PETITIONER:
STATE OF UTTAR PRADESH
Vs.
RESPONDENT:
KlSHORI LAL MINOCHA
DATE OF JUDGMENT21/12/1979
BENCH:
GUPTA, A.C.
BENCH:
GUPTA, A.C.
TULZAPURKAR, V.D.
VENKATARAMIAH, E.S. (J)
CITATION:
1980 AIR 680 1980 SCR (2) 724
1980 SCC (3) 8
CITATOR INFO :
E 1984 SC 993 (27)
D 1984 SC1326 (13)
ACT:
Constitution of India 1950, Article 299 and U.P. Excise
Act 1910, S. 39-Rule 357(5) of Excise Manual requiring
purchaser at excise action to deposit one-sixth of annual
fee on conclusion of sale-Purchaser not making deposit-
Resale by excise authorities fetching lesser price-Original
purchaser whether liable to pay deficiency in price.
U.P. Excise Act 1910, S. 77 & Excise Manual Rule 357-
Rule not published as required-Whether has the force of law.
HEADNOTE:
The respondent who was a bidder at the annual excise
auction offered the highest bid for two groups of country
liquor shops, and which were knocked down in his favour. He
affixed his signature to the respective bid sheets in token
of his acceptance and also in the register of Settlement
Record. He, however, did not deposit l/6th of the bid
amounts on conclusion of the sales as required under the
Excise Rules but took time for deposit. In spite of repeated
reminders he did not pay the advance deposits. The Excise
Authorities resold the excise privileges in respect of the
two groups of shops and in the re-auction the shops fetched
a lesser amount than what the respondent had offered. The
State Government, appellant directed the respondent to make
good the loss. Since he failed, a suit for recovery was
instituted by the appellant. The suit was contested, the
respondent pleading (1) that there were no completed
contracts between the State Government and himself and
consequently there could be no breach of contracts; (2) that
the entire auction proceedings, having been against the
rules and instructions of the Government were illegal and
void; (3) the contracts, if any, were unenforceable as they
did not satisfy the conditions mentioned in Article 299 of
the Constitution; and (4) that the State Government having
accepted his prayer to be relieved from the bids made by him
and subsequently re-auctioning the groups of shops to others
was estopped from fixing any civil liability on him. The
trial court decreed the suit.
On appeal, the High Court dismissed the suit on the
view that there was no valid contract which could be
enforced by the appellant as the-requirements of Article
299(1) of the Constitution had not been complied with. It,
however, held that the failure to deposit 1/6 of the bid
amount did not make the proposal incomplete and that the
absence of the approval of the Excise Commissioner which was
in the nature of a power vested in him to reverse the
acceptance of a bid made by the officer holding the auction
did not in any way exonerate the respondent from the
liability if he was otherwise liable.
In the appeal to this Court on the question whether the
respondent would not be liable to make good the loss even
though no contract in writing had been executed in
accordance with Article 299 of the Constitution.
725
^
HELD :[Per Gupta and Tulzapurkar, JJ.]
1. The suit must be dismissed as there was no concluded
contract between the parties, nor was there any statutory
rule permitting recovery of the deficiency on re-sale from
the respondent. [728 B]
2. The last part of 5th clause to Rule 357 providing
that in case of default, if the price fetched at the re-sale
was less tan the bid at the first sale the defaulter had not
been published. [729 C]
3. Assuming that different clauses of Rule 357 barring
the last part of the 5th clause embody the condition of
sale, it is clear from the 2nd clause that in the absence of
the final sanction of the Excise Commissioner the bid cannot
be said to have been finally accepted. In the instant case
it is not claimed that the bid offered by the respondent was
sanctioned by the Excise Commissioner. [729 E]
There was thus no concluded contract between the
parties to make the respondent liable for the alleged loss.
[729 E]
Union of India and others v. M/s. Bhimsen Walaiti Ram
[1970] 2 S.C.R. 594 referred to.
(Per Venkataramiah J. dissenting)
1. The respondent should be made liable for the sum
claimed in the suit and the decree made by the trial court
should be restored. [745 G]
2. The respondent was liable for the sum claimed made
by the State Government even though no contracts were
formally entered into between the respondent and the State
Government,[745 B]
In the instant case on the pleading and evidence it has
to be assumed that the respondent knew that he was under an
obligation to deposit with the officer holding the auction
1/6th of the bid amount and that if he committed any default
in doing so, the excise licences in question were to be
resold and that he would be liable to pay any loss suffered
by the Sate Government on such re-sale. [733 E]
3. Condition No. 5 in the sale proclamation which
provides that if the price at the re-sale be less than that
at the first sale, the difference will be recovered from the
defaulter negatives the contention of the respondent that in
the absence of the approval of the Excise Commissioner, he
would bot be liable to make good the loss. [73 H, F]
4. There was no disapproval of the Excise Commissioner
of the bids offered by the respondent. On the other hand,
the excise authorities requested the respondent to perform
his part of the obligation under the sale proclamation. [734
E]
5. In Union of India & Ors. v. M/s. Bhimsen Walaiti
Ram, [1970] 2 S.C.R. 594, this Court proceeded on the basis
that the liability of the bidder could arise only as a
consequence of the breach of a completed contract. No
attention appears to have been given in the case to the
question whether the act of the offering of the highest bid
which was accepted by the officer holding the auction and
which resulted in the closure of the auction could by itself
become a source of liability when the highest bidder failed
to comply with the conditions stipulated in the sale
proclamation. [734 F]
726
6. In section 39, the words "all excise revenue,
including all amounts due to the Government by any person on
account of any contract relating to the excise revenue, may
be recovered from the persons primarily liable to pay the
same" by him on account of any contract relating to the
excise revenue. The words "on account relating to the excise
revenue" include within their scope not merely any
compensation which a person may be liable to pay on account
of the breach of contract committed by him after the
contract is completed but also any other amount that may
become due on account of a contract which would come into
existence if all the formalities are completed, having
regard to the scheme and manner in which the excise
