# 4 S.C.R. 331 ~~ V.K. ASHOKAN v. ASSTT. EXCISE COMMNR. & ORS

- **Citation:** [2009] 4 S.C.R. 331
- **Court:** Supreme Court of India
- **Decided:** 2009-03-05
- **Case number:** Civil Appeal No. 1541 of 2009
- **Bench:** S.S. Sinha, Cyriac Joseph
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/4-s-c-r-331-v-k-ashokan-v-asstt-excise-commnr-ors-25681
- **Pages:** 43

## Headnote

<j
Kera/a Abkari Shops (Disposal in Auction) Rules, 1974:
JI(
r. 6(30)- Mixing of 'diazepam' in toddy- Held: Constitutes
an offence - Licence liable to cancellation under r. 6(30) - c
Kera/a Abkari Act - ss.57(a), 56.
rr.6(28), 6(30) - Cancellation of licence under Rule 6(30)
- Forfeiture of deposit in terms of Rule 6(28) would not
automatically follow.
,--t
Kera/a Revenue Recovery Act: s. 7 - Demand for loss D
incurred by Government in holding re-auction on cancellation
of licence - Loss purportedly sustained by the State as if the
privilege of sale in toddy was transferred for three years - Held:
Licence was granted for one year only - Advertisement was E
made for one year and confirmation of sale was also accorded
for a year only - Grant of licence for carrying out business as
~ •
envisaged under Section 18A of the Kera/a Abkari Act is
imperative in character whereby a valid contract for a period
of three years was clearly impermissible in law - Therefore,
F
demand could not be made towards the loss suffered for three
years - Kera/a Abkari Act - s. 18A.
Interpretation of statutes: Heydon's rule - Applicability
of
.,-1
Administrative law: Principles of natural justice - Violation G
of -
Held: Since no notice issued to licencee before
cancellation of licence, principles of natural justice not
complied with.
331
H
332
SUPREME COURT REPORTS
[2009] 4 S.C.R
A
Jurisdiction. Statutory authorities - Where two statutory
..-•
authorities could exercise the same power, if a matter was
heard by one authority, the other could not exercise the power
Doctrines/Principles: 'res extra commercium' - Carrying
on business in liquor - Held: It is considered to be 'res extra
8
commercium '.
Words and phrases: Security - Meaning of.
Appellants were carrying on business of toddy. In
March, 1997, the State Government published a
C notification expressing its intention to part with its
privilege of vending toddy through retail shops in the
notified excise ranges for the year 1997-98 wherefor public
auction was proposed to be held. Although the
Notification for holding auction for one Financial year was
D published, the District Collector held auction for three
years purportedly on the basis of past practice. Appellants
were successful bidders. They entered into a temporary
agreement for a period of three years. They were however
granted licence to deal in the said commodity only for one
E year. The Board of Revenue confirmed the said auction.
Appellants furnished security to the extent of one-third of
the amount payable for the first year.
In September, 1997, Excise Inspectors inspected the
toddy shops of the appellants and took three bottles of
F toddy as sample. On chemical examination of samples,
'Diazepam' 1.8 mg. to 2.2 mg. per litre of toddy sample
was detected. Pursuant thereto, criminal case was
registered against appellants. However, appellants were
acquitted.
G
Separate proceedings were also initiated by Assistant
Commissioner for ..;ancellation of licences under Rule
6(28) and Rule 6(30). Licences were cancelled under Rule
6(30). So far as the orders directing cancellation of
H licences in terms of the provisions of Rule 6(28) were
,
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
333
,...'-i
concerned, they were referred to the Excise Commis-A
sioner for confirmation.
,
In the meantime, auctions were held. As no bidder
turned out, the Assistant Commissioner of Excise entered
into negotiations with some of the parties and granted
licences to them.
B
The matters were referred to the Commissioner of
Excise for confirmation of sale. At that stage, the Board
held that in cases where licences were cancelled in terms
of Rule 6(30), Rule 6(28) would also be automatically c
attracted and on that basis, the decision of Assistant
Commissioner was upheld.
On 19.12.1997, the Assistant Commissioner of Excise
issued another order forfeiting the security deposit.
Consequent to the said order, the Circle Inspector of D
Excise issued a notice dated 8.1.1998

## Text

_Characters 0–39,989 of 80,470. This is a partial read: ask again with offset=39989 for what follows._

(2009] 4 S.C.R. 331
~~
V.K. ASHOKAN
A
V.
ASSTT. EXCISE COMMNR. & ORS.
Civil Appeal No. 1541 of 2009
MARCH 5, 2009
B
[S.S. SINHA AND CYRIAC JOSEPH, JJ.]
<j
Kera/a Abkari Shops (Disposal in Auction) Rules, 1974:
JI(
r. 6(30)- Mixing of 'diazepam' in toddy- Held: Constitutes
an offence - Licence liable to cancellation under r. 6(30) - c
Kera/a Abkari Act - ss.57(a), 56.
rr.6(28), 6(30) - Cancellation of licence under Rule 6(30)
- Forfeiture of deposit in terms of Rule 6(28) would not
automatically follow.
,--t
Kera/a Revenue Recovery Act: s. 7 - Demand for loss D
incurred by Government in holding re-auction on cancellation
of licence - Loss purportedly sustained by the State as if the
privilege of sale in toddy was transferred for three years - Held:
Licence was granted for one year only - Advertisement was E
made for one year and confirmation of sale was also accorded
for a year only - Grant of licence for carrying out business as
~ •
envisaged under Section 18A of the Kera/a Abkari Act is
imperative in character whereby a valid contract for a period
of three years was clearly impermissible in law - Therefore,
F
demand could not be made towards the loss suffered for three
years - Kera/a Abkari Act - s. 18A.
