# ) \ • LAKHANLAL ETC v. THE STATE OF ORISSA & ORS

- **Citation:** [1977] 1 S.C.R. 811
- **Court:** Supreme Court of India
- **Decided:** 1976-10-15
- **Case number:** Civil Appeals Nos. 1892-1893 of 1971
- **Bench:** Beg, Shinghal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/lakhanlal-etc-v-the-state-of-orissa-ors-6978
- **Pages:** 16

## Headnote

811
Bihar and Orissa Excise Act, 1915 as amended by Amending Acts of 1970
.and 1971-ss. 22 and 29-Power of State to auction exclusive privilege to vend
liquor-Na~w·e of payment received,
Section 22(1) of the Bihar & Orissa Excise Act, 1915, provides that the
States may grant to any person on such conditions and for such periods< as it
may think fit, the exclusive privilege of manufacturing or selling in retail country liquor. The proviso provides that a public notice shall be given of the intention to grant such exclusive privilege and that a decision would be taken after
considering objections.
Sub-section (2) provides that no gramee
of such a
privilege shall exercise it unless or until he has received a licence in that behalf
from the Collector or the Excise Commissioner.
In the present case the Collector issued a notice in form GL 10 relating to
the auction of the right to open a liquor shop at the site named in the notice
and the payment of the licence fee therefor. The respondent was a successful
bidder at the auction.
He deposited the money under r. 103 of the
Excise
Rules but the Government did not grant him the licences. In a writ petition
filed by the respondent the State Government alleged that the bids at the auction were not satisfactory and that in the interest of revenue the State Government did not accept the bids.
The High Court held (i) that the State Government had no power to interfere with the auction held by the Collector after it
had become final and could not direct reauction· and (ii) that the realisation at
the auction was not a fee but a tax not contemplated by the Act and that the
.auction price for a licence was not excise duty within the meaning of Entry 51
of List II and hence r. 103 (1) of the Rules providing for fixation of licence fee
by auction was in excess of the rule-making power of the Board. The High
Court also held that what was purported to be given under the sale notice of the
Collector was not the grant of exclusi_ve privilege under s. 22.
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By the Bihar & Orissa Excise (Orissa Amendment Ordinance) 1970 which
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later became the Act, s. 29 (2) was amended.
The State Government issued an
order for fresh settlement of the shops and the Collector accordingly called for
tenders,
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In the respondent's writ petition the High Court held that the State Government's order was invalid as the authorities for fixing the procedure· under s,
29 (2) as amended had not been specified and the order left it to the uncontrolled
discretion of the authority concerned to accept or reject any tender and to
determine the adequacy of the amount offered in the tender.
The State Government's order and the Collector"s tender notice were quashed and the Collector was directed to issue licence to the respondent.
The High Court accordingly held that the respondent was entitled to the ~rant of the exclusive privilege under s. 22 because he was the highest bidder in th.._ auction.
The Higb Court also held in a petition filed by another respondent, that in
so far as s. 29(2) provided that the sum payable under sub-s. (!) thereof shall
be determined "otherwise" than by calling tenders or by auction it was
unconstitutional· that portion of s. 29(2} should, therefore, be struck down: that
s. 6 of the Amending Act, 1970 was ultra vires as there was exercise of judicial
power by the legislature and, therefore, the licence fee collected by the State was
illegal; but that as the respondent had already enjoyed the benefit of the licence
.and voluntarily participated in the auction he WllS not entitled to it8 refund,
3-1338S.C.I./76
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SUPREME COURT REPORTS
[1977] 1 S.C.R.
Therefore. the Second Amendment Act, 1971 was passed.
The vires of the
amended sect10ns 21 and 29 was challenged in writ petition~ but the
High.
Court dismissed them.
In appeals to this Court,
HELD : ( 1) The provisions of the Act antl the express declarations
make
clear. that. the State .Govern1!1ent had the power to reject a bi

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LAKHANLAL ETC.
v.
THE STATE OF ORISSA & ORS.
(with connected appeals)
October 15, 1976
[M. 'H, BEG AND P. N, SHINGHAL, JJ.]
811
Bihar and Orissa Excise Act, 1915 as amended by Amending Acts of 1970
.and 1971-ss. 22 and 29-Power of State to auction exclusive privilege to vend
liquor-Na~w·e of payment received,
Section 22(1) of the Bihar & Orissa Excise Act, 1915, provides that the
States may grant to any person on such conditions and for such periods< as it
may think fit, the exclusive privilege of manufacturing or selling in retail country liquor. The proviso provides that a public notice shall be given of the intention to grant such exclusive privilege and that a decision would be taken after
considering objections.
Sub-section (2) provides that no gramee
of such a
privilege shall exercise it unless or until he has received a licence in that behalf
from the Collector or the Excise Commissioner.
In the present case the Collector issued a notice in form GL 10 relating to
the auction of the right to open a liquor shop at the site named in the notice
and the payment of the licence fee therefor. The respondent was a successful
bidder at the auction.
