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CASE NO.: Appeal (civil)  4673 of 1997 Appeal (civil)  5024 of 1999 Appeal (civil)  5828 of 1999

PETITIONER: State of U.P.& Ors.                                      State of U.P.& Ors.                                      Daya Shankar Dixit                                                       

RESPONDENT: Jagjeet Singh & Ors.                                     Vinod Kumar & Ors.                                       State of U.P. & Ors.                                     

DATE OF JUDGMENT: 16/10/2003

BENCH: CJI., Brijesh Kumar & Arun Kumar.

JUDGMENT: JUDGMENT

BRIJESH KUMAR, J. The common question involved in all the above noted three  appeals is as to whether the contractors running the liquor shops under  licence, issued by the State, in Uttar Pradesh are entitled to remission of  licence fee for the period during which the liquor shops were ordered to  be closed under Section 59 of the U.P.Excise Act, 1910 (for short ’the  Act’).  The licensees in all the three cases,  being the highest bidders for  the group of shops in question, their bids were accepted and thus they  were running the shops in the concerned areas. In the month of  December, 1992, the structure in Ayodhya was demolished.  As a sequel  thereof disturbances and tension prevailed at several places in the State  and the shops involved in the first two appeals noted above, were ordered  to be closed during the period curfew was imposed in the areas  concerned.  In so far it relates to the group of shops involved in the third  appeal, they were ordered to be closed during the period of imposition of  curfew due to communal disturbances between November, 1991 â\200\223  January, 1992,  in Aligarh.  In the above noted Civil Appeal No.4673 of 1997, the High  Court by means of the impugned judgment, quashed the order, rejecting  the request of the respondent to allow remission and to pay compensation  and remanded the matter to the authorities to reconsider their applications  under paragraphs 179 and 190 of the Excise Manual and it was also  directed that the amount as may be found liable for remission shall be  paid to the licensees with interest @ 18% p.a.  In the other appeal  no.5024 of 1997, the High Court, while quashing the order refusing to  give remission, directed the State and its authorities to adjust the licence  fee for the given period with interest @ 12% p.a.  In the third appeal,  namely, civil appeal no.5828 of 1999, the court found that the  contractor  was allowed  remission partially, which is in the discretion of the  Government and as to in what proportion the remission is liable to be  allowed would not be a matter to be decided in writ proceedings and for  that purpose licensee may seek his remedy elsewhere. The relevant facts for the purposes of this case, which admit  of no dispute, are that in the State of Uttar Pradesh grant of exclusive  privilege to manufacture or sale of liquor, at the relevant time was being  given under a licence by auction system.   The highest bidder would be  issued licence to run the liquor shops.  The auction would be held of one  shop or group of shops in a particular area.  The licensees in the above  noted appeals had made bid for group of shops which were accepted by  the authorities and  the  licences  were  issued  to  them  for  sale  of  liquor  on  the  basis  whereof  they  have  been  running  the  shops but

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the difficulty arose when curfew was imposed during certain periods due  to disturbances and communal tensions.  Before entering into the merits of the matter, it may be  appropriate to peruse some of the relevant provisions of the U.P.Excise  Act, 1910 and the U.P.Excise Manual.                  Section 24 of the U.P.Excise Act provides for grant of  exclusive privilege of manufacture and sale of liquor and it reads as  under: "24. Grant of exclusive privilege of manufacture,  etc.- Subject to the provisions of Section 31, the Excise  Commissioner may grant to any person a license for  the exclusive privilege :

(1)     of manufacturing or of supplying by wholesale,  or of both; or

(2)     of selling by wholesale or by retail, or

(3)     of manufacturing or of supplying by wholesale,  or of both, and of selling by retail.

any country liquor or intoxicating drug within  any local area."

Section 31 provides for issue of license subject to certain conditions and  restrictions. The provision reads as under : "31. Form and conditions of licences, etc.- Every  licence, permit or pass granted under this Act shall be  granted â\200\223

(a)     on payment of such fees (if any),

(b)     subject to such restrictions and on such conditions,

(c)     shall be in such form and contain such particulars,  as the (Excise Commissioner) may direct either  generally or in any particular instance in this  behalf, and

(d)     shall be granted for such period as the [State  Government] may in like manner, direct."

