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PETITIONER: STATE OF HARYANA

       Vs.

RESPONDENT: JAGE RAM

DATE OF JUDGMENT12/09/1983

BENCH: CHANDRACHUD, Y.V. ((CJ) BENCH: CHANDRACHUD, Y.V. ((CJ) PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1983 AIR 1207            1983 SCR  (3) 917  1983 SCC  (4) 556        1983 SCALE  (2)285  CITATOR INFO :  RF         1984 SC1326  (4,15)  RF         1987 SC1109  (30,37)

ACT:      Punjab Liquor Licence Rules, 1956-Rs. 36(3) and 36(24)- Sale  of   liquor-  Vends   by  re-auction   or  by  private negotiations-Whether  vitiated   by  failure   to  give  due publicity ?

HEADNOTE:      The respondents  in this  batch of appeals had obtained licences to sell liquor by offering highest bids at auctions held far  sale of  liquor-vends. On  their failure  to  make payments  due   under  the   terms  of  auction,  the  State Government resold  the liquor-vends in some cases, either by re-auction or  by private  negotiations and  called upon the respondents to  pay the  difference between the amount which they were  liable to  pay and  the amount  realised  by  the resale of  the vends.  In other  cases, the respondents were called upon  to pay  the amounts  due under the terms of the original  auction.  The  respondents  filed  writ  petitions contesting  the  State  Government’s  power  to  demand  the various amounts  which they  had defaulted in paying and the High Court  allowed the  petitions. In  appeals filed by the State Government,  this Court  held that since the rights in regard to manufacture and sale of intoxicants were vested in the State  as a  privilege, it was open to the State to part with those rights for consideration, and remanded the matter to the  High Court  calling for  its findings  on whether in cases in  which the  liquor-vends had  been  resold  by  re- auction it was necessary to give publicity to the same; and, if so  whether such  publicity had  in fact  been given. The High Court  found that r. 36(3) of the Punjab Liquor Licence Rules, 1956,  which was  applicable in these cases, required publicity to  be given  to an auction-sale and this rule had been substantially  complied with  in all cases in which re- auction had been held.      Dismissing the  appeals in  which liquor-vends had been resold either  by re-auction  or by private negotiations and allowing the  appeals in  which liquor  vends had  not  been resold.

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^      HELD: 1.  When a  rule requires ’publicity’ to be given to an  auction sale, what is necessarily implied is that due steps must  be taken to give sufficiently advance intimation of the  intended sale  and its material terms to the members of the  public or,  at least,  to that section of the public which normally  engage in  the kind of business which is the subject matter of the auction-sale.                                                      [924 B]      In the  instant case, no notice as required by r. 36(3) was given  to the  public at  all. Neither  the time nor the date of the re-auction, nor the location 918 or description  of the  vend which  was to  be  put  to  re- auction, nor  the conditions  of the  re-auction  were  ever published by the Excise authorities prior to the re-auction. What was  done by  the concerned  authorities  was  to  send telegrams to  Excise  officers  of  five  districts  with  a request that  they should  give publicity  to the re-auction and those  officers did  not take any steps to publicise the re-auction.  Since   the  re-auctions   were  not   held  in accordance  with  the  rules,  and  since,  especially,  due publicity was  not given to the re-auctions, the respondents cannot be  held liable  to make  good the difference between the amount  which was  payable by  them and the amount which was fetched at the re-auction. [923 F-H, 924 A]      2. By  r; 36(24)  power has been conferred to re-sell a vend by  public auction  or by  private contract.  But  this latter power  has  to  be  exercised  with  great  care  and circumspection. Public  auction has to be the normal mode of selling public  property. It  is open  to  public  gaze  and eschews many  temptations to  which  private  contracts  are subject. It is only when a public auction is not feasible or has failed  to attract  bidders after  due publicity, that a private contract  can be  negotiated for disposing of public property or rights in such property. [27 B-C]      In cases  in  which  re-auctions  though  commenced  as scheduled  were  withdrawn  and  licences  were  granted  by private negotiations  on the  spot even  if there were valid reasons were  for revoking  the decision  to  hold  the  re- auctions, the re-auctions should have been postponed and due publicity given to the decision to grant licences by private negotiations. The Excise authorities could not have abruptly decided to  jettison the  original intention  of  holding  a public auction  and grant licence by private negotiations on the  spur   of  the   moment.   The   decision   smacks   of arbitrariness, is  unfair and  unreasonable  and  cannot  be allowed to stand. [926 C-D]      3. The  question whether  the State  has the  power  to charge the  particular amounts  to the  licensees of liquor- vends is concluded by judgments of this Court affirming such a power in the State Government. Judgments of the High Court to the  contrary in  all those cases in which no question of re-auction of  liquor-vends arises  must  therefore  be  set aside and to that extent the appeals filed by the State have to be allowed. [925 F-G]      Har Shankar v. Deputy Excise and Taxation Commissioner, [1975] 3  S.C.R. 254; State of Haryana v. Jage Ram, [1980] 3 S.C.R. 746;  & State  of Punjab  v. Ajudhia  Nath, [1981]  3 S.C.R. 686; referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1507 of