privilege is disposed of by the excise authorities. [735 E-
F]
7. A reading of clauses 1 and 2 of Rule 357 of the
Excise Manula show that the officer holding the sale was
empowered to accept the bid and that his acceptance was only
subject to the sanction of the Excise Commissioner. They
mean that the power which had been reserved to the Excise
Commissioner, only enabled him to set aside the acceptance
already made by the officer conducting the sale. If it was
not set aside by him, the acceptance of the officer
conducting the sale would be effective. [737 B]
In the instant case the Excise Commissioner had not
refused to sanction the acceptance of the highest bids
offered by the respondent. The liability of the highest
bidder to deposit a sum equivalent to 1/6th of the bid
offered by him arises as a consequence of his offering the
highest bed with the knowledge of the conditions of the
auction, immediately on the conclusion of the sale for the
day in his favour and if he does not make such deposit, the
officer holding the same is entitled to put the excise
privilege for re-sale either immediately of on a subsequent
day with liberty to recover from the defaulter any loss that
may be occasioned to the Government by such re-sale. [737 C-
D]
8. The completion of the contract or the execution of a
contract in accordance with Article 299 of the Constitution
arises only after the highest bidder has deposited 1/6th of
the bid offered by him on the conclusion of the sale which
is a condition precedent for the completion of the contract
or for execution of a formal document in accordance with
Article 299 of the Constitution. It is not, therefore,
correct to determine the liability of a defaulting bidder on
the basis of a completed contract or a formal document to
be executed under Article 299. [737 E-F]
9. In the interest of public revenuer, excise
privileges, privileges of cutting and removing timber from
Government forests, occupancy right over Government lands
and building sites etc. are disposed of in public auction by
the Central Government, State Governments, statutory boards
and local authorities and in almost every such auction,
there is invariably boards a condition that the acceptance
of the highest bid at the auction is subject to the sanction
of some superior officer or statutory or the appropriate
Government. If the liability of such a bidder is to be
funded only on the basis of a completed contract them in
then in the case of auctions held by or on behalf of the
Central or State Governments, no liability can arise even it
such sanction is accorded, unless it is followed up by a
formal document executed under Article 299 of the
Constitution which alone amounts to a completed contract
where Government is a party. [737 H-738 A, 738 D]
727
In the instant case the respondent by his own conduct
in not depositing 1/6th A of the bids offered by him made it
impossible for the excise authorities to conclude the
contract. 'the question may have been different if the
respondent had done all that he had to do under the
condition of the auction but the excise authorities had not
intimated him that he could exploit the excise privileges in
accordance with law. [744 E]
10. The liability of the respondent arises under the
statute and it also arises as the result of a civil wrong or
a tort committed by him, in offering the highest bid with
open eyes and in not fulfilling the obligations arising
therefrom. The latter source of liability may appear to be
novel but if justice requires, the Court should not hesitate
to impose it on the person who has committed the wrong to
secure justice for the innocent injured party. [745 Cl
A. Damodaran & Anr. v. State of Kerala & ors. [1976] 3
S.C.R. 780; Candlar v. Crane Christmas & Co. [1951] 2 K.B.
164 at p. 178 referred to.
K. P. Chowdhary v. Stare of Madhya Pradesh & Ors.
[1966] 3 S.C.R. 919 distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 173 of
1969.
From the Judgment and order dated 2-4-1968 of the
Allahabad High Court in First Appeal No. 5/62.
G. N. Dikshit and O. P. Rana for the Appellant.
H. K. Puri and Miss Madhu Mulchandani and V. K. Bahal
for the Respondent.
The Judgment of A. C. Gupta and V. D. Tulzapurkar, JJ.
was delivered by Gupta, J. E. S. Venkataramish, J. gave a
dissenting opinion.
GUPTA, J.-This appeal by certificate is from a judgment
of the Allahabad High Court, Lucknow Bench, dismissing the
suit instituted by the appellant, State of Uttar Pradesh,
for recovery of a sum of Rs. 20,100 from the respondent. The
facts stated in the plaint on which the claim is based are
these. The annual ‘excise auctions’ for the year ]951-52 for
Faizabad district were held at Faizabad on February 22, 1951
“under the Excise Rules.” The respondent offered the highest
bid of Rs. 73,000 and Rs. 48,000 respectively as fees for
two groups of country liquor shops but as he did not deposit
l/6th of the aforesaid sum on conclusion of the sales as
required under the Excise Rules, the two groups of shops had
to be sold again on March 30, 1951. The resale fetched
respectively Rs. 65,700 and Rs. 35,200 for there two groups
of country liquor shops. According to the State of Uttar
Pradesh it suffered-a total loss of Rs. 20,100 which is the
difference between what the respondent had offered and the
sum for which the shops were later sold, and the respondent
was liable to compensate 9-91SCI/80
728
the loss. The suit was decreed by the trial court. On appeal
the High Court dismissed the suit on the view that there was
no valid contract which could be enforced by the plaintiff
as the requirements of Article 299(1) of the Constitution
had not been complied with. We are also of the view that the
suit must be dismissed but for a slightly different reason;
in our opinion there was no concluded contract between the
parties, nor was there any statutory rule permitting
recovery the deficiency on re-sale from, the respondent.
The sale proclamation which is said to have contained
the conditions of sale was not produced. The Assistant
Excise Commissioner (P.W. 1) in his testimony referred to
rule 357 of the Excise Manual. The relevant part of the rule
is as follows:
“The following conditions shall apply to all sales
under the auction system, and will be inserted at the
foot of the sale proclamation if such proclamation is
issued by the Excise Commissioner:
(1) The officer conducting the sales is not bound
to accept the highest or any bid. In any case
when the highest or any bid is not proposed
to be accepted, the next highest bid should
also be reported to the Excise Commissioner.
(2) The final acceptance of any bid is subject to
the sanction of the Excise Commissioner.
(3) Veery person bidding will be held to his bid,
whether i it be the highest or not.
