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CASE NO.: Appeal (civil)  7102-7105 of 2002

PETITIONER: STATE OF KARNATAKA & ANR

RESPONDENT: K.K. MOHANDAS & ETC

DATE OF JUDGMENT: 01/08/2007

BENCH: A.K. MATHUR & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  

P.K. BALASUBRAMANYAN, J.

1.              In all these appeals, the defendants, the State  of Karnataka and the Deputy Commissioner (Excise) are  the appellants.  The four appeals arise from four suits  being O.S. No. 1261, 1262, 1263 and 1264 of 1990 on  the file of the court of the First Additional Munsif,  Mangalore.  The suits were decreed in favour of the  plaintiffs who were excise contractors and bidders of the  right to vend arrack in various taluks of Dakshina  Kannada District of the State of Karnataka for the  Excise Year 1990-91 covering the period 1.7.1990 to  30.6.1991.  Aggrieved by the decrees, the appellants  filed four appeals in the court of the Additional Civil  Judge Senior Division, Mangalore. The appeals were  dismissed affirming the decrees of the trial court.  Four  Second Appeals filed by the appellants in the High  Court of Karnataka met with the same fate.  These  Appeals by Special Leave thus challenge the decrees  granted in the four suits.   

2.              The State of Karnataka every year auctions  the right to vend liquor in various taluks of the State.   Among them is included trade in arrack.  The plaintiffs  in the suits, Excise Contractors on their own showing,  had bid the right to vend liquor from the concerned  taluks earlier and even for the Excise Year 1989-90.  On  16.3.1990, the Minister of Finance, Government of  Karnataka, during his Budget Speech in the Assembly,  made the following statement.

\023The State has been following a policy of  banning the sale of toddy in a phased  manner.  At present, the sale of toddy  has been banned in seven districts.  I  propose to extend the ban to the entire  State with effect from 1.7.1990.  The  expected loss in revenue is Rs. 60 crores.   It is hoped that a portion of this loss  would be made good by higher arrack  rentals and better enforcement of rules  and regulations.\024

The Budget Speech was marked Exhibit P-1 in the suits  which were jointly tried.  According to the plaintiffs, a

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decision was also taken by the Government in a meeting  of the Cabinet on 2.5.1990 to implement the policy thus  announced.  But, illegal tapping and sale of toddy was  not put down.  On 28.5.1990, the right to vend arrack  in the taluks of Kundapur, Udupi, Bantawal, Sullia,  Puttur and Belthangadi was held for the Excise Year  1990-91.  The plaintiffs were the highest bidders in the  respective auctions and the respective bids were  knocked down in their favour.  On 29.6.1990, formal  contracts were entered into by the plaintiffs with the  defendants.  The formal contracts were marked in the  suits as defence Exhibits D-6 etc..  Meanwhile, the  toddy tappers took up cudgels and even defied the  attempted ban.  This resistance had started even before  the plaintiffs entered their highest bids.

3.              In view of the agitation, the Government  considered the relevant aspects and issued an order  dated 29.6.1990.  While the ban on sale of toddy to the  public was continued, it was decided to arrange for sale  of toddy tapped by the toddy tappers of Dakshina  Kannada District, through a centralised society to the  fenny units and permitting the fenny units of Dakshina  Kannada to buy the toddy from tappers of allotted trees  at the price to be fixed by the Excise Commissioner till  finalising the purchase by a centralised society as  envisaged.   

4.              It is the case of the plaintiffs that the above  order was violated by the toddy tappers with impunity  by selling toddy openly in the District.  The State did not  take steps to check this.  So, some of the plaintiffs  approached the High Court of Karnataka with Writ  Petitions, Writ Petition Nos. 16317 to 16319 of 1990.   The main prayer in the Writ Petitions was to issue a writ  of mandamus directing the State Government to take  effective and appropriate steps for prohibiting the  tapping or sale of toddy in Udupi, Kundapur and  Belthangadi taluks of Dakshina Kannada District  during the Excise Year 1990-91.  An interim order was  sought and obtained restraining the State from  terminating the contracts of the writ petitioners. The  writ petitioners relied upon the policy statement above  quoted and contended that they had bid the right to  vend arrack for the Excise Year 1990-91 on the basis of  that assurance and it was the duty of the Government  to enforce that policy.  They also sought a direction to  the State not to collect the Kist amount at the rate of  rentals bid for the year 1990-91, but to collect it only at  the rates of the bid amount for the Excise Year 1989-90.   A learned single judge of the High Court dismissed the  Writ Petitions.  An appeal was filed by the plaintiffs  before a Division Bench. A case of promissory estoppel  was also put forward against the Government in  support of the prayers in the Writ Petitions.  The  Division Bench noticed that what was complained of  was nothing more than hazardness of any business.  On  the plea of promissory estoppel put forward, the  Division Bench stated :