One of conditions of the licence which provides for normal close days for  liquor shops is Condition No.27 of the licence which provides as under : "The shop will remain closed on 1st day of every  month, Independence day, (15th August), Republic  day, (26th January) and Mahatma Gandhi birthday (2nd  October). If 1st day of any month is public holiday  then next day will be the day, when Shop will remain  closed.  In addition to this, any three days during the  excise year, will be declared by the Licensing  authority on which the shops will remain closed.  No  compensation will be given to the licensee for closure  of the shop on aforesaid days."

According to the above condition, no compensation was liable to be paid  for closure of shops as provided in the said condition.  Section 59  provides for closure of the shops in certain exigencies and for the sake of  public peace. The same reads as under : "59. Power to close shops for the sake of public  peace.- The District Magistrate by notice in writing to  the licensee may require that any shop in which any

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[Intoxicant] is sold shall be closed at such time or for  such period as he may think necessary for the  preservation of the public peace.

       If a riot or unlawful assembly is apprehended or  occurs in the vicinity of any such shop a Magistrate of  any class or any police officer above the rank of  constable who is present may require such shop to be  kept closed for such period as he may think necessary:

       Provided that where any such riot or unlawful  assembly occurs the licence shall, in the absence of  such Magistrate or police officer, close his shop  without any order."

It may be noted that the above provision does not provide either way, for  awarding remission of compensation for the period of closure of shops in  the circumstances given in Section 59 quoted above.  Section 41 empowers the Excise Commissioner to make  rules subject to previous sanction of the State Government.  Such rules  known as U.P.Excise Licences (Tender-cum-Auction) Rules, 1991 were  framed in exercise of power under  Section 41 of the Act.  Rule 34  provides for no claim for delay in supply of intoxicant.  It reads as under: "34. No claim for delay in supply.- The licensee  shall have no claim for damages or for remission of  bid-money in the case of delayed supply of the  intoxicant."

Rule 34 was, however, amended on March 10, 1992 by the U.P.Excise  Licences (Tender-cum-Auction) (Amendment) Rules, 1992 and after  amendment it reads as under : "No claim for delay in supply or for closure or not  opening of shop or curtailment in hours of sale:

(i)     The licensee shall have no claim for damages or  for remission of bid-money in the case of  delayed supply of the intoxicant.

(ii)    The licensee shall have no claim for remission  or refund of bid-money, in case a shop or some  shops, auctioned in a group remain closed or  could not be opened for any reason.  Similarly  the licensee shall have no claim for remission of  refund of bid-money in case of curtailment, at  any time in the hours of sale."

The provision relating to administration of the Excise Department is  provided for under Chapter II of the Act.  Section 10 provides as under : "10. Administration of Excise Department in  districts.- (1) The administration of the Excise  Department in any district shall, unless the [State  Government] otherwise directs, be under the charge of  the Collector of that district.

(2) Power of State Government .- The [State  Government] may by notification applicable to the  whole of [Uttar Pradesh] or to any district or local area  comprised therein â\200\223

(a) To appoint Excise Commissioner : [appoint an  officer hereinafter referred to as the Excise  Commissioner, who shall, subject to the orders of the  [State Government] have the control of the  

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administration of the Excise Department].

Xxx                             xxx             xxx"

The Excise Commissioner having the control of the administration of the  Excise Department in the State issues certain directions from time to time  which are normally compiled and known collectively as Excise Manual.   Paragraphs 179 and 190 of the Excise Manual would be relevant for the  purposes of a remission of payment of compensation. They read as under: "179. Remission in special cases.- Proposals for  remissions other than of irrecoverable balances must  be reported to the Excise Commissioner who, if he  supports them, will forward them for the orders of the  State Government.

190. Miscellaneous directions.- The following  miscellaneous directions regarding the classification  and payment of charges are noted for observance :

(1)     Payment on account of compensation for closing  shop under Section 59 of the Act or for closing  country spirit shops settled under the auction  system during the passage of troops includes (a)  the refund of an amount originally credited to  Excise and (b) 10 per cent calculated on the  amount of licence fees for the period during which  the shop was closed, on account of loss of profits.   