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1969      Appeal from  the Judgment  and order  dated the  12th - March, 1968  of the  Punjab and  Haryana High Court in Civil Writ No. 1376 of 1967. .                             WITH              Civil Appeal Nos. 1202-20 of 1970 919      From the Judgment and Order dated the 23rd day of July, 1967 of  the Punjab  and Haryana  High Court  in Civil  Writ Petition Nos.  2934 &  2955 of  1968 and  L.P.A.  Nos.  597- 599/68, Civil  Writ Nos.  242-45/69, 423, 471, 477, 783-785, 787-89 & 792 of 1969.                             AND              Civil Appeals Nos. 1564-67 of 1970      Appeals from  the Judgment  and Order  dated  the  20th November, 1969  of the  Punjab and  Haryana  High  Court  in L.P.A. Nos. 57-59-69.                             AND      Civil Appeals Nos. 743-94 of 1974.      From the  Judgment and  Order dated the 23rd July, 1969 of the Punjab and Haryana High Court in Civil Writ Nos. 343, 334, 353,  354, 365,  379, 381, 384, 385, 421, 422, 424, 456 481, 493,  518, 519,  520, 529  of 1969,  2933, 2948,  2949, 2956, 2975-78,  3021, 3111,  3188 of 68, 254, 264, 307, 308, 715, 706,  674, 662, 661, 604, 596, 588, 554, 737, 786, 791, 798, 828, 836, 945, 839 of 1969.      R.N. Poddar for the Appellants in CA. 1507.      I.S. Goel  and R.N.  Poddar for  the Appellants  in CA. Nos. 1202-20.      M.S. Gujral  and R.N.  Poddar for the Appellants in CA. Nos. 743-794/74.      K.G. Bhagat,  Additional  Soliciter  General  and  R.N. Poddar for the Appellants in CAs. 1564-67/70.      T.S. Munjral and H.K. Puri for Respondent in CA. 1507.      P.R. Mridul,  V.S. Desai, S. Rangarajan in CAs. 1204 to 1206, CA. 1564-66 and in CA. 743, 762 & 770.      T.S. Munjral,  K.C. Dua  and Poonam  Malhotra  for  the Respondents in CAs 1204-06, 1564-67, 743, 762, 764, 765-770.      R.C. Bhatia  and P.C.  Kapoor for  Respondents in  CAs. 1202-03, 1207-20, 744-761, 768, 766-769 & 771-794. 920      The Judgment of the Court was delivered by      CHANDRACHUD, CJ.  These appeals  have a  long  history. Liquor vends were put to auction by the Excise Department of the Government  of Haryana  whereupon, the  highest  bidders were given  the necessary  licences to  sell liquor. Some of the licensees  committed default  in the  payment of amounts due from them under the terms of the auction. Thereupon, the vends were  reauctioned except for three vends which, though published for reauction, were given by private negotiations. The original  licensees, who  were called  upon to  pay  the difference between  the amount which they were liable to pay and the  amount realised  by resale of the vends, filed writ petitions in the High Court of Punjab and Haryana contending that the State Government had no power to demand the various amounts which  they had  allegedly defaulted  in paying. The High Court  accepted that contention, holding that the State Government had  no  authority  to  demand  the  amounts  for failure to  pay which,  the vends  were put  to resale. As a necessary consequence of that finding, the fresh grants made by reauction or private treaty were held invalid. The result of this  was that  the writ-petitioners  stood  relieved  of their obligation  to make  good the  shortfall. This  is the broad history of these appeals.      We will  take up  Civil Appeal  No. 1507  of  1969  for