\023The promissory estoppel cannot arise  because where it is a matter of policy,  and Government of Karnataka by filing

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statement of objections has stated that it  has been doing whatever is possible  within its means to stop the illegal trade.\024

At the prayers of the plaintiffs, the attempted  termination of the contract by the State was restrained  for a specific period by the court directing the State not  to give effect to the proposed termination of the contract  until 30.9.1990.  The matter was brought up to this  Court by way of Petitions for Special Leave to Appeal.   This Court by Exhibit P-29 Order dismissed the  petitions thus:

\023Without prejudice to the petitioner\022s  right to approach the appropriate Civil  Court for relief and subject to the interim  stay granted by the High Court staying  the operation till 15.10.1990, these  petitions are dismissed.\024

It is thereafter that these suits have been filed in the  trial court.  Since the averments in the various plaints  are more or less identical and the factual situation is  also the same, it is sufficient if the pleadings in one of  the suits are referred to.  

5.              In the plaints, after setting out the factum of  the concerned plaintiff being the successful bidder in  respect of the auction for the Excise Year 1990-91 and  setting out the extract of the Budget\022s Speech already  adverted to and pleading that in spite of repeated  representations, the defendants had failed to take action  to curb illegal tapping and sale of toddy and after  referring to the order of the Government dated  29.6.1990 authorising the tapping of toddy and its sale  in the concerned district, it was pleaded that the State  had committed breach of the promise earlier held out  and as a consequence, the State was estopped from  collecting higher Kist amount.  After admitting that the  Kist amount for the month of July 1990 as per the bid  for the previous year 1989-90 had been paid and after  pleading that the Kist amount for the month of August  1990 has also been paid on the same basis, it was  further pleaded that the plaintiff was willing to remit  even future Kist amounts at the same rate as he has no  other alternative.  We think it appropriate to set out  paragraph 10 of the plaint in O.S. No. 1261 of 1990:

\023When the Excise Commissioner  demanded the Kist amount from the  plaintiff for the month of July 1990, the  plaintiff remitted the Kist for July 1990 at  the rate for which he had bid during the  previous year in the said Taluks, namely  at Rs.31.00 lakhs for Karkala Taluk and  at Rs. 35.00 lakhs for Bantwal Taluk.   This shows the bonafides of the plaintiff  in the contentions advanced by him.  The  plaintiff has also remitted the kist  amount for August 1990.  The plaintiff is  willing to remit even future kist amount  at the same rate, as he has no other  alternative.  The plaintiff has no intention

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whatsoever to deprive what is legitimately  payable but the plaintiff cannot be  compelled to pay higher amount for  which the plaintiff had offered the bid,  based entirely on Government\022s  announcement to ban toddy.  Under the  circumstances already explained above  and as the said circumstances have been  totally changed, it is unfair to claim the  said amount from the plaintiff by the  defendants who are the defaulting  parties.\024

Then follows the plea that in view of the developments,  performance could not be insisted upon.  This is what is  pleaded in paragraph 11 of the plaint:

\023In any view of the case and irrespective  of the aforesaid aspects of fundamental  breach, the plaintiff submits that the  purpose of the obligation to sell liquor  has been rendered impossible to the  extent expected consequent upon the  illegal tapping and sale of toddy which  the plaintiff could not prevent and which  the defendants did not prevent though  they were obliged to do so.  Therefore,  there is supervening impossibility of  performance of contract to sell liquor and  to pay higher kist amount, realisation of  which is rendered impossible by the  breach of promise held out by the  defendants as well as their failure and  negligence to maintain law and order.   Therefore, the plaintiff is excused from  the obligation to perform as per contract  for sale of liquor in the taluks for which  the plaintiff is the successful bidder.  The  plaintiff is entitled to claim injunction as  plaintiff has no other remedy.  In view of  the urgency involved this suit may be  revived without previous Section 80  Notice.\024

