TMI Blog1994 (2) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... o question of the State power being involved in such contracts. It bears repetition to say that the State does not guarantee profit to the licensees in such contracts. There is no warranty against incurring losses. It is a business for the licensees. Whether they make profit or incur loss is no concern of the State. In law, it is entitled to its money under the contract. It is not as if the licensees are going to pay more to the State in case they make substantial profits. We reiterate that what we have said hereinabove is in the context of contracts entered into between the State and its citizens pursuant to public auction, floating of tenders or by negotiation. It is not necessary to say more than this for the purpose of these cases. What would be the position in the case of contracts entered into otherwise than by public auction, floating of tenders or negotiation, we need not express any opinion herein. The appeals preferred by the State are allowed and the appeals preferred by the licensees/contractors are dismissed. - C.A. 3442 OF 1984 - - - Dated:- 22-2-1994 - ERMA, JAGDISH SARAN, YOGESHWAR DAYAL AND JEEVAN REDDY, B.P. , JJ. JUDGMENT: The Judgment of the Court wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the Government, from time to time, and may be collected to the exclusion of, or in addition to, the duty of tax leviable under Sections 17 and 18." Section 24 prescribes the Forms and conditions of licence. Section 25 prescribes the counterpart agreement to be executed by licensee. Section 28 says that all duties, taxes, fines and fees payable to the Government under any of the provisions of the Act or of any licence or permit issued thereunder may be recovered as if they are arrears of Land Revenue. Section 29 empowers the Government to make rules for carrying out the purposes of the Act. It is not necessary to notice other provisions of the Act. 4. Rules have been made by the Government governing the mode of grant of licences, called the Kerala Abkari Shops (Disposal in Auction) Rules, 1974. Rule 6 prescribes the general conditions applicable to licensees of arrack shops, both retail and wholesale. Sub-rule (26) of Rule 6 which constitutes the basis of the later judgment of the Division Bench of the High Court reads : "No remission or abatement of the rental shall be claimable by the licensee on any account whatsoever." Sub-rule (39) says that "the licensee shall be bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Excise Commissioner "may ...permit ... in excess of the announced monthly quota on realisation of commission at a rate to be fixed by the Board of Revenue". (iii)Any undrawn quantity in any quarter can be allowed to be drawn in the next quarter by the Assistant Excise Commissioner. Similarly, Range Inspectors are competent to issue the lapsed quota of arrack of a month during the subsequent month of the same quarter. (iv) In case the Government is unable in the last quarter to supply wholly or partly any additional quota for which the contractor has remitted the duty and commission, the Assistant Excise Commissioner shall be competent to adjust the duty and commission on the arrack not issued towards the Abkari dues of the contractor. 6. Sub-rule (3) empowers the Board of Revenue to restrict the additional demand in respect of any shop if it finds that the demand in respect of any shop is in excess of the total requirements of that shop. 7. The excise year in Kerala corresponds to the financial year. The auctions are normally conducted before the commencement of the excise year. For the excise year 1981- 82, with which we are concerned in this batch of appeals, au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a range, the additional supplies during the previous excise year (1980-81) were 1,29,650 litres whereas for the relevant excise year (1981-82), they totalled 1,04,200 litres. For Sultan Battery, the additional supplies in the previous excise year were 1,51,400 whereas for 1981-82 the supplies were 77,250 litres. A fact worth noticing is the very high level of demand by the respondent during 1981-82 as compared to the previous year 1979-80. (Particulars of demand for the excise year 1980-81 are not furnished.) Be that as it may, the fact remains that the additional quantities supplied by the Government during the excise year 1981-82 were less than those supplied during the previous year for both these ranges. The respondent has, of course, not furnished particulars relating to his shops separately. In that sense, correct picture with respect to his shops is not available. 10. The respondent filed the writ petition in the Kerala High Court even during the currency of the excise year, i.e., on May 11, 1981. His grievance in the writ petition was that during the months of April and May the authorities could not supply the additional quantities requested for by him and at the same tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(1), no other claim for remission/abatement can be made in law. (3) There is no complaint by any of the licensees herein that the Government did have supplies and yet it did not supply additional quantities to the licensees. Nor is there any complaint of inequitable distribution. Whatever additional quantities were available with the Government have been issued to the licensees as and when they asked and paid for it according to rules. There is no further or other obligation upon the Government. (4) The writ petitions filed by the licensees are not maintainable in law. The remedy under Article 226 cannot be resorted to either for enforcing or for avoiding contractual obligations. (5) The auctioning authorities made no promise nor did they give any assurance that whatever quantities