Interpretation of statutes: Heydon's rule - Applicability
of
.,-1
Administrative law: Principles of natural justice - Violation G
of -
Held: Since no notice issued to licencee before
cancellation of licence, principles of natural justice not
complied with.
331
H
332
SUPREME COURT REPORTS
[2009] 4 S.C.R
A
Jurisdiction. Statutory authorities - Where two statutory
..-•
authorities could exercise the same power, if a matter was
heard by one authority, the other could not exercise the power
Doctrines/Principles: 'res extra commercium' - Carrying
on business in liquor - Held: It is considered to be 'res extra
8
commercium '.
Words and phrases: Security - Meaning of.
Appellants were carrying on business of toddy. In
March, 1997, the State Government published a
C notification expressing its intention to part with its
privilege of vending toddy through retail shops in the
notified excise ranges for the year 1997-98 wherefor public
auction was proposed to be held. Although the
Notification for holding auction for one Financial year was
D published, the District Collector held auction for three
years purportedly on the basis of past practice. Appellants
were successful bidders. They entered into a temporary
agreement for a period of three years. They were however
granted licence to deal in the said commodity only for one
E year. The Board of Revenue confirmed the said auction.
Appellants furnished security to the extent of one-third of
the amount payable for the first year.
In September, 1997, Excise Inspectors inspected the
toddy shops of the appellants and took three bottles of
F toddy as sample. On chemical examination of samples,
'Diazepam' 1.8 mg. to 2.2 mg. per litre of toddy sample
was detected. Pursuant thereto, criminal case was
registered against appellants. However, appellants were
acquitted.
G
Separate proceedings were also initiated by Assistant
Commissioner for ..;ancellation of licences under Rule
6(28) and Rule 6(30). Licences were cancelled under Rule
6(30). So far as the orders directing cancellation of
H licences in terms of the provisions of Rule 6(28) were
,
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
333
,...'-i
concerned, they were referred to the Excise Commis-A
sioner for confirmation.
,
In the meantime, auctions were held. As no bidder
turned out, the Assistant Commissioner of Excise entered
into negotiations with some of the parties and granted
licences to them.
B
The matters were referred to the Commissioner of
Excise for confirmation of sale. At that stage, the Board
held that in cases where licences were cancelled in terms
of Rule 6(30), Rule 6(28) would also be automatically c
attracted and on that basis, the decision of Assistant
Commissioner was upheld.
On 19.12.1997, the Assistant Commissioner of Excise
issued another order forfeiting the security deposit.
Consequent to the said order, the Circle Inspector of D
Excise issued a notice dated 8.1.1998 demanding a huge
amount as also the interest thereon at the rate of 18% per
annum stating that the State Government had suffered
losses in holding re-auctions and wherefor licences were
granted. Revenue Recovery proceedings were initiated E
under Section 7 of the Kerala Revenue Recovery Act.
The appellants filed writ petitions, which were
dismissed. Hence the appeals.
Allowing the appeals, the Court
F
HELD: 1. There cannot be any doubt whatsoever that
a proceeding for cancellation of licence is maintainable
on the ground of contravention of any of the provisions
of the Kerela Abkari Shops (Disposal in Auction) Rules,
1974 or the conditions of licence. The High Court has G
rightly noticed that mixing of "diazepam" with toddy
constitutes an offence in terms of the provisions of the
Kerela Abkari Act. The same being in violation of not only
the Rules but also the conditions of licence, Rule 6(30)
would be attracted. [Para 26] [358-8-C]
H
334
SUPREME COURT REPORTS
[2009] 4 S.C R.
A
2.1. Rule 6(30) and Rule 6(28) operate in two different
r
~
fields. Whereas licence can be cancelled in terms of Rule
6(28) only when the kist has not been regularly paid, Rule
6(30) applies in a wider spectrum. The consequences
emanating from Rule 6(28) cannot ensue even in cases
B
where a licence had been terminated in terms of Rule
6(30), as the rules have not stated so explicitly. It was so
done prior to the substitution of the present rule. The very
fact that the State in exercise of its rule making power
,..
,
amended the rule in terms whereof the original clause (b)
~
c
was deleted is a clear pointer to show that a conscious
step was taken not to take recourse of forfeiture of deposit
in a case where licence is cancelled in terms of Rule 6(30).
[Para 26] [358-D-F]
2.2. The principles contained in the Heydon's Rule
D
shall squarely be attracted in this case. It is a settled
•
principle of interpretation of statute that when an
amendment is made to an Act, or when a new enactment
is made, Heydon's rule is often utilized in interpreting the
same. For the purpose of construction of Rule 6(30), as it
E
stands now, the Court is entitled to look to the legislative
history for the purpose of finding out as to whether the
mischief prior to such amendment is sought to be rectified
or not. Applying the Heydon's rule, it is held that such was
}
the intention on the part of the Rule making authority. [Para
F
26] [358-G-H; 359-A-B]
Philips Medical Systems (Cleveland) Inc. vs. Indian MRI
Diagnostic and Research Ltd. & Anr. 2008 (13) SCALE 1 -
relied on.
G
3. Rule 6(32) and Rule 6(34) provide for similar
~~
consequences but in absolutely different situations. Rule
6(32) provides for forfeiture only in a case where the
amount of fine is not paid. It is not a case where Rule 6(32)
was directed to be applied as the licensees did not deposit
H
the amount of fine imposed on them. It is also not a case
•
V.K. ASHOKAN V. ASSTT EXCISE COMMNR. & ORS.