He deposited the money under r. 103 of the
Excise
Rules but the Government did not grant him the licences. In a writ petition
filed by the respondent the State Government alleged that the bids at the auction were not satisfactory and that in the interest of revenue the State Government did not accept the bids.
The High Court held (i) that the State Government had no power to interfere with the auction held by the Collector after it
had become final and could not direct reauction· and (ii) that the realisation at
the auction was not a fee but a tax not contemplated by the Act and that the
.auction price for a licence was not excise duty within the meaning of Entry 51
of List II and hence r. 103 (1) of the Rules providing for fixation of licence fee
by auction was in excess of the rule-making power of the Board. The High
Court also held that what was purported to be given under the sale notice of the
Collector was not the grant of exclusi_ve privilege under s. 22.
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By the Bihar & Orissa Excise (Orissa Amendment Ordinance) 1970 which
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later became the Act, s. 29 (2) was amended.
The State Government issued an
order for fresh settlement of the shops and the Collector accordingly called for
tenders,
, r
In the respondent's writ petition the High Court held that the State Government's order was invalid as the authorities for fixing the procedure· under s,
29 (2) as amended had not been specified and the order left it to the uncontrolled
discretion of the authority concerned to accept or reject any tender and to
determine the adequacy of the amount offered in the tender.
The State Government's order and the Collector"s tender notice were quashed and the Collector was directed to issue licence to the respondent.
The High Court accordingly held that the respondent was entitled to the ~rant of the exclusive privilege under s. 22 because he was the highest bidder in th.._ auction.
The Higb Court also held in a petition filed by another respondent, that in
so far as s. 29(2) provided that the sum payable under sub-s. (!) thereof shall
be determined "otherwise" than by calling tenders or by auction it was
unconstitutional· that portion of s. 29(2} should, therefore, be struck down: that
s. 6 of the Amending Act, 1970 was ultra vires as there was exercise of judicial
power by the legislature and, therefore, the licence fee collected by the State was
illegal; but that as the respondent had already enjoyed the benefit of the licence
.and voluntarily participated in the auction he WllS not entitled to it8 refund,
3-1338S.C.I./76
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812
SUPREME COURT REPORTS
[1977] 1 S.C.R.
Therefore. the Second Amendment Act, 1971 was passed.
The vires of the
amended sect10ns 21 and 29 was challenged in writ petition~ but the
High.
Court dismissed them.
In appeals to this Court,
HELD : ( 1) The provisions of the Act antl the express declarations
make
clear. that. the State .Govern1!1ent had the power to reject a bid.
In any event
no nght 1s created m the bidder by making a bid.
The administration of the
Excise Department and the collection of revenue within the district vest in
the Collector. It is not correct to say that the notice issued by the Collector
in form GL 10 was sufficient to show that the exclusive privilege for retail sale
of country liquor was not proposed to be given to the successful biddeis at the
auction. The High Court erred in holding that a condition regarding tbe opening of additional shops was inserted in the Fann. [821 F; 819D; 820E]
(b) It has been held by this Court that the State has the excluswe right or
privilege of manufacturing and selling liquor. The State grants such right or
privilege in the shape of a licence or a lease. The State has the power to nold
a public auction for grant of such right or privilege and accept payment of a
sum in consideration of grant of lease, that the amount payable by the bidders
as licensees was neither a fee in the technical sense nor a tax, but was in the·
nature of price of a privilege and that auctions were only a mode or medium
for ascertaining the best price obtainable thereof.
Therefore, the right granted
to the bidders by public auction and the licences issued to them was clearly an
exclusive privilege within the meaning of s. 22(1) of the Bihar Act and it was
expressly provided in s. 29 that it would be permissible for the State not to
accept payment of a sum in consideration of the grant of the exclusive privilege.
[819 H; 820A-D]
Naslzirwar etc. v. The State of Madhya Pradesh [1975] 2 S.C.R. 861; Har
Slzankar & ors. v. The Dy. Excise and Taxation Commissionu & ors. [1975J
3 S.C.R. 254; Thakur Prasad Sao & ors. v. The Member, Board of Revenue &
ors. [19761 2 S.C.R. 850; State of Orissa & ors. v. Harinaraya11 Jaiswal & ors.
[1972] 3 S.C.R. 784 applied.
.
( c) The view of High Court that after the acceptance of the bid the Collector sl10uld have issued the licence and that he committed an illegality in ordering reauction pre-supposes that a binding obligation had come into existence in
favour of the bidder by accepting a deposit from him even though
this was
done on the express condition that it was tentative and was not an acceptance
of his bid.
In the peculiar facts and circumstances of the auction, the bids were
nothing more than offers in response to an invitation to make tenoers and such
auctions were the mode' of ascertaining the highest offers.
The basic conditions for the emergence of rights through offers or conditions made and accepted
and acted upon by paying any specified or agreed price as consideration were
wanting in this case. The express and advertised terms of. the auction made it
clear that the money tendered was to be deemed to be deposited
tentatively,
pending the acceptance of the ·bid. The bids were neither offers not acceptance
by the Government. They were only offers by the bidders to purchase the rights.