(2)     The latter charge only should be debited to  Contract Contingencies.  The former will be  treated as a refund and adjusted against the  separate grant for refund and drawbacks.

(3)     Compensation may be paid by the Collector on his  own authority."

The learned counsel for the licensees has drawn our attention  to Rule 34 as amended vide notification dated March, 1998 to indicate  that prior to the said amendment, there was no such provision by which  remission may not be allowable even though all the shops of the group  are closed in entirety.  The rule 34, as amended in 1998, is quoted below:  "No claim for delay in supply or for closure or for  closure or not opening of shop or curtailment in  hours of sale:

(i)     The licensee shall have no claim for damages or  for remission of bid-money in the case of  delayed supply of the intoxicant.

(ii)     The licensee shall have no claim for remission  or refund of bid money, in case of an auction  shop or some or all shops, auctioned in a group  remain closed or could not be opened for any  reason.  Similarly the licensee shall have no  claim for remission of refund of bid-money in  case of curtailment, at any time in the hours of  sale."

We may, however, presently consider the case according to the rules as  existing in 1991-92.  The effect of amendment of 1998 may be seen later. The claim of the licensees for remission of the license fee  rests upon the plea that under Section 59 of the Act there is no provision  either way to allow or prohibit such remission on account of closure  ordered under the aforesaid provisions.  The other plank on which the  licensees base their case is Clause (ii) of Rule 34 as amended in 1992

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where it particularly provided that a licensee shall have no claim for  remission in case   a shop or some shops, auctioned in a group remain  closed or could not be opened for any reason.  It further provided that no  remission would be admissible in case of curtailment in hours of sale.   The interpretation of the above noted sub-rule (ii), according to the  licensee is that a remission would not be permissible if a shop or some of  the shops out of the total number of shops of the group remain closed.   The reason being that if some of the shops out of the whole pool, remain  open the licensee would not be totally deprived of the earnings and may  also stand compensated for closure of other shops of the group of shops.   It would thus be permissible only in case of all shops of the group being  closed in the entirety.  Reliance has been placed on certain decisions of  the Allahabad High Court on the point to which we shall make a  reference a little later.  Yet another basis for claim of remission is  paragraph 179 of the Excise Manual which provides for remission in  special cases in respect of which a report is submitted to the Excise  Commissioner who, in case agrees with the proposal, would forward it to  the government for orders, whereas paragraph 190 provides for payment  on account of compensation for shops being closed under Section 59 of  the Act during the passage of troops.                 The question for grant of remission in respect of closure of  shops during the month of December, 1992 came to be considered before  the Allahabad High Court in a batch of writ petitions decided on March  30, 1993 which has been referred to in the impugned judgment as Harpal  Singh’s case (Harpal Singh & Ors. etc. vs. State of U.P. & Ors.) or  decision as rendered in the case of Ratnagar Mishra, both of whom were  petitioners in separate writ petitions before the High Court in the same  bunch of petitions.  The matter  was decided by a common judgment.   The Court accepted the contention of the petitioners in those writ  petitions that Rule 34 (ii) as amended in 1992 would apply in cases of  auction of shops in a group.  It has been held that clause (ii) of Rule 34  refers to partial closure of shops auctioned in a group, in respect whereof  no claim for remission would be permissible but it does not provide  otherwise.  That is to say clause (ii) of Rule 34 would be no bar for grant  of remission or compensation under paragraphs 179 and 190 where  closure of the shops auctioned in a group is total  and in entirety.  Where  no shop out of the group of shops remains open, in that event, clause (ii)  of Rule 34 would not be applicable.  To support the above interpretation  the Division Bench observed that Rule 34 clause (ii) refers to only partial  closure either in terms of number of shops or in terms of hours of sale.   The High Court has also distinguished the decision of another Bench of  the High Court in the case of Hanuman Prasad Jaiswal Vs. State of  U.P.(Civil Misc. Writ Petition No.2902 of 1981, decided on January 25,  1981) (1983 U.P.T.C.-362).  It was held in that case that closure of a shop  for the rest of the period of the license amounted to cancellation of the  license under Section 35(3) of the Excise Act and it was not a case of  temporary closure as envisaged under Section 59 of the Act.  Yet another  decision which has been referred to is rendered by another Division  Bench of the High Court in Civil Misc. Writ Petition No.375 of 1981, Om  Prakash Sharma & Anr. Vs. The Excise Commissioner, U.P.Allahabad &  Anr., decided on 4th July, 1991.  The Bench presided over by Hon’ble  Mr.Jusitce B.P.Jeevan Reddy (Chief Justice - as he then was) held that  remission/compensation was liable to be paid since the government had  itself failed to supply the bhang for sale of which license was granted to  the petitioner in that case on annual license fee @ Rs.10,800/- per month.  The petitioner had deposited two months’ license fee in advance but the  authorities failed to make supply of bhang to the petitioner.  The Court  observed : "In the present case we are of the opinion that the Government  having itself failed to supply bhang for more than one month to the  petitioner and for this reason, his license remained practically suspended  for the said period, there is no justification for the Government to recover  licence fee for the aforesaid period."  A reference of the Division Bench  decision in the case of Hanuman Prasad Jaiswal (supra) was also made. It  was observed that the petitioner could not sell bhang by procuring it  otherwise from any other source except as made available from the