were demanded will be issued nor did they hold out any promise or assurance that additional quantities equal to the previous year s supplies will be maintained during the excise year 1981-82, (6) The argument of the licensees that inasmuch as they were selling arrack at the rate of Rs 25 to Rs 30 per litre they must be supplied additional arrack in such quantities as to enable them to realise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule (14) of Rule 6 obliges the licensee to keep available arrack in quantities sufficient to meet the local requirements on any given day. This obligation cannot be discharged by the licensee unless he Is supplied additional quantities. The monthly quota fixed by the rules is hardly sufficient for a day in any shop. (5) Having regard to the past practice over the several years, the licensees entertained a legitimate expectation that supplies consistent with the previous year s supplies will be maintained during 1981-82 as well. Had they been told that they would not be entitled to any supplies over and above the monthly quota, they would never have offered such huge bids as has been done by them. (6) While interpreting the Government contracts, which involve State power, the doctrine of fairness has necessarily to be brought in, as has been held by this Court in more than one decision. When the State entered into the contracts with the licensees herein, it postulated that sufficient quantities of arrack were available and will be supplied as usual. While interpreting such contracts, it is permissible to look to the surrounding circumstances including the circumstances obtaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to Sultan Battery and Kalpetta ranges. According to the respondent (para 5 of WP), they "assured that necessary excess quantity of arrack should be supplied as in the previous year". The Respondents in the writ petition (appellants) have denied the said averment. The High Court has accepted the respondents averment in the writ petition on the ground that neither the Collector nor the Assistant Excise Commissioner filed affidavits denying the said averments. Learned Additional Solicitor General criticized the High Court s view on the ground that the Collector was not obliged to file his affidavit unless he was impleaded as a respondent s nominee. In any event, he says, it was not competent to any of the authorities to make any promise or give any assurance over and above those contained in the statutory provisions including the rules and conditions of licence. We agree with the latter part of the submission of the teamed Solicitor General. We do not wish to go into the disputed question whether any such statement was indeed made by the said officials. It is enough to note that they were not competent to hold out any such promise nor any such promise can clothe the license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board of Revenue can yet restrict the supply of additional quota to a shop having regard to the local requirements. But Rule 8(3) cannot be relied upon to say that unless the Board of Revenue places a restriction, the Assistant Commissioner of Excise is bound to supply all that is demanded, irrespective of the availability of arrack and the requirements of other licensees. No such absolute right can be recognized. This is also the view taken by this Court in State of Rajasthan v. Nandlal 1993 Supp (1) SCC681, and this is how it has been understood all these years. See State of M.P. v. Sunder Lal Jaiswal 1976 MPLJ 254, 263: AIR 1976 MP 175. Now, coming to the licensees right to claim rebate/remission/abatement, Rule 6(26) says that no remission or abatement in the licence fee shall be "claimable" by the licensee "on any account whatsoever". This sub-rule should no doubt be read along with Rule 8(1), which sets out the only situation in which the duty and commission payable will be adjusted. [Of course, where the Government fails to perform its statutory obligation e.g., if it fails to supply the monthly quota referred to in Rule 8(1) it may not be open to the Government to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t somehow supply the additional quantities demanded and if it cannot so supply, it is not entitled to demand the monies as per the contract? All this demonstrates amply that there is no right in the licensees to compel the Government to, supply what all they demand nor has the State the right to compel the licensees to purchase all that it proposes to sell to them. We see no unreasonableness in this statement. We are of the opinion that in the absence of a statutory right in the licensees to get additional supplies demanded by him, there is no basis in law for the claim of remission or rebate. As, stated by this Court in Panna Lal v. State of Rajasthan5 the onerous nature of the terms is no ground for the licensees to resile from the express obligations undertaken by them. The Court observed : (SCC p. 638, para 21) "The licences in the present case are contracts between the parties. The licensees voluntarily accepted the contracts. They fully exploited to their advantage the contracts to the exclusion of others. The High Court rightly said that it was not open to the appellants to resile from the contracts on the ground that the terms of payment were onerous. The reasons given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial extent. If so, there is no question of the licensees not being able to observe the requirement of Rule 6(14). Nor is there any room in the above facts for importing the plea of frustration of contract or for that matter, the principle of Section 55. In the absence of a legal right to claim additional supplies, the arguments based on Sections 55 and 56 of Contract Act cannot be countenanced. In