335
that forfeiture was ordered in view of the judgment of A
conviction passed against the licensees. The step taken
by the respondent State, for forfeiture of amount of
deposit as also recovery of the amount of loss purported
to have been sustained by them, could have taken
recourse to in terms of Rule 6(34) if they were convicted. B
Recourse thereto could have been taken only by the
appropriate authority. The same would not automatically
follow only because the licence was cancelled in terms
of Rule 6(30) of the Rules. Therefore, the Board was not
correct to hold that the consequences laid down in Rule c
6(28) would automatically be attracted. [Para 27] [359-8-E]
4. The order passed under Rule 6(28) of the Rules
must be confirmed by the Excise Commissioner. Such is
not the requirement in case of cancellation of licence
under Rule 6(30). [Para 28] [359-F]
D
5. A bare perusal of the provisions contained in Rule
6(28) would clearly show that the order of cancellation of
licence need not be passed only because it is lawful to
do so. The Licensing Authority in such matters exercises
a discretionary jurisdiction. The proviso appended to the E
said rule is a clear pointer to the said effect. In a given
case, it is possible for a licensee to show that although in
fact he had not paid the kist, he could not do so for
sufficient or cogent reasons; he also could raise a plea
which could have been accepted by the Licensing F
Authority that interest of justice would be subserved if he
is allowed to deposit the amount with interest or penalty,
as the case may be. [Para 29] [360-F-G]
6. It was impermissible for the Assistant Commis- G
sioner of Excise to pass the order dated 19.12.1997
opining that the consequences of forfeiture under rule
6(28) is automatic upon cancellation of licence under Rule
6(30). [Para 30] [361-A-B]
7. It is a basic rule of administrative law that where H
336
SUPREME COURT REPORTS
[2009] 4 S.C.R.
A
two statutory authorities could exercise the same power
r~
if a matter has been heard by one authority, the other could
not have exercised the power. Furthermore, the nature of
power to be exercised by the Commissioner of Excise,
namely, cancellation of licence on the one hand and
B
confirmation of a sale and/or confirmation of an order
passed by the Assistant Commissioner of Excise, on the
other, stand on different footings. The appellants had no
right to carry on business in liquor. It is considered to be
•
·res extra commercium'. [Para 30] [361-D-F]
~
c
State of Punjab & Anr. vs. Devans Modem Breweries Ltd.
& Anr. (2004) 4 SCC 26; Kera/a Samsthana Chethu Thozhilali
Union VS. State of Kera/a & Ors. (2006) 4 sec 327 - relied on.
State of M.P v. Nand/al Jaiswal (1986) 4 SCC 566;
D
Khoday Distilleries Ltd. v State of Kamataka (1995) 1 SCC
574 - referred to.
..
8. When a licence has been granted, which is subject
to exercise of statutory power, the provisions of the statute
must be complied with before a penal action thereunder
E
is taken. The law provides for compliance of principles of
natural justice, as consequence flowing from an order of
cancellation of licence has serious consequences and as
such it was obligatory on the part of the Excise
~
Commissioner to comply with the principles of natural
F
justice. He has failed to do so. [Para 31] [363-8-C]
9. The Commissioner of Excise being a higher
authority had already expressed his opinion that
application of Rule 6(28) of the Rules is automatic
consequent upon the cancellation of licence in terms of
G
sub-rule (30) of Rule 6. Assistant Commissioner of Excise
,.._~
could not have taken a different view. The proceeding,
thus, in a case of this nature should have been initiated
by the Assistant Commissioner of Excise and not by the
Commissioner of Excise. Where the statutory authority, it
H
is well known, exercises his jurisdiction conferred on him
,
•
VK. ASHOKAN V ASSTT EXCISE COMMNR & ORS.
337
by a statute, he has to apply his own mind and the A
procedures laid down therefor must be scrupulously
followed. It is furthermore a well settled principle of law
that a statutory authority must exercise its jurisdiction
within the four corners of the statute. Any action taken
which is not within the domain of the said authority would s
be illegal and without jurisdiction. [Paras 33, 32, 35] [364D; 363-D; 365-G-H]
K. I. Shephard vs. Union of India (1987) 4 SCC 431; Rajesh
Kumar & Ors. vs. Dy CIT & Ors. (2007) 2 SCC 181; Commissioner of Police, Bombay vs. Gordhandas Bhanji AIR 1952 C
SC; Ramana Dayaram Sheffy vs. The International Airport
Authority of India & Ors. Al R 1979 SC 1628 - referred to.
10.1. A binding contract no doubt comes into
operation on the acceptance thereof by the State but 0
where the acceptance of the amount of bid was subject
to an order of confirmation by a statutory authority, the
acceptance of offer must be held to be conditional and
the same being subject to the confirmation, it is difficult
to accept the contention that the contract was for the
entire period of three years. The grarit of licence for the E
purposes of carrying out business as envisaged under
Section 18A of the Act is imperative in character whereby
a valid contract for a period of three years was clearly
impermissible in law. In that view of the matter, the demand
could not have been made towards the loss suffered for F
a period of three years. [Para 36] [367-C-E]
10.2. Damages can be imposed on a licensee either
for violation of the provisions of a statute on the part of the
,.,-.!
licensee and/or under the contract. So far as the damages G
to be levied under statute is concerned, it would be governed
by the provisions of the statute. However, if damages are
to be computed under the contract, the provisions of the
Indian Contract Act and/or the terms of the contract would
be relevant. Ordinarily, they should not be mixed up. If H
338
SUPREME COURT REPORTS
(2009] 4 S.C.R.