(4) …. … … …
(5) A sum equal to one-sixth of the annual fees
shall be payable immediately on the
conclusion of the sales for the day, and the
balance by such instalments as are specified
in the licence to be granted. If default be
made in the payment of the advance
instalment, the shop on farm will be resold,
and if the price finally bid at the re-sale
be less than that bid at the first sale, the
difference will be recovered from the
defaulter.” I
Section 77 of the U.P. Excise Act, 1910 states:
“All rules made and notifications issued under the
Act shall be published in the official gazette and
shall have effect as if enacted in this Act from the
date of such publication or from such other date as may
be specified in that behalf.”
729
The High Court found that the conditions mentioned in rule
357 had A never been published as required and they did not,
therefore, have the force of law. The High Court held that
Part II of the Excise Manual which includes rule 357
contained provisions which where “commonly referred to as
rules” but were not really statutory rules and that it was
“a sort of book of guidance”. Before us it was claimed on
behalf of the appellant that some of the conditions
contained in rule 357 had been published in the official
gazette, but the learned counsel for the appellant, State of
Uttar Pradesh, was not in a position to dispute that at
least the last part of the 5th condition providing that in
case of default, if the price fetched at the re-sale was
less than the bid at the first sale the difference would be
recovered from the defaulter, had not been published. That
being so it must be held that there was no law under which
the respondent could be asked to make amends for the
shortfall.
The question that remains to be answered is, even if
there was no statutory provision, whether there was a
concluded contract between the appellant and the respondent
under which the respondent was liable to pay Rs. 20,100
which represents the difference between the highest bid at
the first sale and the price fetched at the re-sale. The
sale proclamation containing the conditions of sale has not
been produced. Assuming that the different clauses of rule
357 barring the last part of the 5th clause embody the
conditions of sale, it is clear from the 2nd clause that in
the absence of the final sanction of the Excise
Commissioner, the bid cannot be said to have been finally
accepted. lt is not claimed by the appellant that the bid
offered by the respondent was sanctioned by the Excise
Commissioner. There was thus no concluded contract between
the parties to make the respondent liable for the alleged
loss. The point appears to have been decided by this Court
in Union of India and another v. M/s. Bhimsen Walaiti
Ram(1). This was a case of an auction for the sale of
licence for a country liquor shop in Delhi for the year
1949-50. Clause 33 of the conditions of sale provided inter
alia : “All final bids will be made subject to the
confirmation by the Chief Commissioning who may reject any
bid without assigning any reasons”. This condition is
similar to clause 2 of rule 357 in the instant case.
Ramaswami J. speaking for the court in Bhimsen’s case
observed:
“It is, therefore, clear that the contract of sale
was not complete till the bid was confirmed by the
Chief Commissioner and till such confirmation the
person whose bid has been provisionally accepted is
entitled to withdraw his bid.
730
When the bid is so withdrawn before the confirmation of
the Chief Commissioner the bidder will not be liable
for damages on accurate of any breach of contract or
for the shortfall on the resale. An acceptance of an
offer may be either absolute or conditional. If the
acceptance is conditional the, offer can be withdrawn
at any moment until absolute acceptance has taken
place.”
The appeal is dismissed but in the circumstances of the
case we make no order as to costs.
VENKATARAMIAH, J. I have had the advantage of perusing
the judgment prepared by my learned brother, Gupta, J. I
regret my inability to agree with the conclusion reached by
him.
Since some of the facts which are necessary for the
purpose of this case have not been set out in the judgment
of my learned brother, I have to mention them at this stage.
The excise auctions for the year 1951-52 were held on
February 22, 1951 under the provisions of the U.P. Excise
Act, 1910 (hereinafter referred to as ‘the Act’). The
respondent offered the highest bid of Rs. 73,000 for the
chowk group shops and of Rs. 48,000 for Rakabganj group
shops. At that auction, the shops in question were knocked
down for the above-mentioned amounts in favour of the
respondent who affixed his signatures to the respective bid
sheets in token of his acceptance and also in the register
of Settlement Record. The respondent, however, did not
deposit 1/6th of the above mentioned amounts on the
aforesaid date but took time for its deposit later on. In
spite of repeated reminders, the respondent did not pay the
advance deposits in both the cases. The excise authorities
resold the excise privileges in question and on such resale,
the chowk group shops fetched Rs. 65,700 and the Rakabganj
group shops fetched Rs. 35,200. Consequently, the State
Government the appellant herein suffered a loss of Rs.
20,100. As the respondent did not pay the said amount of Rs.
20,100, a suit was instituted by the appellant against him
for recovery thereof before the Civil Judge, Faizabad. In
the course of his written statement, the respondent, after a
general denial of the allegations in the plaint, raised
among others the following additional pleas:-
“1. There was no completed contract between the
plaintiff and defendant. Consequently there
had been no breach and no cause of action for
the suit.
2. The entire auction proceedings having been
against the rules and instructions of the
Government were illegal, void and
ineffective.
731
3. The plaintiff himself having accepted the
prayer of the defendant to be relieved from
the bid made by him and subsequently re-
auctioning the shops or the groups of shops
to others was now estopped from fixing any
civil liability on the defendant.”
Four contentions were urged on behalf of the respondent
in the 1 trial court viz. (1) since the offers of the
respondent had not been accepted, no valid contracts had
come into existence; (2) as the respondent had withdrawn the
offers before their acceptance, there could be no
enforceable contracts in existence; (3) the contracts, if
any, were unenforceable as then did not satisfy the
conditions mentioned in Article 299 of the Constitution and
(4) that even though the respondent had committed the breach
of the agreements he was not liable to pay any damages as
the excise authorities had not taken any steps to mitigate
the loss by granting the excise licences in question to the
second highest bidder in each case. The trial court after
rejecting the contentions of the respondent made a decree
for Rs. 20,100 with costs. Aggrieved by the decree of the
trial court, the respondent filed an appeal before the High
Court of Allahabad. In the course of the appeal, the High
Court formulated four points for its consideration as can be
seen from the following extract from its judgment:-
“The points now requiring consideration are (1)
whether there came into existence a contract, (2)
whether by reason of non-deposit of one-sixth of the
bid money there was a breach of the contract on the
part of the appellant; (3) whether this breach entitled
the respondent to re-auction the shops and to recover
the loss on re-auction from the appellant; and (4)
whether the deficit of Rs. 20,100 represents the legal
loss recoverable from the appellant.”