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consideration first.  The facts  of that case and the events lending to  the  present  proceedings  are  mentioned  in  a judgment of  this Court reported in State of Haryana v. Jage Ram(1). In  this case, an auction was held on March 27, 1967 for the  grant of  a  retail  vend  known  as  Biswan  Meel, Sonepat, for  the year 1967-68. The respondents Jage Ram and others offered  the  highest  bid  in  that  auction.  Under Condition 14 (iii) of the auction, respondents became liable to pay  an amount  calculated at  the rate  of Rs. 17.60 per litre, which  came to Rs. 10,92,960.00. They paid a security deposit for  the due performance of the terms of the auction but they  committed default  in payment of instalments which fell due on April 10 and April 25, 1967. On May 17, 1967 the Excise authorities  cancelled the licence of the respondents and informed  them that  the vend  will be resold on May 23, 1967 at  the risk  of the  respondents. In  pursuance of the order dated May, 17, the Biswan Meel vend was reauctioned on May 23,  the highest  bid offered  being in  the sum  of Rs. 2,46,000.00. On  July 11,  respondents were called upon by a notice to pay a sum of 921 Rs. 7,  41,577.40, being  the difference  between the amount which they  were liable  to  pay  under  the  terms  of  the original auction  and the  amount fetched  in the reauction. Thereupon, respondents  filed a  writ petition  in the  High Court challenging  the legality  of that  notice.  The  High Court  allowed   the  writ   petition,  quashed   the  order cancelling the  respondents’  licence  as  also  the  notice calling upon  them to  make good the shortfall of seven lakh rupees and odd. The High Court gave to the State of Punjab a certificate to appeal to this Court.      The appeal  came up  for hearing  before a  three-Judge Bench which  by its  aforesaid Judgment dated April 21, 1980 held that  the writ  jurisdiction of  the High  Court  under Article  226   cannot  be   used  for  avoiding  contractual obligations. On  merits, it was held by this Court following a Constitution  Bench decision  in Har Shanker v. The Deputy Excise and  Taxation Commissioner,(1)  that since  rights in regard to the manufacture and sale of intoxicants are vested in the  State, it  is open  to the  State to part with these rights,  which  are  in  the  nature  of  a  privilege,  for consideration. The Court further held that the amounts which the State  Government had  charged to  the respondents  were neither in  the nature  of a  tax nor  in the  nature of  an excise duty  but were  in the  nature of  a price  which the State Government was entitled to charge as consideration for parting with its privilege in favour of the licensees.      After setting  aside the judgment of the High Court and upholding the  demand made  by the State Government upon the respondents,  the   question  naturally  arose  whether  the respondents could  be held  liable for the shortfall between the bid  offered by  them and  the amount  realised  in  the reauction.  It   was  urged  by  the  respondents  that  the reauction which  was  held  on  May  23,  1967  was  not  in accordance with the relevant Rules and therefore, they could not be  called upon to pay the difference between the amount which they  were originally  liable to  pay and  the  amount which was  fetched in  the reauction of the vend. To be more specific, it was contended on behalf of the respondents that no notice  of the  intended resale  was given as required by Rule 36  (3) of  the Punjab Liquor Licence Rules, 1956, that no notice  was published or affixed at any conspicous public place notifying  the proposed  resale, nor  indeed  was  the resale announced  by the  beat of  drums. According  to  the respondents, one