A
having regard to the provisions of Section 18A of the Act,
~-'
no contract for a period of more than one year could have
been granted, damages could not have been calculated
on the basis of the contract. [Para 37] [367-8-E]
B
11. The term ·security' signifies that which makes
secure or certain. The State could at any time recoup its
damages or at least a part of it from the amount of security.
Sub-Rule (28) of Rule 6 confers a discretionary jurisdiction
on the Assistant Commissioner of Excise. Exercise of
~
such jurisdiction in favour of revenue, if any, would
c
furthermore be subject to confirmation by the Board of
Revenue. The said statutory authority may at its discretion
cancel the licence. While doing so, it may order a resale
at the risk and cost of the licensee. It may at its option
also direct the management of the business of the contract
D
by the departmental agency or otherwise dispose of the
..
'
same. It is only when one or other direction is issued, all
losses on account of such cancellation and resale or
departmental management or other disposal of the
privilege shall be borne by the defaulting licensee.
E
Whereas all losses are to be borne by the licensee but he
would have no right to the gain, if any, which accrues by
reason of such resale of license or taking over of the
management of the business by the departmental agency
'
....
or disposal thereof otherwise. Actual losses suffered by
F
the State by reason of any of the aforementioned actions
taken must therefore be clearly ascertained. As Rule 6(28)
provides for a penal clause, the principles of natural justice
were required to be applied. Rule 6(28) itself provides that
any sum due from a licensee on account of kist, tree-tax
G
or otherwise may be recovered from his deposit subject
.. "'
only to the condition that if any adjustment is made from
the deposit, the licensee would be bound to replace the
sum adjusted therefor within fifteen days of receipt of
notice from the Excise Officer in charge of the Division in
H
which his shop is situated. The proviso appended confers
V.K. ASHOKAN V. ASSTT EXCISE COMMNR & ORS.
339
,--.
a wide jurisdiction upon the Assistant Excise A
Commissioner to restore the licence cancelled by him in
the event the defaulter pays up the amount defaulted by
him before the expiry of one month from the date of such
cancellation. The said rule, therefore, does not postulate
that consequences must ensue on happening of one B
contingency or the other. [Para 38] [369-C-H; 370-A-D]
r
Chetumal Bu/chand vs. Noorbhoy Jafferji AIR 1928 Sind
89 - referred to.
12.1. If damages cannot be calculated and the terms c
of the contract provides therefor only for penalty by way
of liquidated damages, having regard to the provisions
contained in Section 74 of the Indian Contract Act a
reasonable sum only could be recovered which need not
in all situations even be the sum specified in the contract. 0
[Para 39] [370-E-F]
Mau/a Bux vs. Union of India AIR 1970 SC 1955; Shree
Hanuman Cotton Mills & anr. vs. Tata Air Craft Ltd. AIR 1970
SC 1986; Fateh Chand vs. Balkishan Oas (1964) 1 SCR 515relied on.
E
Natesa Aiyar v. Appavu Padayachi (1913) I.LR. 38 Mad.
178; Singer Manufacturing Company v. Raja Prasad (1909)
I. L. R. 36 Cal. 960; Manian Patter v. The Madras Railway
Company (1906) l.L.R.19 Mad. 188 - referred to.
12.2. Forfeiture of earnest money under a contract
for sale of property whether movable or immovable, if the
amount is reasonable, would not fall within Section 74.
[Para 40] [372-F]
F
13. Where under the terms of the contract the party G
in breach has undertaken to pay a sum of money or to
forfeit a sum of money which he has already paid to the
party complaining of a breach of contract, the undertaking
is of the nature of a penalty. [Para 40] [372-H; 373-A]
H
340
SUPREME COURT REPORTS
(2009] 4 S.C.R.
A
Saurabh Prakash vs. DLF Universal Ltd. (2007) 1 SCC
r'
228 - relied on.
Kunwat Chiranjit Singh v. Har Swarup A. I. R. 1926 PC. 1;
Roshan Lal v. The Delhi Cloth and General Mills Company
Ltd., Delhi I. L. R. 33 All. 166; Muhammad Habibu/lah v.
B
Muhammad Shafi l.L.R. 41 All. 324; Bishan Chand v. Radha
Kishan Das l.D. 19 All. 490 - referred to.
14. Raids were conducted; shops were sealed on
•
specific allegations, namely, the licensees had mixed some
•
c
poisonous substance with liquor. They were prosecuted
for adding 'Diazepem'. Evidently, the fact that the chemical
report showed that 'Diazepem' had been mixed with toddy
have prejudiced the licensing authority. Such prejudice
is apparent even on the face of the impugned order
passed by the High Court. It has not been denied that all
D
the appellants have since been acquitted of the said
charges by a competent criminal court. In the peculiar
'
facts and circumstances of this case, therefore, it was not
a case where even Rule 6(28) could have also been
resorted to. [Para 41] [373-B·E]
E
Case Law Reference
2008 (13) SCALE 1
relied on
Para 26
-
(2004) 4 sec 26
relied on
Para 30
• ..
F
(2006) 4 sec 327
relied on
Para 30
(1986) 4 sec 566
referred to
Para 30
(1995) 1 sec 574
referred to
Para 30
(1987) 4 sec 431
referred to
Para 32
G
(2007) 2 sec 181
referred to
Para 32
r·-.
AIR 1952 SC 16
referred to
Para 34
.....