Before the High Court in so far as the first point was
concerned, the respondent’s contention was three fold-(i)
since the bids were not accompanied by l/6th of the bid
amount, there were no completed proposals and, therefore,
there could be no acceptance thereof so as to bring into
existence a contract; (ii) as the Excise Commissioner had
not accorded his approval, there was no acceptance of the
proposal and (iii) as no agreements in writing had been
executed by the person competent to do so under Article 299
of the Constitution, no contracts had come into existence.
The High Court rejected the first two contentions by holding
that the failure to deposit l/6th of the bid amount did not
make the proposals incomplete and that the absence of the
approval or the Excise Commissioner which was in the nature
of
732
power vested in him to reverse the acceptance of a bid by
the officer holding the auction did not in any way exonerate
the respondent from the liability if he was otherwise
liable. It, however, held that since the requirements of
Article 299 of the Constitution had not been fulfilled, the
respondent was not liable to pay any damages on the ground
that he had committed a breach of contract.
On the second point which was formulated by the High
Court for its consideration, it observed as follows:-
“Coming to the second point of controversy, to
wit, whether by reasons of non-deposit of one-sixth of
the bid money there was a breach of the contract on the
part of the appellant, the answer must be in the
affirmative for the simple reason that the deposit of
the money was one of the conditions of the contract.
This condition, as has been shown above, follows both
from the statutory provision and the admission of the
appellant himself that there was this deposit to be
made.”
On the third point viz. whether the breach committed by
the respondent in each of the two cases entitled the State
Government to re-auction the shops and to recover the loss
on such re-auction from him the High Court held that the
right to re-auction had not been proved to be founded on
either any statutory rule or on any express terms of the
contract but the said right was the ‘natural outcome of the
breach of an accepted term of contract’, when the respondent
failed to deposit the amounts in terms of the agreement. It
further held that when the respondent had failed to deposit
the amounts in terms of the agreement on which the bids were
given and accepted the State Government was under an
obligation for minimising the loss arising from the breach
of the contract to re-auction the shops and in case of any
loss arising therefrom, to recover the same from the
respondent.
On the last point of controversy viz. the quantum of
damages, the High Court held that the extent of loss
suffered by the State Government on account of breach on the
part of the respondent was in the order of Rs. 20,100. The
High Court, however, allowed the appeal and set aside the
decree of the trial court on the ground that there were no
valid contracts which satisfied the requirements of Article
299 of the Constitution. Dissatisfied with the judgment of
the High Court, the State Government has come up in appeal
to this Court.
In the instant case, the only question which arises for
consideration is whether the respondent is not liable to pay
the damage even though
733
no contract in writing had been executed in accordance with
Article A 299 of the Constitution. It was not the case of
the respondent that the excise authorities had no right to
re-sell the excise licences. after he had committed default
in depositing l/6th of the bid amounts. His principal pleas
were (i) that there were no completed contracts between the
State Government and himself and consequently there could be
no breach of contract; (ii) that the entire auction
proceedings, having been against the rules and instructions
of the Government were illegal and void and (iii) that the
State Government, having accepted his prayer to be relieved
from the bids made by him and subsequently re-auctioning the
groups of shops to others was estopped from fixing any civil
liability on him. It is seen from what is stated above that
no attempt was made; by the respondent to make good his plea
regarding the legality of the auction proceedings and the
plea of estoppel. The only plea raised in the written
statement which ultimately appealed to the High Court was
that the respondent was not liable to pay any damages as
there were no completed contracts which satisfied the
requirements of Article 299 of the Constitution. The other
plea that the offers made by the respondent had not been
approved be the Excise Commissioner was rejected by the High
Court by observing that the power of the Excise Commissioner
to accord his approval was only a power which had been
vested in him to set aside the acceptance of the bid by the
officer holding the auction. Having regard to the pleadings
and the evidence in this case, it has to be assumed that the
respondent knew that he was under an obligation to deposit
with the officer holding the auction l/6th of the bid
amounts and that if he committed any default in doing so,
the excise licences in question were to be resold and that
he would be liable to pay any loss suffered by the State
Government on such resale. The contention that in the
absence of the approval of the Excise Commissioner, he would
not be liable to make good the loss has Loss to be rejected
in view of condition No. 5 which according to the testimony
of the Assistant Excise Commissioner (P.W. 1), which cannot
be rejected, had been mentioned in the sale proclamation,
which read thus:
“5. A sum equal to one-sixth of the annual fees
shall be payable immediately on the conclusion of the
sale for the day, and the balance by such instalments
as are specified in the licence to be granted. If
default be made in the payment of the advance
instalment, the shop on farm will he resold, and if the
price finally bid at the resale be less than that bid
at the first sale, the difference will be recovered
from the defaulter.”
734
It is no doubt true that in Union of India & ors. v.
M/s. Bhimsen Walaiti Ram,(‘) this Court held that the
contract of sale was not complete till the bid was confirmed
by the Chief Commissioner and till such confirmation the
person whose bid had been provisionally accept ed was
entitled to withdraw his bid and that when the bid was so
withdrawn before the confirmation of the Chief Commissioner,
the bidder was not liable for damages on account of any
breach of contract or for the shortfall on the resale. Those
observations were made by this Court in that case in the
context of the disapproval of the bid by the Chief
Commissioner and this is borne out by the following
observations of this Court at page 598:-
“It is not disputed that the Chief Commissioner
had disapproved the bid offered by the respondent. If
the Chief Commissioner had granted sanction under cl.
33 of Ex. D-23 the auction sale in favour of the
respondent would have been a completed transaction and
he would have been liable for any shortfall on the
resale. As the essential pre-requisites of a completed
sale are missing in this case there is no liability
imposed on the respondent for payment of the deficiency
in the price.”
In the case before us there was no disapproval of the
Excise Com missioner of the bids offered by the respondent.