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922 Lal Chand  went to  the office  of the  Excise and  Taxation Officer, Rohtak, and managed to have his bid accepted in the resale of  the vend.  Respondents further urged that through the resale  of the  vend was to be effective for a period of about 10  months out of the 12 months for which the vend was originally auctioned,  there was  a large  shortfall of over Rs. 7  lakhs on  account of  the fact that due publicity was not given to the resale.      By the  aforesaid judgment  dated April  21, 1980  this Court remanded  the matter  to the High Court and called for its findings  on two questions: (1) Whether it was necessary according to  the Rules  which were in force at the relevant time to  give publicity  to the  reauction, and  (2) if  so, whether such publicity was in fact given to the reauction.      The High  Court has  transmitted its  findings to  this Court, which are against the respondents. The High Court has held by  its order  dated September  29, 1980 that the Rules relied  upon  by  the  respondents  by  which  publicity  is required to  be given  to the  resale are  directory and not mandatory and  that these  rules were substantially complied with. These findings are assailed by the respondents who, by reason of  the findings  of the High Court, are virtually in the position of appellants now.      The finding  of the  High Court  that  the  rules  were substantially complied  with is  based on an affidavit filed by Shri  N.S. Bedi, Deputy Excise and Taxation Commissioner, Sonepat, in  which he  has stated  that ’all  possible steps were taken  in connection  with the  publicity done  for the reauction of  the vend’.  The affidavit  says that telegrams were issued  on May  19, 1967  by the  Excise  and  Taxation Officer, Rohtak  to the  Excise  and  Taxation  Officers  of Hissar,  Karnal,  Gurgaon,  Mohindergarh,  Ambala  and  Jind informing them  that the  reauction will  be held on May 23, 1967 at  10.00 a.m. and asking them to give due publicity to the reauction.  The affidavit further says that letters were also written  on May 20, 1967 to the ’important licensees of the State’  informing them  of the  date  and  time  of  the reauction and  requesting them  to attend  it. The affidavit asserts that  40 bids were recorded in the reauction and the 40th bid, being the highest, was accepted.      It seems to us impossible to accept the findings of the High Court.  We will  not enter into the controversy whether the rules 923 governing reauction  of vends,  of which  respondents allege breach,  are  directory  or  mandatory  in  character.  Even assuming  for   the  purpose   of  argument  that  they  are directory, we  are  unable  to  hold  that  they  have  been substantially complied  with. Rule  36 (24)  of  the  Punjab Liquor Licence  Rules, 1956  as amended  by the Notification dated March  31, 1967 says that when a licence is cancelled, it may be resold by public auction or by private contract in accordance with the procedure laid down in the other clauses of Rule 36. Clause (3) of Rule 36 runs thus :           "36(3)-The Collector  will give  timely notice  of      the date and place of the auction:           (a)   the condition  to which  the auction will be                subject;           (b)  the number  and situation  of the shops to be                licensed for the sale of (country liquor);           (c)  the prices, if any, fixed for the retail vend                of country spirit or;           (d)   the occasions,  if any,  on which  the shops                will be closed; and

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         (e)  any other  information which may be of use to                intending bidders." No notice  as required  by this  sub-rule was  given to  the public at  all.  Neither  the  time  nor  the  date  of  the reauction, nor the location or description of the vend which was to  be put  to reauction,  nor  the  conditions  of  the reauction were  ever published  by  the  Excise  authorities prior to  the reauction.  What was  done  by  the  concerned authorities was to send telegrams to Excise Officers of five districts with  a request that they should give publicity to the reauction.  The officers of those five districts seem to have sat  cool over  those telegrams  because  there  is  no evidence showing that they took any steps for publishing the reauction. A curious feature of this case is that the Excise authorities claim  to have  sent  letters  to  five  private licensees informing  them that  the reauction  was fixed for the 23rd  of May  1967 at  10.00 a.m.  These letters  are at Annexure R-8  and are dated May 20, 1967. 20th May fell on a Saturday and  the reauction was fixed for 23rd May which was the following Tuesday. 924 In the normal course, these letters would have been received by the addressees on Monday, that is, a day or less prior to the date  of the  reauction which  was to  be held  the next morning  at  10  O’clock.  In  these  circumstances,  it  is difficult to  hold that  any publicity  as such was given to the reauction.  When a rule requires ’publicity’ to be given to an  auction-sale, what is necessarily implied is that due steps must  be taken to give sufficiently advance intimation of the  intended sale  and its material terms to the members of the  public or,  at least,  to that section of the public which normally  engages in the kind of business which is the subject-matter of  the auction-sale.  Even the  five special invitees would  have found  it difficult to come prepared to take part  in resale  which was  held on 23rd May. They were not invited  to a wedding feast. They were invited to attend the resale  of a  liquor vend  and it  is well-known  that a certain amount  has to  be paid  by the successful bidder on the fall  of the  hammer. We  are also  unable to appreciate that the  Excise authorities  of the  Government of  Haryana should have  picked and  chosen some five particular persons as recipients  of the  notice of  reauction. How their names transpired   and    what   is   their   particular   status, respectability and standing in the liquor trade, are matters on which  no light is thrown. There is no material before us on which  to doubt the integrity of the authorities who were connected with  the reauction.  But their  conduct  must  be above suspicion.      The bid-sheet  shows that only six persons offered bids in the  reauction and  none of the five invitees was amongst those six.  It appears  that  a  small,  closely-knit  group participted  in  the  reauction,  successfully  keeping  out others who  might have  of  offered  adequate  bids  in  the reauction, were  they to  have notice  thereof. Indeed,  the amount which  was fetched  in the reauction itself furnishes prima  facie  evidence  that  all  was  not  well  with  the reauction. The  respondents had  given their original bid in the sum  of Rs.  10,92,960.00 which  covered a period of one year from April 1, 1967 to March 31, 1968. The reauction was held on May 23, 1967 for a licence which was to be effective for the  little over  10 months.  It is  surprising that the reauction should have fetched a bid of as small an amount as Rs. 2,46,000.      Since the reauction was not held in accordance with the rules, either in their letter or in their spirit, and since,

