A. Damodaran And Another v. State Of Kerala And Others

M.H Beg, J.— The appellants, before us by certification of the case, had filed a petition to quash revenue recovery proceedings started against them for realisation of the reminder of the amounts due on account of their bids at auction sales of some toddy shops for the period April 1, 1967 to March 31, 1968 by the Government of Kerala. The amounts at which the shops were knocked down were:

Rs 1. Shop No. 1 .. .. .. 84,000 2. Shop No. 4 .. .. .. 46,500 3. Shop No. 8 .. .. .. 56,100 4. Shop No. 11 .. .. .. 1,50,000

2. The notified conditions of the auction sales made it incumbent upon the bidder to pay immediately 10% of the amount due and to provide personal security for the rest. There was no assurance or guarantee given there that prohibition will not be removed in future by the Government in any area in the State or about any other matter of future policy of the Government relating to intoxicants. According to notified conditions, the successful bidders had to deposit 30% of the total amount payable on demand by the Assistant Commissioner and also to execute agreements before getting the necessary licences. The petitioners had deposited the necessary amounts on demand. They were also allowed to start the business of running their toddy shops even before the licences were issued in their favour.

3. The petitioners' case is that, at the time of bidding, there was an understanding that the respondent State will not remove prohibition so that they expected adequate profits. As observed above, there is nothing in the notified conditions to indicate this. It appears that in April 1967, the respondent State announced removal of prohibition from May 1, 1967. The appellants allege that they suffered heavy losses due to this policy of the State and were unable to make the remainder of the payments which were sought to be recovered under Section 28 of the Abkari Act (hereinafter referred to as “the Act”). It is difficult to see what the removal of prohibition had to do with alleged losses to the appellants. Abandonment of prohibition either totally or partially, should ordinarily, not diminish sales of liquor. One should expect such a development to increase sales of liquor.

4. The appellants contend that, as no agreement was executed between them and the Government in the manner prescribed by Article 299 of the Constitution, they are not liable to pay the amounts sought to be recovered. This is their main contention.

5. A learned Judge of the Kerala High Court who heard the petition held that the notification in pursuance of which the shops in question were auctioned provided that, if the contract could not be executed, the whole amount was to be forfeited and the shop itself was to be resold. Thus, non-execution of the contract due to the unwillingness or inability of a bidder to pay was not a contingency outside the notification for auction the validity of which is not challenged. The notification did not lay down that, in that case, the payment of the remainder will be remitted. On the other hand, the condition was that the whole amount due could, in such an event, be “forfeited”.

6. The Kerala High Court held that, despite the absence of a contract executed in accordance with the provisions of Article 299 of the Constitution, the amounts due could be recovered under Section 28 of the Act which reads as follows:

“28. Recovery of duties.—All duties, taxes, fines and fees payable to the Government direct under any of the foregoing provisions of this Act or of any licence or permit issued under it, and all amounts due to the Government by any grantee of a privilege or by any farmer under this Act or by any person on account of any contract relating to the Abkari Revenue may be recovered from the person primarily liable to pay the same or from his surety (if any) as if they were arrears of Land Revenue, and, in case of default made by a grantee of a privilege or by a farmer, the Commissioner may take grant or farm under management at the risk of the defaulter or may declare the grant or farm forfeited, and resell it at the risk and loss of the defaulter. When a grant or farm is under management under this section, the Commissioner may recover any money due to the defaulter by any lessee or assignee as if they were arrears of Land Revenue.”

7. The appellants submit that they had not become “grantees” of any privilege without the execution of contracts complying with the requirements of Article 299 of the Constitution. The learned Judge of the Kerala High Court relied on Madhavan v. Assistant Excise Commissioner, Palghat ILR (1969) 2 Ker 71 affirmed by a Division Bench in Damodaran v. State of Kerala ILR (1969) 2 Ker 95, 1969 Ker LT 587. It appears that, although the Division Bench did not specifically consider whether a bidder at an auction of the kind before us was the “grantee” of a privilege within the meaning of Section 28 of the Act, yet, it held that the liability to satisfy the dues arising out of a bid was enforceable under Section 28 of the Act quite apart from any contractual liability. Reference was also made, in this connection, to the decision of this Court in Union of India v.A.L Rallia Ram AIR 1963 SC 1685, (1964) 3 SCR 164 for contending that the absence of a formal contract is not fatal in all cases so as to make the whole transaction null and void ab initio.

