Karnataka High Court
Smt Guruvamma vs State Of Karnataka on 24 April, 2014
Bench: Dilip B.Bhosale, B.Manohar
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 24TH DAY OF APRIL 2014
PRESENT
THE HON'BLE MR.JUSTICE DILIP B.BHOSALE
AND
THE HON'BLE MR.JUSTICE B.MANOHAR
WA.NO.555/2007 & WA.No.3754/2011(Excise)
BETWEEN:
Smt.Guruvamma,
W/o.Late Annegowda,
Aged about 68 years,
Residing at Yerehalli,
Kanakapura Taluk,
Bangalore District. ...Appellant
(By Sri.Madhusudan R.Naik, Senior Advocate for Naik &
Naik Law Firm for Appellant)
AND:
1. State of Karnataka,
Represented by Secretary to Government,
Finance and Excise Department,
Vidhana Veedhi,
Bangalore.
2. The Commissioner for Excise,
Vokkaligara Sangha Building,
Bangalore.
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3. The Deputy Commissioner of Excise,
Mandya District,
Mandya. .... Respondents
(By Sri.T.K.Vedamurthy, HCGP for R1 to 3)
These appeals are filed under Section 4 of the
Karnataka High Court Act, praying to set aside the order
passed in the Writ Petition No.42013/99 dated 5/01/2007.
These appeals coming on for hearing and having been
heard and Reserved for Judgment on 14-03-2014, this day,
B.Manohar.J., pronounced the following:
JUDGMENT
These writ appeals are directed against the order dated 5-1-2007 made in W.P.No.43013/1999 passed by the learned Single Judge whereby the learned Single Judge allowed the writ petition in part while restricting the demand notice to an extent of Rs.2,21,18,991/- and upheld the order of forfeiture of earnest money deposit.
2. The appellant herein had filed a writ petition seeking writ of mandamus directing the respondents to refund the earnest money deposited by her husband in accordance with Rule 13 of the Karnataka Excise (Lease of rights of retail 3 vend of Liquor) Rules 1969 (hereinafter referred to as the 'Lease Rules' for short) in respect of Mandya Taluk and Pandavapura Taluk with interest as the offer to take the right of retail vend of liquor given by the husband of the appellant was frustrated due to his death. Further the appellant also sought for setting aside the endorsement dated 30-10-1999 and demand notice dated 13-01-2000 issued by the Deputy Commissioner of Excise, demanding a sum of Rs.3,15,18,991/- towards the loss caused to the Government in view of re-auction. In the writ petition, the appellant has contended that her husband one Late Annegowda was a registered Excise Contractor and doing business of retail vend of liquor. In pursuance of the notification dated 12-04-1999 issued by the Commissioner of Excise in Karnataka for auctioning the right to vend arrack for the Excise year 1999-2000 for Mandya District, the husband of the appellant participated in the auction conducted on 5-5-1999 and he was the highest bidder in respect of Mandya and Pandavapura Taluks. He had offered a sum of Rs.68,00,100/- insofar as Mandya Taluk and 4 Rs.26,00,000/- in respect of Pandavapura Taluk for the period from 1-7-1999 to 30-6-2000. Immediately on auction, on provisional confirmation, the husband of the appellant deposited one month's rent as per Rule 13(1) of the said Rules for the confirmation of the bid. The Deputy Commissioner of Excise by his order dated 12-05-1999, confirmed the bid of the said Annegowda as required under Rule 15 of the Lease Rules. Immediately on confirmation, the successful bidder has to fulfill the provisions of Rules 16 and 17 by entering into an agreement of lease with the State Government incorporating the terms and conditions under which the rate of retail vend of liquor in respect of the said two taluks. Further, within 15 days from the date of communication of the order of confirmation, the successful bidder has to furnish security for an amount equal to 3 and 1/10th of monthly rent in the form of Cash deposit in the form of Irrevocable Bank Guarantee. It is the case of the appellant that even before communication of the confirmation order, the said Annegowda died on 16-06-1999. Hence, he could not fulfill the requirements under Rules 16 5 and 17 of the Rules. On 26-06-1999, the Deputy Commissioner of Excise by his intimation letter informed the appellant that the bid offered by the said Annegowda was confirmed, whether the appellant is willing to continue the said business and if she is not willing, the EMD amount furnished by her husband-Annegowda will be forfeited and re-auction will be held in respect of two taluks. The appellant by her letter dated 28-06-1999 informed the Excise Commissioner that she has no experience with regard to the retail vend of arrack; she is aged about 60 years and without any male help she cannot carry on the said business and sought for refund of the EMD amount deposited by her husband. Since the respondents have not refunded the said EMD amount, she filed writ petition seeking refund of the EMD amount. In the meanwhile, she received an endorsement dated 30-10-1999 informing the appellant that the auction sale of right to vend arrack has already been confirmed by the Commissioner in respect of Mandya and Pandavapura Taluks, hence the EMD amount deposited by her husband cannot be refunded. Further she also received 6 a demand notice dated 13-01-2000 demanding a sum of Rs.3,15,18,991/- towards the difference of bid amount between first auction and the second auction. She also sought for quashing of the said demand notice and endorsement.