AIR 1979 SC 1628
referred to
Para 34
H
AIR 1928 Sind 89
referred to
Para 38
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
341
,,"'1
AIR 1970 SC 1955
relied on
Para 39
A
AIR 1970 SC 1986
relied on
Para 39
(1964) 1 SCR 515
relied on
Para 39
(1913) I.LR. 38 Mad. 178
referred to
Para 39
B
(1909) I.LR. 36 Cal. 960
referred to
Para 39
"
(1906) l.LR.19 Mad. 188
referred to
Para 39
I'
(2007) 1 sec 22a
relied on
Para 40
A.l.R. 1926 P.C. 1
referred to
Para 40
c
l.L.R. 33 All. 166
referred to
Para 40
I.LR. 41 All. 324
referred to
Para 40
l.D. 19 All. 490
referred to
Para 40
D
t
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1541
of 2009
From the Judgement and Order dated 17.10.2005 of the
H6n'ble High Court of Kerala at Ernakulani in 0.P. Nti. 5742 of E
1998 (H).
WITH
-1
Civil Appeal No. 1542 of 2009
Civil Appeal No.1543 of 2009
F
Civil Appeal No. 1544 of 2009
Civil Appeal No. 1545 of 2009
Civil Appeal No. 1546 of 2009
G
.. ~
Civil Appeal No. 1547 of 2009
R.F. Nariman, Harish N. Salve, Mathai M. Paikadey, F.M.S.
Anam, Fazlin Anam, N.K. Unnikrishnan, Roy Abraham, Seema
Jain, Vimlesh Kumar, Himinder Lal, for the Appellants.
H
A
B
342
SUPREME COURT REPORTS
(2009] 4 S.C.R.
TLV Iyer, G. Prakash, for the Respondent.
The Judgement of the Court was delivered by
S.B. SINHA, J.
1. Leave granted.
2. Interpretation of the provisions of the Kera la Abkari Act
(for short, "the Act") and the Rules framed thereunder known as
the Kerala Abkari Shops (Disposal in Auction) Rules, 1974 (for
short, "the Rules") is the question involved in these appeals.
C
They arise out of a common judgment and order dated
17.10.2005 passed by a Division Bench of the High Court of
Judicature at Kerala at Ernakulam in O.P. No. 5742of1998 (H).
W.A. No. 1822 of 1998 (C). O.P. No. 5910 of 1998 (C), 0. P.
No. 5783 of 1999 (L), O.P. No.10276 of 1998 (W), and W.A.
D
No.1790 of 1998(C).
E
3. The questions involved herein broadly arise in the
following factual matrix in the cases. We would, however, notice
the fact involved in the individual cases also.
4. Appellants herein carry on business in toddy. For the
purpose of grant of privilege in terms of the provisions of the
said Act and the Rules framed thereunder, the State frames
policy-decision from time to time.
The position of the parties with reference to the name of
F
the licenses and the other relevant dates would appear from the
following:
SL S.L.P
Licencee of
Date of
Rule
Details of
Details of
No No.
Shop Nos.
cancellation
under
Writ
Criminal
& Excise
of Licence
which
Petition
Case
Range
licence is filed before
cancelled the High
Court by
the
petitioners
1.
25060 of Licencee of 26.09 1997
Rule 6
Writ
Accused
H
2005
Shop Nos.
vide order of
(30) of
Petition
No. 1 in
•
-1
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
343
[S.B. SINHA, J.)
(V.K.
55 to 96 of
Assistant
the
O.P.No.
S.C.No.83
Ashoka ) Thrissur
Excise
Abkari
5742of.
of 1999 -
Excise
Commissioner shops
1998
acquitted
Range
(Disposal dismissed by the
in
by the
Sessions
Auction)
judgment
Judge by
Rules.
impugned
judgment
in the
dated
S.L.P.
16.05.2008
2. 25467of
Licencee of 27.10.1g97
Rule 6
Writ
Accused
2005
Shop Nos.
vide order of
6(28) of
Petition
No. 2 in
(V.K.
109 to 222
the Assistant
the
O.P. No.
S.C.
Ashokan
of
Excise
Abkari
6609 of
No.21 O of
lrinjalakuda Commissioner shops
1998 -
1999 -
Excise
(Disposal
judgment
acquitted
Range
in
of Single
by
Auction)
Judge on
judgment
Rules.
21.07.1989 dated
Writ
16.05.2008
Appeal No.
1822 of
1998
dismissed
by the
impugned
judgment
in this
S.L.P.
3. 1568of
Licencee of 26.09.1997
Rule 6
Writ
Accused
2006
Shop Nos.1 vide order of
(30) of
Petition
No. 2 in
(PK
to 54 of
the Assistant
the
O.P.No.
S.C.
Rajan)
Cherpu
Excise
Abkari
5910 of
No.293 of
Excise
Commissioner shops
1998
1999 -
Range
(Disposal dismissed acquitted
in
by the
by
Auction)
judgment
judgment
Rules.
impugned
dated
in this
15.11.2005
S.L.P.
4. 1773 of Licences of 25.05.1998
Rule 6
Writ
No
2006
Shop Nos.1
vide order of
(28) of
Petition
criminal
(T.P.
to 52 and
the Assistant
the
O.P. No.
case
Saleem) 137 & 138
Excise
Abkari
5783 of
against him
of
Commissioner shops
1999
Vadanapally
(Disposal dismissed
Excise
in
by the
B
c
D
E
F
G
H
344
SUPREME COURT REPORTS
[2009) 4 S.C.R.
A
Range
Auction)
judgment
Rules.
impugned
in the
S.LP.
5 2166 of
Licensee of 26.09.1997
Rule 6
Writ
Accused
2006
Shop Nos.
vide order of
(30) of
Petition
No. 1 in
(K.C.