The essentials of an agreement and mutuality of obligations were absent altogether. Since auction is only a mode of ascertaining the highest offer, the State
Government can determine the sum payable by any other method and hence the
High Court was wrong iri striking down
the
expression "otherwise" from
s. 29(2)(a).1 [820 H; 821' A-C]
( d) .These auctions are not ordinary auctions where a binding
agreement
could be deemed to be "Concluded at the fall of the hammer, creating mutually
enforceable obligations but are a means for ascertaining the highest offers for
the exclusive privileges which the Government alone could grant for carrying
on a trade or business considered noxious under the law, and which, because of
its special character, could be regulated in any way or even prohibited altogether by the Government. This special character of the trade
or business
would appear from the power of the State Government to grant the exclusive
privilege to carry on trade in the manufacture and sale of liquor. [821 F-GJ
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LAKHANLAL V. ORISSA
813
( e) There is no justification for the argument of the· respondents that it was
not permissible for the State Government to issue directions for reauction even
when it found that the bids at the auction were unsatisfactory.
So long as the
powers of the Government to reject a bid are not used in an unreasonable or
ma/a fide manner, their exercise cannot be questioned [821 GJ
2(a) The High Court's view that r. 103(1) )Vas ultra vires was taken under
the mistaken impression that the State was collecting a tax under the garb of a
fee and that the auction price for a licence could not be treated as duty within
the meaning of Entry 51, .List II of the Seventh Schedule.
But what was sought
to be raised was consideration and not fee.
The use of the expression "fees"
in the rule is inaccurate but that '.cannot detract from the real nature of the
recovery. [822 A-Bl
(b) The argument of the respondent that r. 103 continued to remain invalid
even after tile promulgation of the Amendment Act is not correct because s. 5
of the Se~n_d Amendment Act has substituted a new sub-s. (2) for the old subsection providing for auction and this sub-section stated that it shall be deemed
always to have been substituted".
Section 17 has validated all grants made l!>y
way of licences for manufacture and retail sale of country liquor and the amounts
J;Jaid or payable therefor. [824 G-H; 825 CJ
( c) The power to accept or reject a tender without assigning any
reason
cannot be said to be arbitrary as s. 29(2) (which has been amended with retrospective effect) itself provides that (i) it shall be exercised in the interest of the
Excise revenue, (ii) by the specified authority and (iii) under such control as
may be specified. In the instant case the State Government retained the power
of accepting or rejecting the tender or for calling of a fresh tender, to itself, and
such an order cannot be said to be an absolute or naked power of the nature
apprehended by the High Court.
Moreover, the power to accept or reject the
highest or any bid was expressly reserved under the impugned sale notification.
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[823 A-CJ
(3) Even though no authority was specified for taking action under s. 29(1)
it was the Collector who is in charge of the Excise Administration that took
action in the present case and his action was approved by the State Government.
Moreover, the State Government issued a modified order under s. 29 nominating
itself as the authority to determine the sufficiency of the sum payable. [822 DJ
( 4) It has been held by this Court that there is no fundamental right to do
trade or business in intoxi};ants and that in all their manifestations these rights
are vested in the State and without such vesting there can be no effective regulation of various forms of activities in relation to
intoxicants.
There
is
no
inherent right in a citizen to sell intoxicating liquors by retail.
[823 HJ
Krishan Kumar Naru/a etc. v. The State of J & K & ors [1967] 3 S.C.R.
50; Nashirwar etc. v. The State of M.P. [1975J 2 S.C.R. 861; Har Shankar & ors.
v. The Dy. Excise & Taxdtion Commissioner & ors. [1975J 3 S.C.R. 254; Cooveriee Bharucha v. Th~ Exci~e Commissioner [1954J S.C.R. 873 followed.
(5) Since the Bihar & Orissa Excise (Second Orissa Amendment) Act, 1971
has made good the deficiency, if any,_ by stating that the amending provisions in
ss. 2 to 5 of the Amending Act, 1970 shall be deemed always to have been so
added or inserted or substituted, the High Court was wrong in holding that there
was any exercise of judicial power by the Legislature. [824 C-DJ
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 351-359/72.
Appeals from the Judgment and Order dated 7-5-1971 of the
·Orissa High Court in O.J.C. Nos. 1185 to 1190, 1223 and 1224 of
1970 and 41171 and
Civil Appeal Nos. 1855-1863, 2091172 and 1802/74.
Appeals by Certificate/ Appeals by Special Leave from the Judg,
ments and Orders dated 7-5-1971, 3-2-1971 and 28-3-1974 of the
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SUPREME COURT REPORTS
[1977] 1 S.C.R.
Orissa High Court in 0.J.C. Nos. 1185-1190, 1223, 1224 and 1226/
70, 850/70, 589/72 and
Civil Appeals Nos. 1892-1893 of 1971, 1302, 2071 and
12351236 of 1972.