6.              As we understand the plaint, what appears to  be pleaded is the failure of the Government to impose  the ban on sale of toddy and the contract being  rendered impossible of performance in the matter of  payment of Kist by the plaintiff.  The plea of estoppel is  based on the budgetary speech of the Minister already  quoted.  After quoting it, it is pleaded: \023The Government thus made a promise  to the public that the vending of toddy  will be banned thereby enabling higher  sales of liquor.  The plaintiff, having  been aware of the said promise,  assumed it as a fundamental  obligation of the defendants and as an  essential term of offer while auctioning  right to vend liquor in the district of  Dakshina Kannada.  On 28.5.1990,  when the Excise auction took place at  Mangalore, the plaintiff was having

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foremost in its mind the aforesaid  fundamental representation of the  defendants\024

This is followed by a plea that it was based on this that  a sum higher than that for the previous year was offered  by the concerned plaintiff - bidder.  The defendants filed  a written statement raising various objections. The bona  fides of the suits were questioned.  It was pointed out  that the attempt to get an injunction was an attempt to  obtain something that was denied by the High Court  and the Supreme Court.  It was pleaded that on the bid  of the plaintiff being accepted, a formal contract had  been entered into termed \021Guttige Patra\022 and the  plaintiff was bound to perform the contract as thus  entered into and the plaintiff was bound by the terms of  the contract.  The written contract did not contain any  term regarding ban on sale of toddy or cast an  obligation on the State to effectively bring about such a  ban. The plea that a prohibition in the tapping and sale  of toddy would increase the sale in arrack was also  denied.  It was denied that the Government had made  any promise to the public that the vending of toddy will  be banned. It was denied that the plaintiffs had bid the  right to vend arrack for the Excise Year 1990-91 based  on that promise.  It was also denied that the plaintiff\022s  offer for vending of arrack was solely on the assurance  that there will be a ban on tapping and sale of toddy.   The facts which compelled the Government not to ban  altogether the sale of toddy and making the new  arrangement, were all set out.  The plaintiffs were aware  of the fact of attempts to defy the ban by toddy tappers  and they had entered into the contract thereafter with  eyes open.  Even at the time the plaintiffs\022 bid, the  agitation by toddy tappers was going on.  The plaintiffs  were bound by the terms of the contract and to perform  their obligations.  It was further submitted that, as a  matter of fact, the tapping of toddy for sale to the public  was banned, but illegal tapping was going on and the  Excise Department was trying its best to prevent illegal  tapping. The plaintiffs were bound to pay the amount  which was the consideration for the right to vend arrack  obtained by them from the Government which had the  exclusive privilege of selling liquor.   The dismissal of  the Writ Petition, the appeal therefrom and of the  Petitions for Special Leave to Appeal were pleaded.  It  was pleaded that the sale of arrack was not dependent  on the tapping of toddy or sale of toddy.  It was pleaded  that the Government has the right to change its policy  with regard to the banning of tapping of toddy and the  banning of sale of toddy was not a condition precedent  for the sale of arrack.  It was submitted that the  plaintiffs could not avoid payment of the agreed Kist,  after they had entered into formal contracts with the  State, had carried on the sale of arrack in terms of the  right given to them for the concerned Excise Year and  they were not entitled to any relief.   It was also pleaded  that the increase in the bid amount for the Excise Year  1990-91 was normal and the percentages of increase in  other places, 13 in number, were set out.  In some of  those centres, the increase was above 300 per cent from  that of the previous year.  The suits were liable to be  dismissed.  The plaints were then amended by seeking  the relief of declaration that the excise contract existing

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between the plaintiffs and the State is enforceable by  rectification to the effect that the monthly kist payable  shall be at the rate prevailing during Excise Year 1989- 90.  No further plea in support was added.  An  additional written statement was filed that the written  contract concluded the parties and declaration as  sought for to modify the obligation of the plaintiffs  under the terms of the contract while retaining the right  conferred thereby, was not permissible.   