On the other hand, the excise authorities requested the
respondent to perform his part of the obligation under the
sale proclamation. It is also further been that this Court
in the case of M/s. Bhimsen Walaiti Ram (supra) proceeded on
the basis that the liability of the bidder could arise only
as a consequence of the breach of a completed contract. No
attention appears to have been given in that case to the
question whether the act of the offering of the highest bid
which was accepted by the officer holding the auction and
which resulted in the closure of the auction could by itself
become a source of liability when the highest bidder failed
to comply with the conditions stipulated in the sale
proclamation.
It is necessary to refer briefly to some of the
relevant provisions of law governing the disposal of the
excise licence by auction system which were in force during
the relevant time. Section 21 of the Act prohibits sale of
any intoxicant without a licence by the concerned excise
authority. Section 24 of the Act authorities the grant of
exclusive privilege of selling by wholesale or by retail any
intoxicant within any specified local area. The right to
sell any excisable article under a licence issued by the
excise authority can be acquired only by paying
735
such fees or amount which may be equivalent to the
highest bid offered at an auction when an auction is held.
Section 39 of the Act which deals with the recovery of
excise revenue reads as follows:-
“39. Recovery of excise revenue-All excise
revenue, including all amounts due to the Government by
any person on account of any contract relating to the
excise revenue, may be recovered from the person
primarily liable to pay the same, or from his surety
(if any) as an arrears of land revenue or in the manner
provided for the recovery of public demands by any law
for the time being in force. In case of default made by
a holder of a licence the Collector may take the grant
for which the licence has been given under management
at the risk of the defaulter, or may declare the grant
forfeited and resell it at the risk and loss of the
defaulter. When a grant is under management under this
section, the Collector may recover as excise revenue
any moneys due to the defaulter by any lessee or
assignee:
Provided that no licence for an exclusive
privilege granted under section 24 shall be forfeited
or re-sold without the sanction of the authority
granting the licence.”
In the above section, the words “all excise revenue,
including all amounts due to the Government by any person on
account of any contract relating to the excise revenue, may
be recovered from the person primarily liable to pay the
same” show that the Government is entitled to recover from a
person any amount due by him on account of any contract
relating to the excise revenue. The words “on account of any
contract relating to the excise revenue” include within
their scope not merely any compensation which a person may
be liable to pay on account of the breach of a contract
committed by him after the contract is completed but also
any other amount that may become flue on account of a
contract which would come into existence if all formalities
are completed having regard to the scheme and manner in
which the excise privilege is disposed of by the excise
authorities. The relevant rules governing the conduct of
excise sales are found in a notification bearing No. B. O.
No. 423/V-284-B dated September 26, 1910. The rules require
the publication of a sale proclamation announcing the dates
of sale and the place where it will be held. Before the
sales for the day commence, the general conditions governing
the sale which are set out in paragraph 373 of the U.P.
Excise Manual (Vol. I) shall be read out and explained to
all present so that the competitors may clearly understand
the conditions on which they bid. The general conditions
governing retail vend and the special
736
conditions governing each class of licence shall also be
read out in public before the sales to which they apply.
Information should be freely given on all matters affecting
the value of licence about to be sold. The officer
conducting the sales shall record the name of each person
making a bid and the amount of bid. Signature of the highest
bidder and the next two lower bidders shall also be taken on
the bid sheet, whether such persons have been accepted as
auction-purchasers or not. At the time of the sale the
person accepted as the auction purchaser shall be required
to sign his name or affix his mark against the relevant
entry of the licence in the Record G-14, it being explained
at the time that the deposit paid in advance will be
returned in the event of the licence being subsequently
refused. The final bid accepted shall invariably be recorded
with his own hand by-the officer conducting the sales. The
treasurer of the district, or one of his recognised
assistants, shall be required to attend the sales to receive
the advance fees paid by bidders provisionally accepted. The
amount that has to be paid as advance deposit is a sum
equivalent to l/6th of the annual fees which shall be
payable immediately on the conclusion of the sales. for the
day, and the balance by such instalments as are specified in
the licence to be granted. If default be made in the payment
of the advance instalments, the shop or farm will be resold.
If the price finally offered at the resale be less than that
at the first sale, the difference will be recovered from the
defaulter through a civil suit If any person whose bid has
been accepted at auction fails to make the advance deposit
or if he withdraws from his bid, the excise authority may
sell the contract immediately or on any subsequent date
fixed by him.
It is not the case of the respondent in the instant
case that he was not aware of the above conditions, which
had been set out in the sale proclamation and also which
must have been read out at the commencement of the sale, as
required by the rules for the information of the intending
purchasers. The question for consideration is whether having
offered the highest bid, it was open to the respondent to
avoid the liability arising from his act of offering the
highest bid merely because the Excise Commissioner who had
the power to refuse to sanction the sale had not sanctioned
it. It is no doubt true that one of the conditions of the
auction was that the acceptance of any bid by the officer
conducting the sale was subject to the sanction of the
Excise Commissioner. It, however, did not mean that the
acceptance of the bid would be complete only after the
sanction was accorded by the Excise Commissioner because of
the other conditions which read as under:-
“1. The officer conducting the sales is not bound
to accept the highest or any bid.
737
2. The final acceptance of any bid is subject to
the section of the Excise Commissioner.”
A reading of the two clauses referred to above shows
that the officer holding the sale was empowered to accept
the bid and that his acceptance was only subject to the
sanction of the Excise Commissioner. They meant that the
power which had been reserved to the Excise Commissioner
only enabled him to set aside the acceptance already made by
the officer conducting the sale. If it was not so set aside
by him, the acceptance of the officer conducting the sale
would be effective. As mentioned earlier, in this case, the
Excise Commissioner had not refused to sanction the
acceptance of the highest bids offered by the respondent.