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especially, due publicity was not given to the reauction, it is impossible  to uphold reauction and mulet the respondents in the resultant shortfall. We 925 are of the opinion that rule 36(3) of the Rules was not even substantially complied with. It is reasonable to assume that since due publicity was not given to the reauction, adequate bids were  not  received,  resulting  in  prejudice  to  the respondents.      Accordingly, we set aside the finding of the High Court that the  relevant rules  governing reauction  of vends were complied with  substantially. Since  the reauction  did  not conform to  the rules  and the  respondents  were  prejudice thereby, they  cannot  be  held  liable  to  make  good  the difference between  the amount which was payable by them and the amount which was fetched at the reauction.      The result  is that  the appeal  filed by  the State of Haryana is  dismissed, though for different reasons, and the respondents absolved  from their liability to pay the amount which is  demanded of  them by  the notice dated May 7, 1967 issued by  the Collector  and  Deputy  Excise  and  Taxation Commissioner, Haryana.      That disposes of Civil Appeal No. 1507 of 1969.      We will  now take up for consideration two other groups of appeals,  viz, Civil  Appeals 1202  to 1220  of 1970  and Civil Appeals  743 to  794 of 1974. No question of reauction arises in  these groups  of appeals  except in Civil Appeals Nos. 1204,  1205 and  1206 of 1970. We shall deal with those three appeals  separately a little later. The question which arises in  the remaining  appeals in  these two  groups,  as regards the  power of  the State  Government to  charge  the particular amount  to the  licensees  is  concluded  by  the judgments of  this Court in Har Shunkar v. The Deputy Excise and Taxation  Commissioner, State  of Haryana  v.  Jage  Ram (supra) and  State of Punjab v. Ajudhia Nath(1). It was held in those  decisions that  the State Government has the power to charge  the particular  amounts  to  the  licensees.  The judgments of  the High Court denying to the State Government that power  must therefore  be set  aside and to that extent the appeals filed by the State of Haryana allowed.      The appeals  which now  remain  for  consideration  are Civil Appeals 1204 to 1206 of 1970 and Civil Appeals 1564 to 1567 of  1970. In  these cases  also, as  in all other cases which are  being disposed  of by this judgment, the power of the State Government to 926 levy the  particular charge  must be  upheld in  view of the aforesaid three judgments. The judgment of the High Court in these cases  shall therefore  have to  be set  aside to  the extent to  which the High Court had denied that power to the State Government.  But the  further question which arises in these appeals  is whether the respondents can be called upon to pay  the difference  between the  amounts which they were liable to  pay under  the terms  of the  original auction in their favour  and the  amounts which  were  fetched  in  the resale of  the vends. The facts of these groups of cases are even more  peculiar than  the facts of Civil Appeal No. 1507 of 1969  with which  we have  dealt at  the outset  of  this judgment. In  these cases,  it was  originally  intended  to reauction the  vends in respect of which the respondents had committed default and some publicity, not due or adequate by any standard,  was given  to the  reauction. The  reauctions commenced as  scheduled but  the Excise  authorities changed their mind  in midstream  and decided,  without any rhyme or reason, to  withdraw  the  reauctions  and  to  grant  fresh

