State policy, there is a vast and inevitable increase in the frequency with which ordinary citizens come into relationship of direct encounter with State power- holders. This renders it necessary to structure and restrict the power of the executive Government so as to prevent its arbitrary application or exercise. Whatever be the concept of the rule of law, whether it be the meaning given by Dicey in his "The Law of the Constitution" or the definition given by Hayek in his "Road to Serfdom" and "Constitution of liberty" or the exposition set-forth by Harry Jones in his "The Rule of Law and the Welfare State", there is, as pointed out by Mathew, J., in his article on "The Welfare State, Rule of Law and Natural Justice" in "Democracy, Equality and Freedom," "substantial agreement is in juristic thought t....
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.... the licensee was calculated as if the contract was being given for one year only. We may for the purpose of further discussions take into consideration the fact involved in Civil Appeal arising out of Special Leave Petition (Civil) No. 25467 of 2005. The bid for toddy shop Nos. 109 to 222 for a period of 1997-2000 given by the appellant was Rs. 15,10,00,000/-. A security of Rs. 1,51,00,000/- has been furnished. Appellant started carrying on business on and from 1.4.1997. They paid tax for first-half of the year 1997-98. They had allegedly defaulted in payment of the kist for the month from July 1997 onwards which was due on 1.10.1997 as per Rules. Raid, as noticed hereinbefore, was conducted on 19.7.1997. Indisputably, the officers of the Excise Department of the State of Kerala sealed the shop due to which the appellants could not carry out any business from July till October. Apart from the fact that they were required to pay the kist for a period of six months and not for a period of two and a half years, the demand of Rs. 11,10,23,687/- made on them cannot be said to be legal and valid. Appellant had inter alia contended that the auction amount for one year being Rs. 5,0....
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....des personal securities for money. [See Chetumal Bulchand vs. Noorbhoy Jafferji (AIR 1928 Sind 89)]. It is a word of general import signifying an assurance. The amount of security was available in cash. The State could at any time recoup its damages or at least a part of it from the amount of security. It is with the aforementioned backdrop, we may analyze the provisions of sub-Rule (28) of Rule 6. It confers a discretionary jurisdiction on the Assistant Commissioner of Excise. Exercise of such jurisdiction in favour of revenue, if any, would furthermore be subject to confirmation by the Board of Revenue. The said statutory authority may at its discretion cancel the licence. While doing so, it may order a resale at the risk and cost of the licensee. It may at its option also direct the management of the business of the contract by the departmental agency or otherwise dispose of the same. It is only when one or other direction is issued, all losses on account of such cancellation and resale or departmental management or other disposal of the privilege shall be borne by the defaulting licensee. It is of some importance to notice that whereas all losses are to be borne by the licensee....
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....nglish cases, that Section 74 of the Contract Act would have no application to cases of deposit for due performance of a contract which is stipulated to be forfeited for breach, e.g.,. Natesa Aiyar v. Appavu Padayachi [1913] I.L.R. 38 Mad. 178.; Singer Manufacturing Company v. Raja Prosad[1909] I.L.R. 36 Cal. 960.; Manian Patter v. The Madras Railway Company [1906] I.L.R. 19 Mad. 188, but this view no longer is good law in view of the judgment of this Court in Fateh Chand vs. Balkishan Das (1964) 1 SCR 515, (AIR 1963 SC 1405). This Court observed at p.526 (of SCR): "Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach, and (ii) where the contract contains any other stipulation by way of penalty.... The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for." The Court also observed: "It was urged that the section deals in terms with the right to receive from the party who has broken the contract reasonable compensation and not the right to forfeit what ha....