The liability of the highest bidder to deposit a sum
equivalent to l/6th of the bid offered by him arises as a
consequence of his offering the highest bid with the
knowledge of the conditions referred to above immediately on
the conclusion of the sale for the day in his favour and if
he does not make such deposit, the officer holding the sale
is entitled to put up the excise privilege for resale either
immediately or on a subsequent day with liberty to recover
from the defaulter any loss that may be occasioned to the
Government on such resale. In a case like this, no question
of waiting till the contract either being completed on a
formal document coming into existence in accordance with
Article 299 of the Constitution can arise. The completion of
the contract or the execution of a contract in accordance
with Article 299 of the Constitution arises only after the
highest bidder has deposited l/6th of the bid offered by him
on the conclusion of the sale which is a condition precedent
for the completion of the contract or for execution of a
formal document in accordance with Article 29 of the
Constitution. It is not, therefore, correct to determine the
liability of a defaulting bidder on the basis of a completed
contract or a formal document to be executed under Article
299. If the contention urged on behalf of the respondent is
accepted, it will make every public auction held by a
Government a mockery. A man without a pie in his pocket may
offer the highest bid at an auction thus scaring away other
bona fide bidders who have assembled at the auction to offer
their bids and then claim that he is not liable to pay any
damages only because a completed contract or an agreement in
writing in accordance with Article 299 of the Constitution
has not come into existence. We should remember that, in the
interest of public revenue excise privileges, privileges of
cutting and removing timber from Government forests,
occupancy rights over Government lands and building sites
etc. are disposed of in public auction by the Central
Government, State Governments, statutory boards and local
authorities and in almost every such auction, there is
invariably a condition that the acceptance
738
of the highest bid at the auction is subject to the sanction
of some superior officer or a statutory authority or the
appropriate Government. If the contention urged on behalf of
the respondent is accepted then a person who offers the
highest bid in any such auction can always absolve himself
of all his liability flowing from his act of offering the
highest bid by writing a letter immediately after the
conclusion of sale to the concerned authority expressing his
intention to withdraw from the bid or by resiling from it in
any other manner. The result will be that on the one hand
the other bona fide bidders who have come to offer the bids
would not be entitled to claim the privilege or property
that is put up for sale and on the other the defaulting
bidder would also be not liable to carry out his obligation
flowing from his act or offering the highest bid. If the
liability of such a bidder is to be founded only on the
basis of a completed contract then in the case of auctions
held by or on behalf of the Central or State Governments, no
liability can arise even if such sanction is accorded,
unless it is followed up by a formal document executed under
Article 299 of the Constitution-which alone amounts to a
completed contract where Government is a party. Judged from
the foregoing, I am of the view that the acceptance of the
conclusion reached by my learned brother would lead to
enormous public prejudice and instead of advancing the cause
of justice would hamper it. This case is an illustration of
what prejudice is likely to be caused to the public revenue
when default is committed by the highest bidder. The
documents produced before the Court in the present case show
that the second highest bid in the case of chowk group shops
offered by some other bidder was Rs. 72,500 and in the case
of Rakabganj group shops was Rs. 47,000. If the respondent
had not offered his bids Government could have realised Rs.
1,19,50 from both the groups i.e. Only Rs. 1,500 less than
what the respondent offered. By the intervention of the
respondent’s bids and the default committed by him, the.
Government could realise on resale only Rs. 1,00,900 thus
resulting in a loss of Rs. 20,100. Can it be said that in
such a case where legal injury is sustained, there is no
remedy available to the State Government ?
In a somewhat similar but not identical situation, this
Court in A. Damodaran & Anr. v. State of Kerala Ors was
called upon to decide whether the highest bidder at an
excise auction was liable to be proceeded with for recovery
of excise dues in the absence of an agreement executed in .
accordance with Article 299. In that case, the appellants
offered the highest bid at the auction sales held in respect
of some toddy shops. The conditions of the sales, notified
in pursu-
739
ance of the statutory provisions were: (1) that it was
incumbent upon the bidder to pay immediately 10% of the
amount due, (.2) that the successful bidder had to deposit
30% of the amount payable on demand by the Assistant
Commissioner and to execute agreements before getting the
necessary licences and (3) that if The contract could not be
executed, the whole amount was to be forfeited and the shop
itself was to be resold. The appellants deposited the
necessary amount on demand and were allowed to start
business even before agreements were executed or licences
were issued. But the appellants failed to pay the balance
due to the State. The amounts were sought to be recovered
under section 28 of the Kerala Abkari Act (Act No. l of
1967) which was more or less similar to section 39 of the
Act. The High Court of Kerala held that the amounts were
recoverable from the appellants. In the appeal before this
Court, the appellants contended that as no agreement was
executed between the appellants and the Government in the
manner prescribed by Article 299 of the Constitution, they
had not become the ‘grantees’ of any privilege and hence
were not liable to pay the amounts sought to be recovered.
Dismissing The appeal, the Court held that the absence of an
agreement executed in accordance with the provisions of
Article 299 of the Constitution could not be a bar for
recovering the excise dues in view of section 28 of the
Kerala Act. The Court held that the liability was one which
arose under the statute and therefore was enforceable. In
taking that view, this Court observed at pages 782-783 thus:
“The appellants submit that they had not become
“grantee” of any privilege without the execution of con
tracts complying with the requirements of Article 299
of the Constitution. The learned Judge of the Kerala
High Court relied on Madhavan v. Assistant Excise
Commissioner, Palghat (I.L.R. (1969) 2 Kerala 71),
affirmed by a Division Bench in Damodaran v. State of
Kerala (1969) Kerala Law Times 587. It appears that,
although the Division Bench did ‘not specifically
consider whether a bidder at an auction of the kind
before us was the “grantee” of a privilege within the
meaning of section 26 of the Act, yet, it held that the
liability to satisfy the dues arising out of a bid was
enforce able under section 28 of the Act quite apart
from any contractual liability. Reference was also
made, in this connection, to the decision of this Court
in Union of India v. A. L. Ralia Ram (A.I.R. 1963 S.C.
1685), for contending that the absence of formal
contract is not fatal in all cases so as to make the
whole transaction null and void ab initio.