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licences by private negotiations on the spot.      We agree  fully  with  the  very  careful  judgment  of Justice Bal Raj Tuli that due publicity was not given to the reauction. It  is stated in the affidavit filed on behalf of the State Government in the High Court that, directions were given to  the Excise  and Taxation  Officer,  Gurgaon  by  a circular letter  that he  should give  wide publicity to the reauction due  to be  held on  July 24,  1968. The  circular letter was  not placed on the record, nor was the High Court a apprised as to how the Excise and Taxation Officers of the Governments of  Haryana and  Punjab gave  publicity in their respective districts  to  the  proposed  reauctions.  It  is significant that the respondents wrote letters to the Excise and Taxation  Officer, Gurgaon  on July 20, 1968 complaining that due publicity was not being given to the reauctions and that the Rules required such publicity to be given. In spite of this,  no steps were taken to comply with the requirement of the  rules, even  though the cost of publicity would have been required to be borne by the respondents themselves.      It was  urged that  Hindi handbills were distributed in Delhi advertising  the auction.  Even those handbills do not contain the  requisite information  which is  required to be published under  rule 36(3). Tuli, J. was therefore right in not treating  the handbills as constituting due publicity to the reauctions. 927      If the  reauctions cannot be upheld since due publicity was not  given to  them, the  grant of  licences by  private negotiations during the course of reauctions would also have to be  set aside. Assuming that there were valid reasons for revoking the  decision to  hold  the  reauctions,  like  the paucity of  adequate bids  at the reauctions, the reauctions should have  been postponed  and due  publicity given to the decision to  grant licences by private negotiations. By rule 36(24), power  has been  conferred to  resell vend by public auction or by private contract. But this latter power has to be exercised  with great  care  and  circumspection.  Public auction  has  to  be  the  normal  mode  of  selling  public property. It  is  open  to  public  gaze  and  eschews  many temptations to  which private  contracts are  subject. It is only when at public auction is not feasible or has failed to attract bidders after due publicity, that a private contract can be negotiated for disposing of public property or rights in such  property. Not only is no reason forthcoming why the intention to  hold a  public auction was abandoned after the auction had commenced but the proceedings were not adjourned even for  a few  days in order to publicise the intention to resell the vends by private contract. The Excise authorities could not  have abruptly  decided to  jettison the  original intention of  holding a public auction and grant licences by private negotiations  on the  spur of  the moment, that very day  and   at  that   very  hour.  The  decision  smacks  of arbitrariness, is  unfair and  unreasonable, and  cannot  be allowed to stand.      For these reasons, respondents in Civil Appeals 1204 to 1206 of 1970 and Civil Appeals 1564 to 1567 of 1970, are not liable to  pay the difference between the amounts which they were liable  to pay  under the  original  auctions  and  the amounts which  they were  liable to  pay under  the original auctions and  the amounts which were fetched by the re-grant of licences by private contracts.      The aforesaid  discussion will  show that  the  appeals filed by the State of Haryana succeed to the extent that the State Government  has the  power to levy the charge which it demanded of  the respondents.  The finding of the High Court

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that the State Government has no such power is incorrect and must be  set aside.  The findings  called for by us from the High Court  on the  question whether due publicity was given to the  reauctions are  set aside.  We  hold  that  due  and adequate publicity  was not given to the reauctions. We also hold that the regrant of licences by private negotiations is not in  conformity with the Rules and must be struck down in the  circumstances   of  the   case.  As  a  result  of  the infirmities from  which the  reauctions and  the re-grant of licences by private 928 contract suffer,  respondents in  whose cases fresh licences were granted  either in  reauctions or  by private  contract will  not   be  liable  to  make  good  the  shortfall.  The reauctions were  necessitated  on  account  of  the  default committed  by   the  respondents,  but  the  reason  of  the shortfall is  the laxity  and arbitrariness  with which  the resale of  the vends  was held  or fresh licences granted by private contract.  There will be no order as to costs in any of these appeals.      Order accordingly. H.L.C.    Dismissing the  appeals in  which liquor vends was           resold and  allowing   And appeals in which liquor           vends was not resold. 929