Appeals from the Judgment and Orders dated 15-5-1970, 16-41971, and 6-9-1971 of the Orissa High Court in O.J.C. Nos. 329 and
357 /70, 786/70, 242/67, 859 and 863/70.
Vinoo Bhagat for the Appellants in CAs. 351-359/72 and RR. in
CAs. 1859-1862/72.
•
Gobind Das and G. S. Chatterjee for the Appellants in rest of
the Appeals, except 1802/74 and RR. in CAs. 351-359/72 . •
R. K. Garg and S. C. Agarwal for Appellants in CA 1802/74 and
B. P. Maheshwari and Suresh Sethi for Respondents in CAs. 12351236/72.
B. Parthasarthy for RR in CA. 1802/74.
The Judgment of the Court was delivered by
SHINGHAL J.-These appeals by certificate or special leave
are
directed against judgments of the Orissa High Court dated May 15,
1970, February 3, 1971, April 16, 1971, May 7, 1971, September 6,
1971 and March 28, 1974. They arise out of several writ petitions ..
The facts which gave rise to the petitions changed from time to time
largely because of amendments in the law, and that was the reason for
the filing of separate writ petitions resulting in the impugned judgments of the High Court, but we have heard them together at the
instance of the learned counsel for the parties and will dispose them
of by a common judgment.
The nature of the controversy in these
cases is such that it will be enough to state the basic facts for the
purpose of appreciating the arguments of counsel for the parties.
The Collector of Mayurbhanj issued a notice on February 3, 1970
by which he invited tenders for the grant of licences for establishing
70 outstill shops for 1970-71. Ajodhya Prasad Shah gave the highest bid for a group of seven shops, in one lot, for Rs. 34,000 /- per
month.
His bid was accepted and his name was entered in the prescribed register, and the entry was signed by the successful bidder and
the Collector.
Ajodhya Prasad accordingly deposited Rs. 68,000/-
on account of two months' "fees", in advance, as required by rule
103 of the Board's Excise Rules, 1965.
Raghunandan Saha, who
was the unsuccessful bidder, felt aggrieved and filed an appeal, but
it was dismissed by the Excise Commissioner on March 16, 1970.
The Board of Revenue also refused to interfere.
Ajodhya Prasad
claimed that in the mean time he made arrangements for establishing
his shops and incurred an expenditure of about Rs. 1,50,000/-. He
therefore approached the authorities concerned for the issue of the
licenses for running the shops from April 1, 1970.
He approached
the Superintendent of Excise for depositing Rs: 34,000/-
for
the
month of April, but the Superintendent did not pass
the deposit
challan.
Ajodhya Prasad thereupon filed a writ petition (0.1.C. No.
329 of 1970) in the High Court with the allegation that the Collector
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LAKHANLAL v. ORISSA (Shinghal, J.)
815
was not acting according to the law as the State Gover_nment had issued instructions to him not to issue the licenses.
A]odhya Prasad
prayed in his petition for the issue of directions for the issue of licenses and quashing the State Government's instructions to the contrary.
Raghunandan Saha also filed a petition (O.J.C. No. 357 of 1970) on
April 13, 1970. The Collector issued a notice for reauction on May
1, 1970 and Ajodhya Prasad amended his petition for quashing the
notice also.
The State Government and the other resp;ndents traversed
the
claim in Ajodhya Prasad's writ petiti?n and pleade~, inter. alia, that
the bitls at the auction were not satisfactory and, m the mterest of
the State revenue the State Government had passed the orders for not
acceptincr Ajodhya Prasad's bids.
The High Court examined
the
questionf whether Ajodhya Prasad was entitled to the is3ue of the
licenses for the seven shops and whether tlle State Government had
the authority to direct the withholding and reauctioning of the lic~nses,
and held, inter alia, that the State Government had no power to mterfere with the auction held by the Collector after it had "become
final in appeal and revision", and could not direct a reauction. The
High Court examined the nature of the realisation at the auction and
. held that it was a tax which was not contemplated by section 38 of
the Bihar and Orissa Excise Act, 1915, hereinafter referred to
as
the Act, and that rule 103(1) of the Board's Excise Rules in regard
to the fees for the licenses was not autllorised by the Act .and was in
excess of the rule-making power of the Boai:d. The High Court also
held that the "auction price for a license is not excise duty within
the meaning of Entry 51 of List II of the Seventh Schedule to the
Constitution" and it was not open to the Collector "to follow
the
process of auctioning for determining the license fee" which was really
a tax in the garb of a fee. It held that the aforesaid rule 103 was
incompetent and ultra vires the Act.
On the question of grant of
the "exclusive privilege" under section 22 of the Act, the High Court
held tllat what was purported to be given under the sale notice was
not tlle grant of an exclusive privilege.