740
Statutory duties and liabilities may be enforced in
accordance with statutory provisions. Equitable
obligation may also arise and been forced by decrees of
Courts quite apart from the requirements of article 299
of the Constitution. Mulamchand v. State of Madhya
Pradesh (1968) 2 S.C.R. 214 affords an instance where
on a claim for compensation or restitution under
section 70 of the Contract Act, this Court relied upon
the principle stated in Nelson v. Harbolt (1948) 1 K.B.
30 as follows at p. 222:-
“It is no longer appropriate to draw a distinction
between law and equity. Principles have not to be
stated in the light of their combined effect. Nor is it
necessary to canvass the.- niceties of the old forms of
action. Remedies now depend on the substance of the
right, not on whether they can be fitted into a
particular framework. The right here is not peculiar to
equity or contract or tort, but falls naturally within
the important category of cases where the Court orders
restitution if the justice of the case so requires.”
In the case before us, we are concerned with the
legality of proceedings under section 28 quoted above
of the Act. It is evident that these proceedings can be
taken in respect of “all amounts due to the Government
by any grantee of a privilege or by any farmer under
this Act or by any person an account of any contract
relating to the Abkari Revenue._”. It is clear that
dues may also be “recovered from the person primarily
liable to pay the same or from his surety (if any) “.
It is not a condition precedent to recovery of an
amount due and recoverable that it should be due under
a formally drawn up and executed contract.”
In reaching the above conclusion, this Court approved
the observation made by Mathew, J. in Madhavan v. Assistant
Excise Commissioner, Palghat which ran as follows:-
“It was contended on behalf of the petitioners in
some of these cases that no agreements were executed by
them, and therefore, the Government are not entitled to
recover any amount by way of rental. Reliance was
placed upon the decisions of the Supreme Court in H. P.
Chowdhry v. State of M.P. (AIR 1967 SC 203) and
Mulamchand v. State of M.P. (1969(II) S.C.W.R. 397),
for the proposition that unless there is an agreement
executed in accordance
741
with the provisions of Article 299 of the Constitution,
the petitioners in the case where no agreements have
been executed, would not be liable to pay rental. The
argument was that the liability to pay rental arises
only out of the agreement, and if there is no
agreement, then there is no liability to be enforced As
I have indicated the liability to pay the renal arises
not only by virtue of the agreement but also by the
provisions of section 28 of the Act. The decision of
the Supreme Court in H. P. Chowdhry v. State of M.P.
would make it clear that if there are provisions in the
Act, the liability to pay the rental can be enforced. I
think that even if no agreement has been executed,
there was the liability under section 28 of the Act,
and that the liability would be enforced under the
provisions of the Revenue Recovery Act. (See Sections 6
and 62 of the T.C. Act) “.
Chandrashekhar, J. (as he then was) has also taken more
or less the same view in-State of Mysore v. Dasappa Naidu.
In that case, the plaintiff who was a licensee for sale of
ganja had executed a counterpart agreement as required by
section 25 of the Mysore Excise Act but no formal deed was
executed by both the plaintiff and the State Government as
required by Article 299 of the Constitution. When the period
of contract expired, rental for four months was in arrears.
When the Government sought to bring the licensee’s
properties to sale for recovery of the arrears, the
plaintiff executed a mortgage in favour of the State to
secure payment of the arrears undertaking to pay the arrears
in monthly instalments. As he defaulted in payment of the
instalments, the Assistant Commissioner issued a sale
proclamation for sale of the mortgaged properties. In the
suit he questioned the said sale proceeding on the ground
that the counterpart of the agreement and the mortgage deed
executed by him were void for nonfulfillment of the
requirements of Article’,- 299 of the Constitution. The
learned Judge held that the absence of a document conforming
to Article 299 was not a bar in view of the statutory
provisions contained in the Mysore Excise Act.
The Rajanagaram Village Co-operative Society by its
Secretary, . Parthasarathi Pillai v. P. Veerasami Mudaly was
a reverse case and the facts involved in it were these: The
defendant Co-operative Society put up a property belonging
to it for sale at a public auction. H
742
The auction was held by a sale officer. One of the
conditions of the auction sale was that the sale would be
knocked down in favour of the highest bidder subject to the
approval of the defendant Co operative Society and the
Chittoor District Bank. The plaintiff was the highest bidder
at the auction and the sale was knocked down in his favour
by the sale officer. He-deposited on the date of the sale
with the sale officer the amount which he had to deposit
under the conditions of the sale and also deposited the
balance with t the defendant within the stipulated period.
The Chittoor District Bank took up the matter for
consideration at its meeting held on a date subsequent to
the date of the sale and approved the sale. This resolution
was, however, not communicated to the plaintiff and no sale
deed was executed in favour of him. The plaintiff by his
notice called upon the defendant to execute a conveyance in
his favour. There upon the Bank cancelled its previous
resolution and directed a re-sale of the property. The
plaintiff thereafter instituted a suit for enforcing the
sale on the basis that there was a concluded contract in his
favour which was denied by the defendant in the written
statement. The main contention urged on behalf of the
defendant was that the contract did not become final and
complete as the approval of the Chittoor District Bank was
not communicated to the plaintiff. Under section 4 of the
Contract Act, it was claimed, that even the approval should
have been communicated like acceptance as according to the
contention of the defendant that constituted a final
acceptance of the contract. The trial court accepted the
contention of the defendant and dismissed the suit. The
first appellate court reversed the decision of the trial
court and granted a decree for specific performance of the
contract in favour of the plaintiff. While affirming the
Judgment of the first appellate court, the High Court
observed in the above decision as follows:-
“The defendant appointed a sale officer who, under
the terms of E. D. I was authorised to knock down in
favour ‘ of the highest bidder the property subject of
course to the approval of Mahasabha and the Chittoor
District Central Bank. No point was raised in the
courts below, and indeed it could not be raised before
me, that this sale officer had no authority to accept
any bid on behalf of the defendant. Further there was
also no plea any where that there was no approval of
the sale by the Mahasabha, that is the defendant. The
defendant should have known if there was no such
approval and should have put that matter in the
forefront of the case if really there is any substance
in that contention
743
in the second appeal. The matter, therefore, for
consideration is whether the sale officer, in knocking
down the bid subject to the approval of the Bank, had
or had not accepted the offer of the plaintiff subject
to the condition of approval. Ever since the well-known
decision of payne v. Cave, (1789) 3 T.R. 148: 100 E.R.
