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PETITIONER: A. DAMODARAN & ANR.

       Vs.

RESPONDENT: STATE OF KERALA & ORS.

DATE OF JUDGMENT23/03/1976

BENCH: BEG, M. HAMEEDULLAH BENCH: BEG, M. HAMEEDULLAH RAY, A.N. (CJ) SINGH, JASWANT

CITATION:  1976 AIR 1533            1976 SCR  (3) 780  1976 SCC  (3)  61  CITATOR INFO :  R          1980 SC 680  (19)  R          1984 SC1326  (12)

ACT:      Kerala Abkari Act (1 of 1967), Ss. 18A and 28-‘Grantee’ who is-Right  of Government to recover dues from persons who were permitted  to carry  on business of selling liquor even though no agreements were executed or licences granted.      Section 18A(1)  of the  Kerala Abkari  Act, 1967, 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  amount  of  rental  may  be  settled  by auction, negotiation  or by  any other  method.  Section  28 provides that  all amounts  due to  the  Government  by  any grantee of  a privilege  may be  recovered from  the  person primarily liable  to pay  as if  they were  arrears of  land revenue.

HEADNOTE:      The appellants  bid at  auction  sales  of  some  toddy shops. The conditions of the sales, notified in pursuance of the statutory  provisions, were:  (a) It  was incumbent upon the bidder to pay immediately 10% of the amount due; (b) The successful bidder  had to deposit 30% of the amount payable, on demand  by the  Assistant Commissioner,  and  to  execute agreements before getting the necessary licences; and (c) If the contract  could not be executed, the whole amount was to be forfeited  and the  shop itself  was to  be  resold.  The appellants deposited  the necessary  amounts on  demand  and were allowed  to start  business even before agreements were executed or  licences were issued. But the appellants failed to pay the balance due to the State. The amounts were sought to be  recovered under  s.  28,  and  the  proceedings  were challenged, but the High Court held against the appellants.      In appeal  to this Court, the appellants contended that as no  agreement was executed between the appellants and the Government in  the manner  prescribed by  Art.  299  of  the Constitution, the  appellants had  not become the ‘grantees’ of any  privilege and  hence were  not  liable  to  pay  the amounts sought to be recovered      Dismissing the appeal,

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^      HELD :  The Government  had  to  perform  its  duty  of granting licences  as soon  as the  appellants fulfilled the conditions by paying up the remainder of the amounts due. In the present  case, Government  had  performed  its  part  by allowing the  appellants to start selling liquor even before execution of  the agreements  and the grant of licences. The appellants, therefore,  became liable  and bound  to perform their  corresponding   obligations.  This   reciprocity   of obligations, quite  apart from  its basis  in agreement, had thus  acquired  an  operative  force  resting  on  statutory sanction and equity. [784G-785B]      (1) It  is not  a condition precedent to recovery of an amount due  and recoverable  under the Act that it should be due under  a formally  drawn up and executed contract. Under the notification,  in the  event of  the non-execution  of a contract, even if due to the unwillingness or inability of a bidder to  pay, the  whole amount  due could  be  forfeited. [782C; 783E-F]      2(a) The acquisition of the status of a grantee for the purpose of  s. 18A, does not depend on the actual receipt of a licence.  Section 18A(2)  lays down that no grantee of any privilege under  sub-s. (I)  shall exercise it until the has received  a   licence.  This   provision  contemplates   the statutory status  of a  ‘grantee’ even before the successful bidder becomes  entitled,  as  of  right,  to  exercise  the privileges of  a grantee on receipt of a licence even before he receives his licence he is described as a grantee. [783F- G, H-784A] 781      (b) The word ‘grantee’ used in s. 28 carries this wider connotation of persons who have been permitted by the excise authorities, in  recognition of  their rights to receive and in anticipation  of the receipt of licences, to exercise the privileges of  grantees, and  not necessarily only those who have executed  the written  contracts and received licences. [784A-C]      Madhavan  v.  Assistant  Excise  Commissioner,  Palghat I.L.R. [1969] 2 Kerala 71, approved.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1464 of 1971.      From the Judgment and order dated 18-3-71 of the Kerala High Court in Writ Appeal No. 126 of 1971.      K. R.  Sudhakaran and N. Sudhakara and P. K. Pillai for the Appellants.      K. T. Harindranath and K. M. K. Nair for Respondent.      The Judgment of the Court was delivered by      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 remainder of  the amounts  due on  account of  their bids at auction sales  of some toddy shops for the period 1st April, 1967, to  31st March, 1969, by the Government of Kerala. The amounts at which the shops were knocked down were:           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/-.      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.

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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.      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 1st May,  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 782 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.      The  appellants  contend  that,  as  no  agreement  was executed between them and the Govt. 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.      A learned  Judge of the Kerala High Court who heard the petition held  that the  notification in  persuance 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".      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 re-sell it at the risk and loss of      the defaulter. When a grant or farm is under management

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    under this  section, the  Commissioner may  recover any      moneys due  to the  defaulter by any lessee or assignee      as if they were arrears of Land Revenue."      The  appellants   submit  that   they  had  not  become "grantee"  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, affirmed  by a Division Bench in Damodaran v. State of Kerala.  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 26 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 783 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. Ralia Ram, 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.      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(2) 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. Harbolt(3) 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  convass 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".      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.      Section 18 of the Act shows that the exclusive or other privilege of  selling liquor  by retail  may be  granted  on payment of  rental in  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  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.      Section 18A(2)  lays  down  that  "no  grantee  of  any

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privilege made 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 784 he becomes entitled, as of right, to exercise the 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  29 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.      In Madhavan’s  case (supra)  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 H. P.      Chowdhry v.  State  of  M.P.  (AIR  1967  SC  203)  and      Mulamchand v.  State of  M.P. (1969(II)  S.C.W.R. 397),      for the  proposition 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 H.      P. Chowdhry  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)".      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 785 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.      Consequently, we  affirm the  view of  the Kerala  High Court and dismiss this appeal.

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    Parties will bear their own costs throughout. V.P.S.                                     Appeal dismissed. 786