3. The State Government entered appearance and filed the statement of objections contending that the husband of the petitioner late Annegowda participated in the public auction conducted for retail vend of liquor in respect of Mandya and Pandavapura Taluks and he was the highest bidder and his bid was provisionally approved by the Commissioner. Accordingly, Annegowda deposited one month's kishth amount as EMD. Subsequently, the auction was confirmed by the Commissioner on 12-05-1999 and the confirmation order was also communicated to the said Annegowda on 01-06-1999. However, he has failed to comply with Rules 16 and 17 within 15 days of confirmation of the auction and he died on 16-6-1999 after the confirmation of bid. Hence, he is not entitled for refund of EMD amount. Further, in the re-auction, the retail vend of 7 arrack was auctioned for lesser amount in the said two taluks and the Government has suffered loss, hence issued demand notice for the difference amount of the two auctions. Further, the confirmation order has been served on Annegowda on 1-6-1999 and within 15 days from the date of communication of the confirmation order, he has to furnish the security or Bank Guarantee to the amount equal to 3 and 1/10th month of rent and also enter into an agreement of lease with the State Government. Though he was alive till 16-6-1999, he has failed to deposit the said amount and got into an agreement with the State Government. Further, though an offer was made to the appellant to continue the business, she has expressed her unwillingness to carry on the business. Hence, the State Government had no option other than to hold re-auction in the said two taluks. In the re-auction, the retail vend of arrack in respect of Mandya taluk was auctioned at Rs.47,20,999/- and in respect of Pandavapura Taluk, it was auctioned for Rs.20,53,500/- and the Government has suffered loss of more than Rs.3,15,18,991/-. Therefore, a demand notice was issued 8 while cancelling the confirmation order issued in favour of Annegowda. Accordingly sought for dismissal of the writ petition.
4. The learned Single Judge after considering the matter in detail found that once the Deputy Commissioner provisionally accepted the offer and the said Annegowda deposited the EMD amount under Rule 13(1) of the Rules, subsequently, the auction was confirmed by the Deputy Commissioner and the confirmation order was communicated to Annegowda, if he fails to comply with Rules 16 and 17 and failed to execute the lease agreement, the State Government at its discretion canceled the confirmation and the EMD deposit made by such person shall be liable to be forfeited by the State Government and right to vend the liquor shall be disposed of afresh at the risk of the defaulter. Further he is liable to make good the loss if the State Government suffers any loss in the re-auction. Further, the learned Single Judge held that 15 days after the confirmation of the auction, the said Annegowda died on 16- 6-1999. The lease being heritable, legal heirs of the demised 9 bidder can carry on the said business. Since the legal representatives of late Annegowda were not willing to carry on the said business, the Government has rightly cancelled the confirmation order and forfeited the EMD amount. Further, the learned Single Judge upheld the demand notice, however, reduced the amount from Rs.3,15,18,991/- to Rs.2,21,18,991/- by giving deduction of the forfeited amount. Accordingly, allowed the writ petition in part. Being aggrieved by the said order, the appellant has filed these two writ appeals.