7.              At the trial, various issues were raised. But  the trial court ultimately held that the defendants were  estopped from claiming the Kist amounts as per the  bids of the plaintiffs by the doctrine of promissory  estoppel. This was on the basis that the Budget Speech  made by the Minister amounted to a promise to the  intending bidders, that the bidders had acted on that  promise and had offered higher amounts. Since the  State had failed to implement successfully the policy of  banning tapping and selling of toddy to the public, the  State was estopped from claiming the Kist amount in  terms of the contract entered into between the State and  the contractor.  The court did not ask itself whether the  plaintiffs had proved any detriment because of the State  not banning the trade in toddy. The court also did not  ask itself the question whether a part of the contract  containing the obligation of the plaintiffs alone could be  rectified as claimed in the plaint, or whether at best the  plaintiffs were in a position to repudiate the contract as  a whole and whether the suit of this nature would be  maintainable.  On appeal by the defendants, the lower  appellate court proceeded on the same lines and  dismissed the appeals.  It does not appear that the  lower appellate court properly applied its mind to the  pleadings and the principles of law governing the  matter.  On Second Appeals being filed by the  defendants, the High Court, we must say with respect,  did not properly apply its mind to the questions that  arose for decision and merely ended up by dismissing  the Second Appeals upholding what it called the plea of  promissory estoppel.  The decisions thus rendered in  the four suits are challenged in these appeals.  

8.              The following decree has been granted. \023It is hereby declared that the Excise  contract existing between plaintiffs  and first defendant is enforceable by  rectification to the effect that monthly  kist payable shall be at the rate  prevailing during excise year 1989-90.   

    Further the defendants are  restrained from giving effect to or  enforcing the terms of contract entered  into between the plaintiffs and the  defendants in relation to the retail  vend of liquor in Karkala, Bantwal,  Puttur, Sullia, Kundapura, Udupi and  Belthangady Taluks of Dakshina  Kannada District for the excise year  1990-91 with regard to the kist  amount payable thereunder or  alternatively, the defendants are

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restrained from claiming kist at the  rates higher than what was stipulated  for 1989-90 in the said Taluks by way  of perpetual injunction.\024

9.              Under Section 26 of the Specific Relief Act, an  instrument or contract may be rectified when through  fraud or a mutual mistake of the parties, a contract or  other instrument in writing does not express their real  intention.  According to Dr. Banerjee in his Tagore Law  Lectures on the \021Law of Specific Relief\022, \023if the parties  had deliberately left out something from the written  instrument, that cannot be put in.\024 by resort to the  remedy of rectification.  Here, the parties have entered  into written contracts and admittedly no term is  incorporated therein regarding enforcement of the ban  on trade of toddy to the public in the District of  Dakshina Kannada.  Nor is there any case pleaded in  the plaint of any mutual mistake in the matter of setting  down the terms of the contract.  There is also no plea of  fraud on the part of the State in entering into the  contract.  On the terms of the contract, the plaintiffs  had obtained the right to vend arrack for the Excise  Year 1990-91 on their obligation to pay the bid amount  in monthly instalments. In the absence of any  foundation in the pleadings being laid by the plaintiffs  establishing a ground for the grant of the relief of  rectification, the mere adding of a prayer by way of an  amendment could not be considered sufficient to grant  them the relief of rectification.  

10.             What is pleaded in this case at best is that in  his Budget Speech the Minister concerned had held out  to the public at large that he was proposing to ban sale  of toddy in the whole of the State and this had induced  the plaintiffs to believe that the sales in arrack would go  up resulting in their offering higher bid amounts for the  right to sell arrack for the Excise Year 1990-91. On  facts, the written statement of the State shows that in a  number of centres, the prices have gone up by  considerable sums and compared to those increases in  other places, the increase in the relevant taluks were  only marginal.  It may be noted that the plaintiffs had  not established that they had suffered any losses in  view of the inability of the State Government to put  down what the plaintiffs called the illegal tapping and  sale of toddy in public as opposed to the fenny units as  indicated in the Government order.  P.W. 1 examined on  behalf of the plaintiffs could not show with reference to  any accounts of any such loss having been incurred.   We are not here considering the question of the  plaintiffs having shown detriment in connection with  their plea of estoppel which will be dealt with  separately.  What is intended to be conveyed here is  that the plaintiffs have not shown that they had  suffered any detriment by entering into the contracts in  question based on the promise held out to them, though  not reflected in the written instrument.  