In taking that view
the
High Court stated that notice had not been issued under section 22 ( 1)
of the Act and the Collector had no authority to issue such a notice
In that view of the matter, the High Court did not express any final
opinion as to whether. the licence was to be granted for an exclusive
privilege to manufacture and sell liquor.
The High Court accordingly quashed the direction of the State Government dated April 15
1970 for reauctioning the license and declared that rule 103 ( 1)
of
the Board's Excise Rules was ultra vires the Act. Appeals Nos. 1892
and 1893 of 1971 are directed against that judgment of the
High
Court dated May 15, 1970, on certificates .
The State Gov~rnment issued the Bihar and Orissa Excise. (Orissa
Amendment) Ordmance of 1970 and the State Government issued a
fresh o~der dated August 19, 1970 under the provisions of the amended section 29(2) of the Act for fresh settlement of the shops, and
wrote to the Collector of Mayurbhanj to call for tenders in accordance with that order.
The Collector called for tenders within a
week.
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SUPREME COURT REPORTS
(1977] 1 S.C.R.
Ajodhya Prasad thereupon filed another writ petition (0.J.C. No.
850 of 1970) for quashing the Collector's tender notices and for a
direction to the authorities concerned to grant a license to him on the
basis of the earlier auction.
The Bihar and Orissa Excise (Orissa Amendment) Act, 1970
was passed on October 5, 1970 and the ordinance was repealed. That
was followed by the Orissa Excise (Exclusive Privilege) Rules, 1970,
which were made under section 89 of the Act.
The respondents in Ajodhya Prasad's writ petition No. 850 . of
1970 pleaded that the amendments to the Act were valid anl!
that
the State Government had the right to grant an exclusive privilege
for the purposes mentioned in section 22 of the Act.
The money
so realised was consideration for the exclusive privilege u1'der section 22 and was neither an excise duty nor a tax nor a fee.
It was
also pleaded that the tender was in accordance with the rules as the
authority to accept the tender was the State Government.
·
The High Court examined Ajodhya Prasad's writ petition (No.
850 of 1970 in its judgment dated February 3, 1971. It held that
the order of the State Government dated August 19, 1970 for inviting tenders was invalid as the authorities for fixing the procedure
under the amended section 29(2) (b) had not been specified,
the
Government had "appropriated for itself absolute and naked and
arbitrary power to accept any tender or reject any tender for
any
reason whatsoever or without any rhyme or reason" and the order
left it to the uncontrolled discretion of the authority concerned
to
determine the adequacy of the amount offered in the tender.
As
regards the claim for the issue of a license under section 6, the High
Court held that as the petitioner was the highest bidder on February
20, 1970 and his name was entered in the bid register and
the
entry was signed, the petitioner was entitled to the grant of
the
exclusive privilege under section 22 by virtue of section 6 (a) of the
Amending Ordinance irrespective of the validity of rule 103 ( 1) of the
Board's Excise Rules.
The High Court accordingly held that section 6(a) of the Amending Ordinance was valid and the grant of
seven shops to the petitioner, for the manufacture and retail sale of
country liquor was. therefore validated "as the grant of an exclusive
privilege under section 22 of the Act" and he was entitled to license
under sub-section (2) of that section.
The Order' of the State
Government dated August 19, 1970 and the Collector's tender notice
were quashed and the Collector was directed to issue the license for
the seven shops to him.
Siba Prasad Saha who filed the writ petition (No. 786 of 1970)
in August 1970, after the first judgment of the High Court dated
May 15, 1970 fpr refund of the license fee and for non-payment of
any fee in the future, as he was a licensee for several liquor shops,
amended it in the light of the subsequent developments.
The Hi!_'h
Court took the view in its judgment dated April 16, 1971 that sections 2 to 5 of the Amending Ordinance, or the Amending Act ( 1 7
of 1970) were not made retrospective.
It took note of this Court's
,l.AKHANLAL v. ORISSA (Shinghal, !.)
817
decision in Krishna Kumar Narula etc.
v. The State of
Jammu
mzd Kashmir and others( 1) that a citizen had the fundamental right
to carry on business: in liquor and all that the State could do was to
impose reasonable restriction thereon.
It also held that in so far
.as section 29(2) Qf the Act provided that the sum payable under
sub-section ( 1) the,reof shall be determined "otherwise" than
by
calling tenders or by auction, it was unconstitutional
That portion
of sub-section (2) (a) was therefore struck off.
The High Court
held further that what was realised by the State was not a fee or tax,
as the primary purpose of the' Act was to restrict the manufacture
.:and ·s~e of country liquor. . It accordingly held as follows,--
"We are, therefore, satisfied that the provision in Section 22
of ilie Acl for grant to any person of the exclusive privilege
of manufacture and sale of. country liquor for a sum, the
method of determination of which is provided in Section
29, are provisions which are calculated to restrict and control trade in liquor although incidentally revenue is earned
for the State thereby and that Entry in List II
of
the
Seventh Schedule confers power on the State Legislature to
enact such a regulatory measure and consequently the State
Legislature has legislative competence to enact Sections 22
and 29."