97 to 171 of the Assistant
the
O.P 10276 SC. No. 8<
B
Rajan)
Anthikad
Excise
Abkari
of 1998
of 1999 -
Excise
Commissioner shops
dismissed
acquitted
Range
(Disposal by the
by
in
judgment
judgment
•
Auction)
impugned
dated
Rules.
in this SLP. 02.09.2006
•
c
6. 1696 of Petitioner is 26.09.1997
Rule 6
Writ
Petitioner's
2006
the widow
vide order of
(30) of
Petition
late
(Thankam of KV
the Assistant
the
O.P. No.
husband
RamaRamaExcise
Abkari
5910
of was
krishanan) krishnan
Commissioner shops
1998 -
accused
who was a
(Disposa I dismissed No. 3 in
co-licencee
in
by the
S.C.No.
of shop
Auction)
judgment
293 of
D
..
Nos. 1 to 54
Rules.
impugned
1999 which
of Cherpu
in this SLP case ended
Excise
in acquittal
Range
by
judgment
dated
15.11.2005
E
7. 6091 of
Petitioner is 27.10.1997
Rule 6
Writ
Petitioner's
2006
the widow
vide order of
(28) of
Petition
late
(Thankam of KV
the Assistant
the
No. 6609
husband
RamaRamaCommissioner Abkari
of 1998 -
was
krishnan) krishnan
shops
dismissed accused
who was a
(Disposa I by Single
No.1 in
F
co-licensee
in
Judge by
S.C. No.
of Shop
Auction)
judgment
210 of
Nos. 109 to
Rules.
dated
1999 which
222 of
21.7.1998
case ended
lrinjalakuda
WA No.
in acquittal
G
Excise
1790 of
by
•--.
Range.
1998
judgment
dismissed dated
by the
16.05.2008
judgment
impugned
H
in this SLP.
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
345
.
[S.S. SINHA, J.]
A--Y
5. On or about 6.3.1997, the Government of Kerala A
published a notification in its Gazette expressing its intention to
part with its privilege of vending toddy through retail shops in
the notified Excise Ranges for the year 1997-98 wherefor public
auction was proposed to be held on the dates notified therefor.
We are concerned with shops situate within Thrissur Range, B
lrinjalakuda Range, Cherpu Range, Vadanappally Range and
Anthikad Range.
6. Indisputably, although the notification for holding auction
for one Financial Year was published, the Collector of the District
held auction for three years, namely, 1997-98, 1998-99 and C
1999-2000 purporting to be on the basis of the past practice
prevalent therefor. Appellants participated in the said auction
and became the successful bidders. On the date of auction,
they entered into a temporary agreement in Form-II appended
to the Rules, which was for a period of three years. They were, D
however, granted license to deal in the said commodity only for
one year.
7. The Board of Revenue is said to have confirmed the
said auction. Appellants upon having declared to be the
successful bidders furnished security to the extent of one-third E
of the amount payable for the first year.
8. On or about 6.9.1997 and 7.9.1997, Excise Inspectors,
inspected the toddy shops of the appellants and took three bottles
of toddy as sample. They were sent for chemical examination F
to the specified laboratories. A common certificate was obtained
in respect of all samples stating that "Diazepam" had been
detected therein at varying rates of 1.8 mg to 2.2 mg per litre of
toddy sample. Pursuant thereto, criminal cases were registered
against the appellants. It is now accepted that appellants have G
been acquitted of the charges leveled against them in the
criminal proceedings.
9. Separate proceedings were also initiated by the
Assistant Excise Commissioner for cancellation of licenses.
Those proceedings, as would appear from the following H
346
SUPREME COURT REPORTS
[2009] 4 S.C.R.
A
chart were initiated either under Rule 6(28) or Rule 6(30) of the
.... '"
Rules.
Proceeding initiated Range
under Rule
B
Civil Appeal @ SLP
6(30)
Thrissur
(C) No. 25060/2005
Civil Appeal @ SLP
6(28)
lrinjalakuda
•
"
c
(C) No. 25467/2005
Civil Appeal @ SLP
6(30)
Cherpu
(C) No. 1568/2005
Civil Appeal @ SLP
6(30)
Cherpu
0
(C) No. 1696/2006
' '
Civil Appeal @ SLP
6(28)
Vadanappally
(C) No. 1773/2006
E
Civil Appeal @ SLP
6(30)
Anthikad
(C) No. 2166/2006
Civil Appeal @ SLP
6(28)
lrinjalakuda
"
~
(C) No. 6091/2005
F
10. Licenses were cancelled in terms of the said provisions
on or about 26.9.1997. So far as the orders directing
cancellation of licences in terms of the provisions of Rule 6(28)
are concerned, they were referred to the Excise Commissioner
for confirmation.
G
•· -.,,
11. In the meantime, auctions were held. As no bidder
turned out, the Assist::mt Commissioner of Excise entered into
negotiations with some of the parties on the basis whereof, the
licenses were also qranted to the said parties for the remaining
H
period.
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
347
[S.B. SINHA, J.]
"' -"'
12. The matters were referred to the Commissioner of A
Excise for confirmation of sale. At that stage, the Board
purported to have come to the conclusion that in cases where
licenses were cancelled in terms of the provisions of Rule 6(30)
of the Rules, Rule 6(28) would also be automatically attracted
and on the basis thereof, the decision of the Assistant B
Commissioner was upheld.