8. Statutory duties and liabilities may be enforced in accordance with statutory provisions. Equitable obligations may also arise and be enforced by decrees of courts quite apart from the requirements of Article 299 of the Constitution. Mulamchand v. State of Madhya Pradesh AIR 1968 SC 1218, (1968) 3 SCR 214 affords an instance where, on a claim for compensation or restitution under Section 70 of the Contract Act, this Court relied upon the principle stated, in Nelson v. Larholt (1948) 1 KB 339 as follows (at p. 222):

“It is no longer appropriate to draw a distinction between law and equity. Principles have now to be stated in the light of their combined effect. Nor is it necessary to canvass the niceties of the old forms of action. Remedies now depend on the substance of the right, not on whether they can be fitted into a particular framework. The right here is not peculiar to equity or contract or tort, but falls naturally within the important category of cases where the court orders restitution if the justice of the case so requires.”

9. In the case before us, we are concerned really with the legality of proceedings under Section 28 quoted above of the Act. It is evident that these proceedings can be taken in respect of

“all amounts due to the Government by any grantee of a privilege or by any farmer under this Act or by any person on account of any contract relating to the Abkari Revenue.”

It is clear that dues may also be “recovered from the person primarily liable to pay the same or from his surety (if any)”. It is not a condition precedent to recovery of an amount due and recoverable that it should be due under a formally drawn up and executed contract.

10. Section 18-A of the Act shows that the exclusive or other privilege of selling liquor by retail may be granted on payment of rental in consideration of the grant. The appellants made all the initial payments of rent. We do not think that acquisition of the status of a grantee, for the purposes of Section 18A, need await the actual receipt of a licence. The conditions of the grant are to be laid down by the Government. The amount of rental “may be settled by auction, negotiation or by any other method as may be determined by the Government, from time to time”. The amounts due “may be collected to the exclusion of, or in addition to, the duty or tax leviable under Sections 17 and 18”.

11. Section 18A(2) lays down that:

“no grantee of any privilege under sub-section (1) shall exercise the same until he has received a licence in that behalf from the Commissioner.”

It will be seen that this provision contemplates the statutory status of a “grantee” even before he becomes entitled, as of right, to exercise of privileges of a grantee on the receipt of a licence. What is noticeable is that even before he receives his licence he is described as a “grantee”. The successful bidders, in the case before us, had been permitted by the Excise Authorities, in recognition of their rights to receive and in anticipation of receipt of licences, to exercise the privileges of grantees. They were thus treated as grantees in anticipation of execution of contracts and grants of licences. Grantees under Section 28 of the Act are those who have received the privilege and not necessarily only those who have received the written contracts and licences. The word “grantee” used there seems to us to carry this wider connotation with it.

12. In Madhavan's case K.K Mathew, J. repelled the contention that the execution of an agreement in accordance with the provisions of Article 299 of the Constitution was a condition precedent to the creation of a liability to be proceeded against under Section 28 of the Act for recovery of the balance of the rentals due. He said (at p 94):

“It was contended on behalf of the petitioners in some of these cases that no agreements were executed by them, and therefore, the Government are not entitled to recover any amount by way of rental. Reliance was placed upon the decisions of the Supreme Court in K.P Chowdhary v. State of M.P AIR 1967 SC 203, (1966) 3 SCR 919 and Mulamchand v. State of M.P for the propositions that unless there is an agreement executed in accordance with the provisions of Article 299 of the Constitution, the petitioners in the case where no agreements have been executed, would not be liable to pay rental. The argument was that the liability to pay rental arises only out of the agreement, and if there is no agreement, then there is no liability to be enforced. As I have indicated the liability to pay the rental arises not only by virtue of the agreement but also by the provisions of Section 28 of the Act. The decision of the Supreme Court in K.P Chowdhary v. State of M.P would make it clear that if there are provisions in the Act, the liability to pay the rental can be enforced. I think that even if no agreement has been executed, there was the liability under Section 28 of the Act, and that the liability could be enforced under the provisions of the Revenue Recovery Act. (See Sections 6 and 62 of the T.C Act).”

13. The appellants became entitled to get licences from the Government which had to perform its duty to execute written agreements and grant licences as soon as the appellants fulfilled required conditions by paying up the remainder of the amounts due. The Government had performed its part of the bargain and even allowed the appellants to start selling liquor. The appellants also became liable and bound to perform their corresponding obligations under the conditions of the auctions imposed in pursuance of statutory provisions. This reciprocity of obligations, quite apart from its basis in agreement, had thus acquired an operative force resting on statutory sanction and equity.

14. Consequently, we affirm the view of the Kerala High Court and dismiss this appeal.

Civil Miscellaneous Petition No. 1739 of 1976 in Civil Appeal No. 1464 of 1971

Order

In view of our judgment and order on the Civil Appeal No. 1464 of 1971, this application is liable to be and is hereby rejected.