this context, it appears relevant to note that the demand of the respondent for additional quota during the excise year 1981- 82 has been highly exaggerated, as the particulars in the Table (supra) would indicate. This was done probably with the full knowledge that there is shortage of availability of arrack. It is reasonable to assume that the respondent hiked up his demand artificially to create a case, and to create evidence in support of his case, in the writ petition. Otherwise there is no explanation for the said excessive demand three times the previous year s demand. Be that as it may, the indisputable factual position is that the Government has supplied whatever it could. The question that arises is whether in such a situation the licensees are entitled to any remission or ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion had kept back did not disclose one basic term of the contract. For the preceding year, the supply of arrack was fixed at one decalitre a day for an annual bid amount of Rs 18,000. At the time of auction, it was not disclosed by the authorities that they have changed the rate of supply to one decalitre to the annual bid of Rs 40,000 a very substantial reduction of supply. The said change in rate of supply was disclosed to the licensees for the first time after they commenced their business. It was thus found by the High-Court and this Court that the administration was at fault in suddenly changing the rate of supply at the very, inception of the contract. The second distinguishing feature is that in that case the sale price (at the hands of the licensees) was fixed by the administration itself. No licensee could charge more. Whereas in this case, neither any term of contract much less, an essential term has been kept back from the licensees nor is the sale price of arrack fixed by the Government. Mr Vaidyanathan however, relied upon the following observations in the said judgment : (SCC p. 77, para I 1) "In the circumstances of this case, our inquiry is limited to the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have believed and acted upon the alleged assurance of the auctioning authorities. Having regard to the number of shops and the amounts of bids offered by the respondent, we would be justified in presuming that the respondent was an experienced businessman. It is unlikely that he or for that matter, other licensees believed implicitly the alleged assurance of the Excise Officers. As experienced businessmen they must have anticipated that there would be problems in supply since things cannot be rectified overnight. In any event, the only assurance was that the authorities would take steps to ensure additional supplies as in the previous year. It cannot be understood as a firm promise assuming for the sake of argument that they were competent to hold out such promise (which we have found, they were not competent to). As a matter of fact, they did whatever they could. Whatever they could supply, they did supply. It is not a case where any essential term of contract was kept back or kept undisclosed. The Government had placed all their cards on the table, if we can use that expression. If the licensees offered their bids with their eyes open in the above circumstances they cannot bla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during previous years. Firstly, the rule cannot be invoked to modify or vary the express terms of contract, more so when they are statutory in nature. No decision has been brought to our notice supporting the said proposition. Secondly, in view of the scarcity that had developed during the last two months of the previous excise year (i.e., during February and March, 1981), the plea of legitimate expectation sounds quite weak. That the bidders were apprehensive and highly sceptical of alleged official assurances is proved by the repeated adjournment of auction and the fact pleaded by the licensees themselves that during the said excise year (1981-82) half the shops in the State remained unsold. It is inconceivable that the licensees yet expected legitimately that additional supplies equal to the previous year s additional supplies would be supplied during this year. The plea is unacceptable. 26. Learned counsel for respondents then submitted that doctrine of fairness and reasonableness must be read into contracts to which State is a party. It is submitted that the State cannot act unreasonably or unfairly even while acting under a contract involving State power. Now, let us see, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Port of Bombay (1989) 3 SCC 293 it Was held that where a public authority is exempted from the operation of a statute like Rent Control Act, it must be presumed that such exemption from the statute is coupled with the duty to act fairly and reasonably. The decision does not say that the terms and conditions of contract can be varied, added or altered by importing the said doctrine. It may be noted that though the said principle was affirmed, no relief was given to the appellant in that case. Shrilekha Vidyarthi v. State of U.P. (1991])1 SCC 212: 1991 SCC (L S) 742 was a case of mass termination of District Government Counsel in the State of U.P. It was a case of termination from a post involving public element. It was a case of non-government servant holding a public office, on account of which it was held to be a matter within the public law field. This decision too does not affirm the principle now canvassed by the learned counsel. We are, therefore, of the opinion that in case of contracts freely entered into with the State, like the present ones, there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State), for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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