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bonded warehouses. It was observed that the petitioners cannot be asked  to pay the licence  fee for the period because the Government itself  created a situation where petitioners were not able to run their shops.  We  have noticed that in the case of Hanuman Prasad Jaiswal also the closure  of the shop for the rest of the licenced period was at the instance of the  Government which was held to be virtual cancellation of the licence.  The  above noted two decisions do not help the petitioner.  The closure of the  shops under Section 59 of the Act would not be a situation created by  itself. During the relevant  period tension had prevailed at many places  and the communal riots had also erupted necessitating imposition of  curfew resulting in closure of shops.  Yet another decision of the High Court as referred to on the  point is dated 12th July, 1993 rendered in Civil Misc. Writ Petition  No.1200 of 1993, Om Prakash Vs. State of U.P. & Ors.  The Bench was  presided over by one of us (Mr.Justice V.N.Khare, as he then was).  Remission was claimed for closure of the shop due to imposition of  curfew from December 8 to 14th December, 1992.  An application moved  by the petitioner in that case was rejected by the Collector, Azamgarh.   Relying upon the decision in the case of Harpal Singh and Ratnagar  Mishra (supra) it was contended before the Bench that an application for  remission would be maintainable and the view taken otherwise was  incorrect. The Bench noted that the order passed by the Collector, Excise  was an appealable order before the Commissioner. But an apprehension  was expressed by the petitioner in filing the appeal before the  Commissioner that the Commissioner himself had issued a direction that  application for remission was not maintainable, therefore, it would be an  illusory remedy. The Bench observed that the apprehension was not well  founded since in the case of Ratnagar Mishra it was held that application  for remission would lie where a group of shops, has been closed in  entirety.  Therefore, the Court declined to interfere with the order and  provided that the petitioner could file an appeal before the Excise  Commissioner who shall entertain the same and decide it on merits, in  accordance with the law.  The writ petition was thus dismissed on the  ground of alternative remedy.            In the background set out above, the effect of Rule 34 clause  (ii) as amended in 1992, is to be seen as to whether the embargo to lay a  claim of remission is confined to cases where it has been an auction of  group of shops or it extends to closure of shops for whatever reason  auctioned singly or in group and closed partially or entirely.                  We may examine the provisions under the law as quoted  above in relation to closure of shops and remission/compensation in lieu  thereof.    Section 59 empowers the District Magistrate to close any liquor  shop at such time or for such period which he may consider necessary for  preservation of peace.  In cases where some riot or unlawful assembly is  apprehended in vicinity of such a shop a Magistrate or any police officer  above the rank of constable, who is present may order for closure of the  shop.  The proviso to Section 59 casts a duty on the licensee to close the  shop without any order by any authority, where a riot or unlawful  assembly occurs at the place where the shop is situated.  Apart from  providing for closure of the shop to maintain peace, Section 59 does not  provide for anything either way for awarding compensation or remission  on account of such a closure.  We then find that licence is issued under  Section 24 of the Act subject to the provisions of Section 31.  Section 31  under "clause (b)" provides that the licence would be subject to such  restrictions and on such conditions as the Excise Commissioner may  direct generally or in particular.  Condition No.27 of the licence, quoted  above, prescribes the days on which the shop would remain closed,  i.e.  first of every month, the Independence Day, the Republic Day, on  birthday of Mahatma Gandhi and apart from such days on any three days  during the excise year which would be declared by the licencing authority  to be the close days.  Then in negative form it provides that no  compensation will be given for closure of shop on the aforesaid days.   The rest, it leaves to inference. There is no provision in same terms for no  compensation for closure  on such days other than indicated in Condition  No.27 of the licence. We may then consider Rule 34 of the U.P.Excise