~
13. On or about 19.12.1997, the Assistant Commissioner
r
of Excise issued another order forfeiting the amount of security
deposit purporting to act in terms of Rule 6(28) of the Rules,
'
stating:
C
"As per order number first cited, the licences of toddy
shops of Cherpu, Thrissur and Anthikad ranges was
cancelled under Rule 6 (30) of Abkari Shops (Disposal in
Auction) Rules 1974, since the Original purchasers of toddy D
shops of above ranges for the year 1997-2000 violated
the rules and licence conditions and committed the
offences punishable under Section 57(a) and 56 of Abkari
Act and also Section 22 of NDPS Act 1985 conse-quent
on the detection of Diazepam in the samples of toddy
sent for chemical analysis from toddy depot and toddy E
shops of the above ranges.
Board as per reference 2nd cited have ordered that rule
6(28) of Abkari Shops (Disposal in Auction) Rules 1974
is automatically attracted in these cases and uphold the F
decision of the Asst. Excise Commissioner, Thrissur of
cancellation of the licence made as per rule 6(30) read
with rule 6 (28).
Hence as per rule 6(28) of Abkari Shops (Disposal in
Auction) Rules 1974, the amount of Rs.58,50,000/- in G
respect of toddy shops of Cherpu range, Rs.44,40,000/-
in respect of toddy
shops of Thrissur range and
Rs.88,50,000/- in respect of toddy shops of Anthikad range
deposited by the original purchasers of the above
toddy shops as per TR No. 4232, 4230 and 4229 H
348
SUPREME COURT REPORTS
[2009] 4 S.C.R
A
respectively are hereby forfeited to Government with
,... ...
immediate effect."
14. Consequent to the said order, the Circle Inspector of
Excise issued a notice dated 8.1.1998 demanding a huge
B
amount as also the interest thereon at the rate of 18% per annum
stating that the Government of Kerala had suffered losses in
holding re-auctions which took place on or about 11.11.1997
and wherefor licences had been granted with effect from
~
14.11.1997. Revenue Recovery proceedings were initiated
,
under Section 7 of the Kerala Revenue Recovery Act on
c
11.3.1998 asking the appellants to remit the amount mentioned
therein with interests as arrears in respect of toddy shops
specified therein.
15. Two of the appellants before us had filed writ petitions.
D
During the pendency of the said writ petitions, Tahsildar
~
(Revenue Recovery) issued an order in Form 11 attaching the
'
immovable properties of the appellants whereupon applications
for amendment of the writ petition were filed, inter alia,
questioning the proceedings initiated subsequent to the filing
E
of the writ petition.
16. A learned single judge of the High Court dismissed
the said writ applications. Two writ appeals were preferred
thereagainst. In the meanwhile, other appellants had also filed
\
writ petitions. The Division Bench, however, withdrew all other
R
F
writ applications before it and disposed of the pending writ
petitions as also the said writ appeals by a common judgment.
17. The High Court noticed the contentions raised before
it in paragraph 11 of its judgment, which reads as under:
G
"Counsel submitted that sub-rule (30) of rule 6 of the Kera la
,.... "
Abkari Shops (Disposal in Auction) Rules was not in
existence prior to 30.3.1996 but was substituted on
30.3.1996 which has not conferred any power on the depart
ment to cancel the licence. Sri K. Ramakumar appearing
H
for some of the licencees submitted that licences were
V,K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
349
[S.B. SINHA, J.]
_ _,--.i
cancelled without notice to the petitioners and the A
principles of natural justice have been violated. Further
counsel also referred to Section 26 of the Kerala Abkari
Act and submitted that only Commissioner has got the
power to cancel the licence and the cancellation of the
licence by Assistant Commissioner was without B
jurisdiction. Identical are the contentions raised by
Advocate Sri. Premjit Nagendran as well. Additional
,
Advocate General on the other hand supported the
action of the department." ·
Holding that the order cancelling the licence having been C
passed as "diazepam" had been detected on chemical
examination of the toddy seized from the business premises of
,
the appellants and furthermore they having defaulted in payment
of kist, committed an offence punishable under Section 57 A(iii)
and Section 55(1) of the Abkari Act.
D
18. The contention raised before the High Court that the
licence was granted for a period of one year and hence for rest
of the years appellants were not liable to pay the kist amount,
was rejected stating:
E
"Consequently contention of the counsel that licence was
also for one year and therefore petitioner cannot be held
liable for the rest of the period cannot be accepted.
Respondent State is legally entitled to recover the loss
caused to the State by issuing demand notice to the F
petitioners. We are of the view that the action taken by the
Respondents is perfectly in order and in accordance with
the Kerala Abkari Act and the Rules framed thereunder."
19. Mr. R.F. Nariman, Mr. Harish Salve, Mr. Mathai M.
Paikadey, the learned Senior Counsel and Mr. Roy Abraham, G
learned counsel appearing in support of these appeals raised
the following contentions:
i.
Proceedings under Rule 6(28) and under Rule 6(30)
being different in nature, while cancelling licences in H
350
SUPREME COURT REPORTS
[2009] 4 S.C.R.
A
terms of Rule 6 (30) of the Rules the consequences
,.... ">-..
emanating from Rule 6(28)are not envisaged under
the statute.
ii.
Rule 6(30), as it originally stood, contained a
B
provision for forfeiture of the amount deposited and
the same having been deleted from the statute book,
recourse to the said provision was wholly
impermissible.
iii.
The licences having been granted for one year;
~ '
c
assuming that the agreement was entered into by
and between the Commissioner of Excise and the
appellants for a period of three years, the amount of
purported loss could have been calculated only for
the rest of the year.
D
iv.
In any event, as there are some cases, in which there
~
was no failure to pay kist and in any event having
...
regard to the fact that the amount of security furnished
would cover the entire kist amount, Rule 6(28) could
not have been taken recourse to.
E
v.