.,The High Court accordingly held that section 22 and section 29 without the expression "or otherwise" in clause (a) of sub-section 2 were
valid and constitutional.
The High Court then examined the effect
of section 6 of the Amending Act of 1970, and held that as retrospective effect was not given to sections 2 to 5 of that Act, the validity
of the money realised by the State had to be judged with reference
to the unamended provisions, and held as follow~,-
"lt, therefore, follows that by reason of the fact that Sections 2 to 5 of the Amending Act were not made retrospective
in operation, the effect o( Section 6 is that thereby the Legislature had directed the State to disregard the decision given
by this Court in Ajodhya Prasad's case (I.LR. 1971 Cutt
51) that the amount realised by the auction is illegal. This
virtually amounts to judicial exercise of power by the legisla~ure a power which the Legislature does not possess. We,
therefore hold that Section~ 2 to 5 of the Amending Act
having not been made retrospective, Section 6 is ultra vires
the powers of the Legislature."
The High Court however held that although the license fee collected
by the State was illegal, the petitioner had already enjoyed the benefit under the license and had voluntarily participated in the auction,
and was not entitled to an order for its refund.
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A similar view was taken in the judgment dated April 16, 1971 in
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0. J.C. No. 242 of 1967 and the judgment dated May 7, 1971 in
(1) [1967] 3 S.C.R. 50.
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SUPREME COURT REPORTS
[1977] 1 S.C.R.
0. J. C. Nos. 1185-1190, 1223, 1224 and 1226 of 1970.
Those
judgments have given rise to civil appeals Nos. 2071, 1855-1863 and
351-359 of 1972 (cross-appeals). 0. J. Cs. Nos. 859 and 863
of
1970 were diposecL of by separate judgments dated September 6, 1971
which followed the earlier judgment dated April 16, 1971 in Siba
Pra5acj $11ha's case and that has given rise to appeals Nos. 1235 and
1236 of l972,
·
The Bihar and Orissa Excise (Orissa, Second Amendment) Act,
1971 (10 of 1971) was passedi to set right the defects in the law.
Stated briefly that Act made the amendments to sections 2, 7, ;2.9, 37
and 90 retrospective and validated the earlier acts.
A_ writ petition (0. J. C. No. 589 of 1972) was. fil.ed to •ha~!enge
the vires of section 22. and 29 of the Act.
The mam 1udgment 111 the
matter was delivered in 0. J. C. No. 1036 of 1971, on January 3,
1974.
In that judgment the High Court examined the challenge to
the vires of sections 22 and 29 of the Act and the claim for refund of
the money already paid with reference to the amendments to the Act.
It followed the earlier decision in Siba Prasad Saha' s case of April
16, 1971 (I. L. R. 1971 Cuttack 777) and dismissed the\ writ petitions
and that has led to the filing of civil appeals Nos. 1235 and 1236 of
1972.
The-last judgment was delivered on March 28, 1974 in 0. J._C.
No. 589 of 1972, in Siba Prasad Saha's case.
The petitioner there
was the grantee of! the exclusive privilege for sale of country liquor
during the year 1972-73 for some shops in Mayurbhanj district. The
petitioner challenged the vires of sections 22 and 29(2) as amended,
and prayed for the consequential reliefs.
The High Court held that
the casi was completely covered by its deci~on dated January
3.
1974 in 0. J. C. No. 1036 of 1971 and dismissed the petition.
It will thus appear that these appeals are inter-connected and that
is why wc have thought it desirable to examine them in a common
judgment.
As has been stated, Civil Appeals Nos. 1892 an~ 1893 of 1971
arise eut of 0. J. Cs. Nos. 392 and 357 of 1970 which have been
decided by the judgment of the High Court dated May 15, 1970.
It
has been argued by Mr. Govind Das on behalf of the appellants
that the High Court erred in holding that the sale notice issued by the·
Collectoli was not ,for the grant of an exclusive privilege .under subsection ( 1) of section 22 of the Act because the Collector had no
authority to issue a notice under that sub-section, as the power of the
State Government in that respect had been delegated to the Board of
Revenue.
Sub-section ( 1) of section 22 of the Act provides that the State
Government may grant to any person, on such conditions and for such·
periods as it may think fit, the exclusive privilege, inter alia, of manufacturing or selling retail any country liquor.
The proviso to the
sub-section requires that public notice shall be given of the intention:
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LAKHANLAL v. ORISSA (Shinghal, !.)
819
to grant any exclusive privilege of that. na~ure and ~hat a decision
would be taken after considering the obiectlons made m that respect.
Once a decision is taken under sub-section ( 1) to grant the exclusive
privilege within any specified area, s~b-section (2), provides that no
grantee of such a privilege shall exercise the same ·unless or until he
has received a license in that behalf from the Collector or the Excise
Commissioner." It has been stated at the Bar by Mr. Govind Das,
and has not been controverted that, as had been averred in the memorandum of appeal, the requirement of sub-section ( l) of section 22
had already been complied ~ith by the State Government, and that
the: C~lector was not concerned anQ did not in fact issue any public
notice for purposes of sub-section ( 1) of section 22.