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(Tender-cum-Auction) Rules, 1991 (as amended in 1992) which also  deals with the subject of remission and compensation.  Clause (i) deals  with cases of delayed supply of the intoxicant in which case no  remission/damages of bid money is allowable.  Clause (ii) however, as  indicated earlier, says that there would be no  claim in case of a shop or  some shops auctioned in a group is closed for any reason nor in case of  curtailment at any time in the hours of sale.  It is to be noted that Rule 34  does not contain any blanket bar against any claim of damages or  remission on account of closure. The heading of Rule 34 no doubt  mentions about no claim for delay in supply or  closure or not opening of  shop but its contents in clauses (i) and (ii) do not provide plainly that no  remission or damages would be payable for closure or non-opening of a  shop.  The manner in which clause (ii) is worded, it appears that it  governs the shops auctioned in a group.  It restricts the scope of  claim of  remission or damages in case a shop or some shops auctioned in a group,  remain closed for any reason.  A group of shops is one whole and in case  such group of shops is only effected partially no remission or refund of  bid money can be claimed.  The Division Bench in the case of Harpal  Singh has observed that clause (ii) of Rule 34 (as amended in 1992) deals  with partial closure as would be evident from the later part of the sub-rule  which provides that there would be no claim for curtailment of any time  in the hours of sale i.e.  there would be no remission in case of  curtailment of time of a shop but the position in respect of total closure of  a shop in place of mere curtailment of time has been left unprovided for.   We may say there is no provision either way and the prohibition is only in  respect of partial closure in a day.  Similarly, the first part of the sub-rule  (ii) talks about the auction of shops in group.  Out of the group of the  shops if some shops are closed or a shop is closed there would be no  claim for any remission. It leaves a situation where all shops of a group  are closed.  Therefore, the language used for negating the claim in respect  of partial closure in relation to time or a group of shops leads to the  conclusion that cases of total closure would not be covered by Rule 34.   We may hasten to say that no such inference can be drawn that in case of  total closure of a group of shops or for whole time in a day, would  necessarily entitle a licensee for remission or damages.  All that  can be  said is that it is not impermissible. It may or may not be allowed, is liable  to be decided on its own merits.  But it would not be possible to say that  no such application for remission/damages would be maintainable as in  the case of curtailment of time of a shop or closure of one or some of the  shops in a group of shops.  The interpretation as made by the Bench in the  case of Harpal Singh cannot be faulted with.                 Rule 34 is obviously referable to Section 41 of the Act which  empowers the Excise Commissioner to make rules with previous sanction  of the State Government regulating the manufacture, supply, storage or  sale of any intoxicant.                 Then we come to the positive provisions relating to  remissions and in that connection para 179 of the Excise Manual may be  referred to, which provides for remission in special cases it may be  reported to the Excise Commissioner who in turn, if considers  appropriate, will forward for orders to the State Government.  Similarly,  para 190 of the Excise Manual provides for compensation on account of  closing of a shop during the passage of troops.  Such directions as  contained in paras 179 and 190 issued by the Excise Commissioner are  referable to Section 10 of the Act quoted above, wherein he is entrusted  with control and administration of Excise Department. The position thus  which emerges is that in some special cases a remission is permissible, if  the Excise Commissioner finds some merit in the claim, he shall then  forward it for orders to the State Government.  Rules of course do not  provide any such positive provision but only provides for cases in which  remission cannot be claimed, namely, where it relates to curtailment of  hours of the shop or partial closure of shops auctioned in a group.   Section 59 itself does not provide for any such claim for the closure but  the licence issued under Section 24 contains a condition referable to  Section 31 of the Act again confers no right to claim for closure of shop  on the days as specified in Condition No.27 plus three more days.  For the