502, it has been established that the position of an
auctioneer is that of an agent of the vendor and that
until the bid is knocked down, there is no concluded
contract in favour of the bidder and the bidder was at
liberty to withdraw his offer before it was accepted.
To a similar effect is also the decision Cook v. oxley,
(1790) 3 T.R. 653: 100 E.R. 785. If there. is . no
further condition of an approval or confirmation,
ordinarily if the bid is knocked down, the acceptance
is communicated by the acceptance of the bid in the
presence of the bidder and no further communication
would be necessary. If, however, the acceptance was
conditional, the condition being that it is subject to
the approval or confirmation by some other person, what
is the position ? The acceptance in such circumstances,
in my opinion, is conditional acceptance and that has
to be communicated. Nobody suggests that in order to
make the contract enforceable, it is not necessary to
have the approval of the person indicated in the
conditions of the auction sale. The question is whether
the approval also in such circumstances, should be
communicated to the bidder in order to conclude the
contract. In my opinion, the acceptance contemplated
may be absolute or may be conditional and when once
that conditional acceptance is communicated, there is
no need or necessity for a further communication of the
fulfillment of the condition when the acceptance is a
conditional acceptance. The communication of the
acceptance twice is not needed”.
The correctness of this decision is doubted elsewhere.
It is not necessary in this case to decide whether the view
expressed by the High Court of Madras in the above case is
correct or not for the situation in the instant case is
anterior to the situation which obtained in the said case.
The officer who held the same in the present case had the
power to accept the bids though it was subject to sanction
by the Excise Commissioner. The respondent who offered the
bids after conclusion of the sale failed to make the initial
deposit and thereby drove the Department to hold the resale.
It was high conduct which ultimately resulted in the loss
suffered by the Department. 10-91SCI/80
744
The decision of this Court in K. P. Chowdhary v. State
of Madhya Pradesh & Ors is not of much assistance to the
respondent in this case, since in that case the officer who
held the sale was not competent to accept the bids of the
appellant therein as the bids offered were higher than what
he could accept. The appellant therein resiled from the
offer made by him by raising a dispute as to the marking of
the trees even before the Chief Conservator of Forests who
was competent to accept the bids could accept them. This
Court no doubt upheld the plea of the appellant therein as
there was no acceptance of the bid by the competent officer.
This case is one falling in the category of cases where the
sale officer has no power to accept the bid and not one
falling under the category of cases involving a conditional
acceptance as observed in the case of the Rajanagaram
Village Co-operative Society by its Secretary, Parthasarati
Pillai (supra). It is not the case of the respondent in this
appeal that the officer who held the excise auction was not
competent to accept the bids. It is further seen that the
question whether the appellant in the above case was liable
in any other manner also was not considered in that
decision. Hence no reliance can be placed on the above
decision.
The respondent by his own conduct in not depositing the
1/6th of the bids offered by him made it impassible, for the
excise authorities to conclude the contract. The question
may have been different if the respondent had done all that
he had to do under the conditions of the auction but the
excise authorities had not intimated him that he could
exploit the excise privileges in accordance with law. The
documents produced before the Court show that on February
24, 1951, the Deputy Commissioner, Faizabad wrote a letter
(Exh. S) 11′ calling upon the respondent to make the initial
deposit which he had to make at the conclusion of the sale
at the fall of the hammer on the date of the sale within
three days of the receipt of that letter and intimating that
in the absence of compliance with the said demand, the shops
would be re-auctioned and the amount of deficiency resulting
on such re-auction would be recovered from him. That letter
was received by the respondent on March 8, 1951. As the
respondent did not comply with the demand, the excise
authority concerned decided to conduct a resale of the
excise privileges on March 21, 1951, and also to prosecute
the respondent for an offence punishable under section 185
of the Indian Penal Code. Thereafter the respondent gave a
representation (Exh. 7) on March 30, 1951 stating that I any
action other than prosecuting him may be taken. He stated in
that representation that his sole object in offering the
bids was to
745
help the Government and to help himself but when he
calculated whether he would make any profit he felt that he
would not do so. According to the said representation, that
was the reason for not depositing 1/6th of the bid amount at
the fall of the hammer. He, however, did not question the
authority of the excise authorities to put up the excise
privileges for resale and to claim the loss occasioned by
such resale from him. In these circumstances I am of the
view that it is not possible to hold that the respondent was
not in law liable for the claim made by the State Government
even though no contracts were formally entered into between
the respondent and the State Government. The liability of
the respondent in the instant case arises under the statute
and it also arises as the result of a civil wrong or a tort
committed by him, in offering the highest bid with open eyes
and in not fulfilling the obligations arising therefrom. The
latter source of liability in this case may appear to be
novel but if justice requires, the Court should not hesitate
to impose it on the person who has committed the wrong and
secure justice for the innocent injured party. The following
observation of Denning L.J. (as he then was) in Candler v.
Crane, Chrismas & Co.(1) at page 178, though in minority,
are apposite:-
“This argument about the novelty of the action
does not appeal to me in the least. It has been put
forward in all the great cases which have been
milestones of progress in our law, and it has always,
or nearly always, been rejected. If you read the great
cases of Ashby v. White (1703) 2 Ld. Raym, 938, Pasley
v. Freeman (1789) 3 Term Rep. 51 and Donoghue v.
Stevenson (1932) A.C. 562, you will find that in each
of them the judges were divided in opinion. On the one
side there were the timorous souls who were fearful of
allowing a new cause of action. On the other side,
there were the bold spirits who were ready to allow it
if justice so required. It was fortunate for the common
law that the progressive view prevailed.”
Considering the facts and circumstances of the instant
case, I am of the view that the respondent should be made
liable for the sum claimed in the suit and the decree made
by the trial court should be restored.
ORDER
In view of the majority judgment, the appeal is
dismissed with no order as to costs.
N.V.K.
746