A rem.ling of
the Collector's notice, which admittedly was in Form G. L. 10, shows
that it r~ated- to the .auction of the right to ,open a shop at the site
named in the notice and the payment of the license fee therefor.
The
High Court therefore wen~ wrong in ·holding that the issue of the notice
in Form G. L. 10 negatived the contention that what was proposed
to be given was the exclusive privilege to manufacture and sell country
liquor.
By virtue of section 7 (1), the administration of the Exci>e
Department and the collection of excise revenue within the district
vested in the Collector, and we are unable to think, that his notice in
Form G.L. I 0 was sufficient to show that the exclusive privilege for
retail sale of country liquor, under the outstill system, was not proposed to be given to the successful bidders at the auction.
The true nature of the proceeds of the auction held by the Collector in such a case has been examined by this Court in Nashirwar etc.
etc. v. The State of Madhya Pradesh,(') Har Shankar and others v.
The Dy. Excise and Taxation Commissioner and others(2) and Thakur
Prasad Sao and others v. The Member, Board of Revenue and others
etc.( 3 ). In Nashirwar's case (supra) this Court examined the constitutional validity of the provisions in the Central Provinces Excise Act
for granting leases in respect of liquor by public auction, and of the
Abkari Act of the Kerala State placing restrictions on the manufacture
and sale etc. of liquor.
After considering all
the
decided
cases
including N arula' s case (supra) in which it was held that a citizen
had a fundamental right to do business and deal in liquor, this Court
referred to its decision in State of Orissa and others v.
Harinarayan·
.Taiswal and others( 4 ) in which Narula's case was explained, and held
as follows, -
"For these reasons we hold that the State has the exclusive right or privilege of manufacturing and selling liquor.
The State grants such right or privilege in the shape of a
licence or a lease.
The State has the power to hold a
(1) [1975J 2 S.C.R. 861.
(2) [1975] 3 S.C.R. 254.
(3) [1976] 2 s.c.c. 850.
(4) [1972] 3 S.C.R. 784.
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SUPREME COURT REPORTS
(1977] 1 S.C.R.
public auction for grant of such right or privilege and accept
payment of a sum in consideration of grant of lease."
While taking this view this Court held that the State Legislature was
authorised to make a provision for public auction by reason of
the
power contained in Entry 8 List II of the Seventh Schedule to the
Constitution and that there was "no fundamental right of citizens to
carry on trade or to do business in liquor."
The matter again came up for consideration
in
Har Shankar's
case (supra) with reference to the provisions of sections 2 7' and 3 4
of the Punjab Excise Act, 1914, where the appellants gave bids
at
public auctions. It was held that the amount payable by them,
as
licensees, was neither ? fee in the technical sense nor a ta~, but was
in the nature of "price· of a privilege" and that auctions were only
a mode or medium for ascertaining the best price obtainable therefor.
Thakur Prasad's (supra)was a case directly under the provisions
of the Act.
It also related to the outstill system.
It was held that
"the State has the exclusive right and privilege of manufacturing and
selling liquor" and that it has the "power to hold a public auction for
the grant of such a right or privilege and to accept payment of a sum
therefor." It was accordingly held that the right
granted to
the
appellants by public auction and the licenses issued
to
them was
"clearly an exclusive privilege within the meaning of section 22 ( 1)
of the Act" and that it has expressly been provided in sect;on 29
that it would be permissible for the State Government to accept payment of a sum in "consideration" of the exclusive privilege
under
section 22.
There can be no doubt therefore that the High Court erred in taking
a contrary view.
The High Court has tried to support its view by referring to the
condition stated in Form G.L. 10 for the opening of additional
shops during the currency of the license, and has
stated that an
exclusive privilege under section 22 "cannot comprehend exercise
of such power once it is granted for a specified period." This was
clearly an erroneous view because it is not disputed before us that
no such condition was inserted in the license at all.
What the licensee
therefore received under the license was an exclusive
privilege of
manufacturing and selling liquor under the outstill system within the
meaning of section 22 of the Act.
The High Court has held that after the acceptance of the bid all
that remained was to issue a license and that the Collector committed
an illegality in ordering a reauction under the dire~tio!ls of th~ St.at.e
Government.
Such a view pre-supposes that a
bmdmg
obl1(\at1011
had come into existence in favour of the bidder by accepting a deposit
from him even though this was done on the express condition
that
it was tentative and was not an acceptance of his bid.
We do not
think that what the High Court held to be an "acceptance of the bid".
11t the "auction", even after the announcement of an express condition
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LAKHANLAL v. ORISSA (Shinghal, J.)
821
attached to it that the knocking down of the bid would not really be
an acceptance of it by the Government, could be an acceptance of
the bid at all".
In the peculiar facts and circumstances of the auction,
the bids were, apparently, nothing more than offers in response to
invitation to make tenders, and such auctions were the mode of ascertaining the highest offers.