11.             The American Supreme Court in Hunt Vs.  Rousmanier\022s Administrators [8 Wheaton 174)  speaking through Chief Justice Marshall indicated the  position in law thus:

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\023It is a general rule, that an agreement  in writing, or an instrument carrying  an agreement into execution, shall not  be varied by parol testimony, stating  conversations or circumstances  anterior to the written instrument.  

This rule is recognised in courts of  equity as well as in courts of law; but  courts of equity grant relief in cases of  fraud and mistake, which cannot be  obtained in courts of law.  In such  cases, a court of equity may carry the  intention of the parties into execution,  where the written agreement fails to  express that intention.\024

12.             As we have seen, the sum and sub-total of the  case of the plaintiffs is that they entered into the written  contracts on their belief that the policy of prohibition of  sale of toddy to the public would be implemented and  under the expectation that they would get more profit  from the sale of arrack.  We may notice that there is  also no evidence adduced to show that the sale of toddy  has any direct connection with the sale of arrack or has  any influence on the quantum of the sale of arrack.  The  State has clearly pleaded that the tapping and sale of  toddy has nothing to do with the sale of arrack and that  arrack drinkers do not generally take to toddy.  There is  no material on the basis of which the stand adopted by  the State can be found to be wrong or unsustainable.   In any event, except suggesting that this will happen,  the plaintiffs have not adduced any legal or acceptable  evidence to establish this plea.

13.             Thus, on facts, we find that no case has been  made out for rectification of the instrument only as  regards the obligation of the plaintiffs to pay the Kist.   At best, the plaintiffs may have a right to sue for  damages against the State on establishing that they had  suffered losses in view of the alleged failure of the  Government to impose its policy of prohibition and sale  of toddy to the public and by establishing the quantum  of such losses.  Even if any loss has been suffered, it  does not grant the plaintiffs a right to have the  instrument rectified and that too, to the effect that their  obligation to pay the Kist should be based on their bids  for the previous Excise Year 1989-90.  There is no case  for the plaintiffs that the State Government at any time  held out to them that in case of its failure to enforce the  ban on sale of toddy to the public, the plaintiffs need  pay only the Kist amounts of the year 1989-90.  There  was no such agreement or contract during any  negotiation preceding the bids by the plaintiffs.  In fact,  it was a case of open auction on set down terms in the  light of a statute and the plaintiffs entered their bids.   There was therefore no occasion for mutual mistake as  to terms or fraud in execution of the contracts.   Thus, it  appears to us that a grant of relief in the manner done  by the courts below purporting to rectify a part of the  contracts is totally unwarranted and clearly  unsustainable in law. That part of the decree has

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necessarily to be set aside.  

14.             What is left is the case of promissory estoppel.   Here, the promise is said to be the budgetary speech of  the Minister concerned that he proposes to ban the sale  of toddy to the public in the District of Dakshina  Kannada.  Firstly, the Division Bench in the Writ  Petitions filed by some of the plaintiffs, while dismissing  them, clearly held that no question of promissory  estoppel would arise in these cases. The Petition for  Special Leave to Appeal challenging the said decision  was dismissed by this Court reserving liberty in the  plaintiffs to approach the Civil Court.  The question  arises, to approach the Civil Court for what?  According  to us, the approach to the Civil Court is for the purpose  of suing for damages on establishing that they had  suffered loss because of the expectations raised by the  speech in the Assembly and the failure of the State to  enforce the prohibition it had envisaged as a policy.  The  right reserved for approaching the Civil Court even while  dismissing the Petition for Special Leave to Appeal, does  not clothe the plaintiffs with a right to approach the  Civil Court with a plea of promissory estoppel already  negatived in the writ petitions filed by some of the  plaintiffs.  Nor does it enable the court to go behind  what has been held by the High Court in the Division  Bench and proceed to accept a case of promissory  estoppel.   