Proceedings for forfeiture of the deposit, etc. in any
view of the matter being a matter arising out of a
contract qua contract, it was obligatory on the part of •
the State to prove actual damages, inasmuch as for
F
invoking such a penal clause, the State was bound
to establish breach of contract on the part of the
licensees and consequential entitlement to damages
particularly when the contracts themselves had been
terminated.
G
vi.
The Commissioner of Excise could not have
confirmed cancellation of licenses and consequential
t· -"'
orders in such cases which are covered by Rule 6(30)
and not Rule 6(28).
20. Mr. T.L.V. Iyer, learned Senior Counsel appearing on
H
behalf of the State of Kerala, on the other hand, would contend:
,,-
V.K. ASHOKAN V. ASSTT EXCISE COMMNR & ORS.
351
' fl
[S.B. SINHA, J.]
i.
Keeping in view the scheme of the Act and the Rules, A
appellants having with their eyes wide open took
part in the bid for a period of three years and having
entered into agreements for the said period cannot
be permitted to contend that the contract was for one
yea~
B
ii.
Having regard to the provisions contained in Rule
5(10) of the Rules read with conditions of the
Agreement as contained in Form I and Form II
appended thereto, the mode of determination of the
quantum of damages being fixed, namely, the original C
amount minus resale amount plus cost of resale, the
amount which was payable to the State and the
amount which was offered by the new purchasers
together with interest at the rate of 18% per annum,
the losses suffered during the period 1998-99 and D
1999-2000 can also be recovered by the State
having regard to the terms as contained in the
agreement as it is not denied or disputed that the
appellants executed agreement for a period of three
~ara.
E
21. The Act was enacted by Maharaja of Cochin By Act
No.10of1967, it was extended to the whole of Kerala. By reason
of the provisions of the said Act, manufacture or sale of liquor,
including country liquor is regulated. The regulatory statute,
indisputably, is made in terms of Entry 8 of List II of the Seventh F
Schedule of the Constitution of India. A licence is granted under
the Act. The licensees indisputably are required to carry out the
manufacture or sale of country liquor in terms of the provisions
of the Act, rules framed thereunder as also the terms and
conditions of the licence.
G
"Country Liquor" has been defined in Section 3(12) of the
Act to mean 'toddy or arrack'.
'Toddy' has been defined in section 3(8) oftheActto mean:
H
A
B
c
D
E
F
G
H
352
SUPREME COURT REPORTS
[2009] 4 S.C.R.
'Toddy'' means fermented or unfermented juice drawn from
coconut. palmyra. date, or any other kind of palm tree."
Section 18A provides for grant of exclusive or other
privilege of manufacture, etc. on payment of rentals. It reads as
under:
"1 BA. Grant of exclusive or other privilege of
manufacture, etc. on payment of rentals:- (1) It shall
be lawful for the Government to grant to any person or
persons, on such conditions and for such period as they
may deem fit, the exclusive or other privilege-
(i)
of manufacturing or supplying by wholesale; or
(ii)
of selling by retail; or
(iii) of manufacturing or supplying by wholesale and
selling by retail, any liquor or intoxicating drugs within
any local area on his or their payment to the
Government of an amount as rental in consideration
of the grant of such privilege. The amount of rental
may be settled by auction, negotiation or by any other
method as may be determined by the Government,
from time to time, and may be collected to
·the exclusion of, or in addition, to the duty or tax
leviable under Sections 17 and 18.
(2) No grantee of any privilege under sub-section (1) shall
exercise the same until he has received a licence in that
behalf from the Commissioner.
(3) In such cases, ifthe Government shall by notifiation so
direct, the provisions of Section 12 relating to toddy and
toddy producing trees shall not apply."
22. The State of Kera la in exercise of its rule making power
conferred upon it under Sections 18-A and 29 of the Act framed
rules known as The Kerala Abkari Shops (Disposal in Auction)
Rules, 1974.
..
f
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS.
353
[S.B. SINHA, J.]
Rule 7(2) of the Rules reads as under:
A
"7(2). No toddy other than that drawn from the Coconut
Plamyrah or Choondapana palms shall be sold by the
licensees. All toddy kept or offered for sale should be of
good quality and unadulterated. Nothing shall be added to
it to increase its intoxicating power or for any other B
purpose."
Rule 2(d) defines the term "Assistant Excise
Commissioner" to mean an Officer in executive-charge of an
Excise Division and includes any officer appointed by the c
Government under clause (b) of Section 4 of the Act to exercise
the powers and to perform the functions of an Assistant Excise
Commissioner under these rules. Rule 2(db) defines the term
"Auction purchaser" to mean an open bidder or a tenderer
deciared as an auction purchaser in the auction. The term D
"Board of Revenue" is defined by Rule 2(e) to mean the Board
of Revenue, Kerala constituted under the Kerala Board of
RevenueAct, 1957.
Rule 3 empowers the State to take policy decisions for
grant of privilege for any period in all or any of the independent E
shops within the tracts or taluks to be notified in the Gazette by
way of public auction shop by shop or in lot or lots, inter alia, by
the Collectors of the Districts. Rule 4 provides that the number,
location and the period for which the privilege of vending, selling
or supplying is to be auctioned and the dates of auction shall be F
notified in the Gazette at least 10 days before the
commencement of the auctions. Rule 5(10) envisages execution
of a temporary agreement between the auction purchaser and
the auctioning officer. The auction purchaser has to furnish
solve·ncy certificate and 30% of the bid amount. Rule 5(15) G
provides that in addition to the solvency certificate and cash
security mentioned in sub-rule (10), the auction purchaser shall
furnish such personal sureties as may be required of him to the
satisfaction of the Assistant Excise Commissioner.