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rest of the days or period it leaves  open the matter without any provision  therefor.  This being the position under the provisions of the Act, the  rules and the Excise Manual, there is scope for the argument that Rule 34  does not exclude the possibility of any claim for remission or damages on  account of closure of a shop totally which situation is not dealt with under  Rule 34 as amended in 1992.  However, it is introduced by amendment of  Rule 34 in 1998, as quoted earlier.    The above noted amended provision of 1998 squarely  provides for closure of a shop auctioned or some or all shops auctioned in  a group.  It may be noted that the language of clause (ii) of Rule 34  which used to be "in case a shop or some shops auctioned in a group" has  been changed to "in case of an auction shop or some or all shops  auctioned in a group".  That is to say auction of shops has been put in  two categories where it is an auction of one shop and the other shops  auctioned in a group.   It is further clarified in the amended sub-rule that  remission would not be claimed where an auctioned shop or some or all  auctioned shops in a group remain closed. It is submitted that in absence  of the provision as now exists after amendment in 1998 it could not be  said that no compensation could be claimed for the period prior to 1998  amendment. By amendment of Rule 34 in 1998 certainly the position has  somewhat changed, but in relation to the period with which we are  concerned in this case, the Amended Rule 34 (ii) (1998) would not be  attracted. Learned counsel for the licensees submit, that subsequent  amendment clarifies the position that earlier the position was different  from what is sought to be brought about by means of the amended  provision.                 We may recapitulate the position as it regards the cases  decided by the High Court of Allahabad pertaining to the above  provisions which have been referred to in the earlier part of this  judgment.  All those decisions relate to period prior to 1998 i.e. before  the amendment of Rule 34(ii).  In the case of Hanuman Prasad Jaiswal  remission/damages was allowed since on facts it was found that it was a  case which amounted to cancellation of licence for the rest of the period.   Hence, such a closure was beyond the purview of Section 59.  The case  of Om Prakash Sharma was also on a different footing but the  remission/damages was not refused; rather allowed since it was found  that the government itself was at fault in not making supply of bhang  from the bonded warehouse and did not make it available for sale to the  licensee for a period of two months.  In principle it was accepted that  remission/ damages could be claimed if due to fault of the government  the shop could not be opened for the purpose of sale for which the licence  was granted.  In the case of Harpal Singh and Ratnagar Mishra, it has  been held that such an application for remission would be maintainable  where it is a case of total closure in entirety and distinction was drawn  between a partial and a total closure.  In the case of Om Prakash, it was  observed that in view of decision in the case of Ratnagar Mishra an  application would lie for remission.  In yet another case Om Prakash  Gupta Vs. State of Uttar Pradesh, Civil Misc. Writ Petition No.408 of  1996, dated 4th December, 1996, decided by a learned Single Judge   of  the Allahabad High Court, it pertained to the year 1988 before coming  into force of 1992 Rules. It was held that an application for remission  would be maintainable and the same was allowed for closure of shops for  5 days.                 The position which finally emerges out is that an application  for remission/damages for closure of shops in entirety auctioned in a  group as is the case in the appeals in hand would be maintainable.   But it  is for the authorities concerned to consider the merit of the claim for  remission/damages and pass any appropriate order looking to the facts  and circumstances of the case in accordance with law. It would be the  position as it relates to cases prior to the amendment of Rule 34 in 1998.                 In the result, we partly allow the appeals (C.A.No.4673 of  1997 and C.A.No.5024 of 1999) filed by the State and set aside the  directions as given by the High Court for remission and damages to the  respondents with interest etc.  The other part of the order, however, is  maintained and it is directed that the applications of the respondents for

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remission/damages may be considered and appropriate orders may be  passed by the authorities in accordance with the law, expeditiously say  within a period of three months from the date of communication of this  judgment.                 So far Civil Appeal No.5828 of 1999 is concerned, it is  dismissed and the order passed by the High Court is maintained.  There  will, however, be no order as to costs.