15.             That apart, this Court in Express Newspapers  Pvt. Ltd. & ors. Vs. Union of India & ors. [(1986) 1  S.C.C. 133] has held that the principle of estoppel does  not operate at the level of Government policy.  In Union  of India & ors. Vs. Ganesh Rice Mills & Anr. [JT 1998  (9) SC 51], this Court had categorically held that a  speech made in Parliament by a Minister cannot be  treated as a promise or representation made to a person  attracting the principle of promissory estoppel.  In M/s  Pine Chemicals Ltd. & Ors. Vs. Assessing Authority  & Ors. [(1992) 2 S.C.C. 683], this Court held that a  Finance Minister\022s statement referring to a proposal to  continue the grant of exemption from payment of sales  tax for a period of ten years is merely a budget proposal  which could not give rise to any right to the parties and  it did not amount to a decision, order or notification  extending the period of exemption which was required  to found a plea based on promissory estoppel.  The  manner in which the courts below including the High  Court got over the principle enunciated by these  decisions leaves much to be desired.

16.             Thus, it would seen that the plaintiffs are not  entitled to found any case of promissory estoppel merely  on the basis of the speech made by the Minister in the  Assembly of a proposal to ban sale of toddy in the State.  

17.             Moreover, it is to be seen that it is not the  case of the plaintiffs that the sale of toddy to the public  was permitted.  Their case is that a subsequent  notification was issued proposing to have the purchase  of toddy through Cooperatives and for being supplied to

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fenny units.  It is not seen that the Government had  resiled even from its policy objective.  But the case of  the plaintiffs appears to be that the Government could  not fully implement the policy it had evolved of  preventing sale of toddy by toddy tappers to the public.   This, according to us, at best would only give a right to  the plaintiffs to claim damages from the State on  establishing that they had suffered damages by virtue of  such failure of the Government.   

18.             Here, we must remember that the plaintiffs  are all experienced Excise contractors who are bidding  for the right to vend liquor at open auctions.  It is  notorious that these auctions are highly competitive and  every attempt is made by an existing contractor to  preserve his bastion.  It is also notorious that the prices  fetched in these auctions show a tendency to go up  because of competition.  The State has pointed out that  the increase in the figures for various other centres even  exceeded by 300% the amounts for the year 1989-90.   There is nothing to show that the bids by the plaintiffs  were not based on their calculations and with a view to  ward off competition to preserve their right to vend  arrack in their respective areas.  

19.             What the plaintiffs have gone for was a  commercial venture with attendant risks.  If they felt  that the risk could not be taken, it was for him to  repudiate the contract as a whole.  In fact, when the  Government apparently tried to terminate the contracts  because of the failure of the plaintiffs to remit the Kist  amounts as agreed to for the months of July and  August 1990, the plaintiffs obtained interim orders from  the High Court interdicting such termination and went  ahead with vending arrack in exercise of their right  under the agreements.  Having insisted on performance  of the contract and having exercised their rights under  it, the plaintiffs are not entitled to repudiate their  obligations under the contract.  No case of estoppel,  conventional or promissory, would arise here.

20.             The finding on estoppel is based merely on the  promise made or the proposal made by the Minister  concerned in his speech in the Assembly and the failure  of the Government to implement the policy of  prohibition of sale of toddy in public.  We are of the view  that the plea raised by the plaintiffs does not lay an   adequate foundation for accepting the plea of estoppel  justifying their being relieved of the obligation  undertaken by them based on their bids and as  contained in the written contracts entered into by them  with the Government.  There is no case that the  contract contains any term which is a mistake or that it  contains any term that casts an obligation on the State  which obligation the State had failed to fulfil.   

21.             In this situation, we do not think that it is  necessary to discuss all those decisions on promissory  estoppel, its ambit and whether in a case like the ones  before us, detriment need not be shown before the plea  could be upheld to relieve one of the parties alone of its  obligation.  We are satisfied that no foundation for

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sustaining the prayers made in these cases has been  laid and no case in support established.    Hence, we  refrain from further discussing the question of  promissory estoppel and its availability in these cases.  Suffice it to say that the finding that the appellants are  estopped from claiming the Kist amounts in terms of the  contracts between the parties is found to be wholly  unsustainable.  

22.             For the reasons stated above, we allow the  appeals, set aside the judgments and decrees of the  courts below and dismiss the suits filed with costs  throughout.  The costs payable in each of these appeals  by the respondents to the appellants is quantified at Rs.  50,000/-.