The basic conditions for the emergence
of rights through offers or conditions made and accepted, and acted
upon, by paying any specified or agreed price as consideration, were
thus wanting in this case.
In fact the express and advertised terms
of the auction made it clear that the inoney tendered was to be deemed
to be d~posited tentatively, pending the acceptance of thei bid.
So
what we have before us are neither offers nor acceptance by
the
Government.
There were only offers by the bidders to purchase the
rights, subject expressly to their acceptance or rejection by the State
·Government.
The essentials of any agreement and the urntuality
of
obligations were thus absent altogether.
Moreover it was not an ordinary auction where binding agreement
could be deemed to be concluded at the fall of the hammer, creating
mutually enforceable obligations.
Those were only so called
auctions, adopted as means for ascertaining the highest offers
for
the
exclusive privileges which the Government alone
could
grant for
carrying on a trade or business considered noxious, under the law,
and which, because of its special character, could be regulated in any
way, or even prohibited altogether, by the Government.
This special
character of the trade or business would appear from the power of
the State Government to grant the exclusive privilege to cany on
trade in the manufacture and sale of liquor. It will be recalled that
section 22(1) provides that the State Government "may grant to any
person, on such conditions and for such periods as it may think fit,
the exclusive privilege" in question.
Sub-section (2) of section 22
enacts that a grantee of such a privilege shall not exercise it "un~ess
or until he has received a license in that behalf from: the Collector or
the Excise Commissioner."
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The powers of the Government to reject a bid were thus reserved · F
both under the provisions of law and by the express declarations made
before the auction.
At any rate we do not find any basis for the
creation of a right merely by making a bid.
The extent of the powers
of the government in such matters has been indicated by this Court
in State of Orissa and others vs. Harinarayan
Jaiswal
and others
(supra). So long as these powers are not used in an unreasonable or
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mala fide manner, their exercise cannot be questioned.
In the cases
before us, it could not be said that either the Government or any of
its officers abused the power by acting either unreasonably or in a
mala fide manner, and we find no justification for the argument that
it was not permissible for the State Government to issue the directions for reauction even when it found that the bids at the auction
were unsatisfactory.
H
The High Court has . taken the view that rule 103 (1)
of
the
Board's Excise Rules regarding the manner of fixation and realisation
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822
SUPREME COURT REPORTS
(1977] 1 S.C.R.
of the consideration for the grant of a, license for the exclusive privilege of retail vend of country spirit wa& "incompetent and ultra vires
the act." The High Court took that view under the mistaken impression that the State was not entitled to collect a tax "under the garb
of a fee" and the "auction price for a license is not duty within the
meaning of Entry 51 of List II of the Seventh Schedule to the ConstiB tution." But, as has been shown, what was sought to be raised was
consideration and not "fee".
The use of the expression "fees" in the
rule is therefore inaccurate, but that cannot detract from
the real
nature of the recovery.
Mr. S. C .. Agarwal has challenged the validity of rule 103 on another ground, and we shall deal with "it
when
we come to the judgment of the High Court dated April 16, 1971.
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The next judgment of the High Court is that dated 1'ebruary 3,.
1971, in 0. J. C. No. 850 of 1970; which has. given rise to civil
appeal No. 2091 of 1972 by the State of Orissa.
We have already
stated the findings of the High Court in regard to it.
It has been argued by Mr. Govind Das that even if
the State
Government failed to specify the authority which was to determine the
D mode of determining the sum payable under sub-section ( 1) of section 29, that could not be said to matter because it was the Collector,
who was incharge of the administration of the Excise Department
and Collection of the excise-revenue under section 7 of the Act, who
took the action to issue the auction notice for the grant of the license
for the retail sale of country liquor.
Moreover, the State Government
did not object to his authority to do so and, on the other hand, directE ed him to make a reauction merely on the ground of the insufficiency
of the bids.
The Collector called for fresh tenders. It was not in
dispute before the High Court that the State Government issued a
special order under section 29 by which it nominated itself to be
the authority to determine the sufficiency of the sum payable under
section 29 ( 1) of the Act.
There is nothing in
sub-section (2) (b)
to show that that was not permissible.
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The other question in this respect is whether the following direction in the State Government's order dated August 19,.
1970 was;
valid, -
"It shall be at the discretion of the State Government to
accept or reject any tender without assigning
any reason
therefor to order for calling of fresh tender or otherwise as
the case may be."
It will be recalled that the High Court has taken the view that the
order dated August 19, 1970 and the tender notice issued in pursuance thereof were bad in law and were liable to be quashed.
The
High Court has taken the view that section 29(2) (a) ?id not ai:t~oH rise the exercise of "such absolute and naked power m determmmg
the sum of money" as was sought to be done by the order dated
A.ugu.st 19,, 1970.
It appears to us however that the power t? accept
or reject a tender without assigning any reason cannot be said to be
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LAKHANLAL v.