5. Sri.Madhusudan R.Naik, learned Senior counsel appearing for the appellant contended that the order passed by the learned Single Judge forfeiting the EMD amount and partially upholding the demand is contrary to law. Even though the husband of the appellant participated in the auction held on 5-5-1999 in respect of Mandya and Pandavapura Taluks, before executing the lease agreement and furnishing the securities, he died on 16-6-1999. The confirmation order was served on the Power of Attorney holder on 7-6-1999. The successful bidder has got 15 days 10 time from the confirmation of his bid to execute the lease deed and to furnish necessary securities. However, before expiry of the said 15 days time, the husband of the appellant died and the contract has been frustrated due to the death of Annegowda and therefore, it cannot be construed as failure to comply with the provisions of Rules 16 and 17 of the Lease Rules within the stipulated time. Under Rule 18 of the Lease Rules, the right to vend liquor may be cancelled by the Government provided where a person in whose favour the disposal is confirmed fails to comply with the provisions of Rules 16 and 17, then only the Government can cancel it and forfeit the bid amount. In the present case, that eventuality has not yet happened. Since the husband of the appellant died before expiry of 15 days. In view of death of Annegowda, the said contract having been frustrated, the order of forfeiture cannot be hoisted against her. The right to vend liquor is not a heritable right and hence the forfeiture order passed by the State Government is contrary to law. An offer was given to the appellant to carry on the business of liquor, since she is not a registered contractor, 11 she had no experience and expressed her unwillingness to continue the said business. For participation in the public auction for right to vend arrack, the applicant must be a registered excise contractor under Rule 4A of the Lease Rules. He must have the capacity of carrying on the business by furnishing the Solvent Certificate. An unregistered excise contractor cannot carry on the excise business. In the instant case, the appellant was ineligible to carry on the excise business. Apart from that re-auction has been held in respect of the said taluks. The right to vend retail arrack has been given to the new vendors. The re- auction of right to vend arrack was not made in accordance with law. Except gazette notification, no wide publicity was given regarding re-auction, in view of that, the Government has suffered loss. Hence, the order passed by the State Government is contrary to law. The said order has been passed in violation of principles of natural justice. Further, the demand notice directing the appellant to pay Rs.3,15,18,991/- towards difference of kishth amount is also contrary to law. If there is a valid contract between the 12 successful bidder as well as the State Government and any condition of the contract is violated, then only the Government can forfeit the EMD amount and demand loss caused to the State exchequer. In the instant case, before execution of the lease agreement, the husband of the appellant died and the contract had been frustrated due to the death of the appellant's husband under Section 54 of the Contract Act. Hence, the demand of loss caused to the State Government is contrary to law. In support of his contentions, he relied upon the judgments reported in AIR 1954 SC 592 in the case of K.N.GURUSWAMY v/s STATE OF MYSORE AND OTHERS; AIR 1983 SC 1207 in the case of STATE OF HARYANA AND OTHERS v/s JAGE RAM AND OTHERS and (2009) 14 SCC 85 in the case of V.K.ASHOKAN v/s ASSISTANT EXCISE COMMISSIONER AND OTHERS.
6. On the other hand, Sri.T.K.Vedamurthy, learned High Court Government Pleader appearing for the State Government argued in support of the order passed by the State Government as well as the order passed by the learned 13 Single Judge and contended that in the public auction for retail vend of arrack, the appellant's husband was the highest bidder in respect of Mandya and Pandavapura Taluks and his offer was provisionally accepted. Accordingly, he deposited one month kishth amount. Thereafter, his bid was confirmed by the Commissioner of Excise on 12-5-1999. The confirmation order was communicated to the husband of the appellant on 1-6-1999 and the same was accepted by him. Within 15 days of the confirmation, the successful bidder has to fulfill the provisions of Rules 16 and 17. Wherein he has to execute the lease agreement and furnish the security deposits and has to obtain license for his shop. Admittedly, the husband of the appellant died after 15 days and the auction has already been confirmed by the State Government. In view of that, the appellant was called upon to carry on the business otherwise, EMD amount will be forfeited and re-auction will be conducted at the risk of the appellant. The appellant also has expressed her unwillingness to carry on the business. Accordingly, the State Government cancelled the 14 confirmation order and forfeited the EMD amount and re- auction was held on 14-07-1999. In re-auction, the Government has suffered huge loss, in view of that, the demand notice was issued demanding the loss caused to the State Government. There is no infirmity or irregularity in the said order. Further, the forfeiture order has been passed in accordance with the statutory Rule 18. Hence, the question of affording an opportunity to the appellant before forfeiture does not arise. In support of the said contention, he relied upon the judgment of the Hon'ble Supreme Court reported in AIR 2002 SC 1248 in the case of STATE OF KARNATAKA v/s SAVEEN KUMAR SHETTY. The learned Single Judge after examining the matter in detail has given partial relief to the appellant. Reducing the damages from Rs.3,15,18,991/- to Rs.2,21,18,991/- while upholding the forfeiture of the EMD amount. Hence, sought for dismissal of the appeals.
7. We have carefully considered the arguments addressed by the learned counsel for the parties and perused the orders impugned and other relevant records.
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8. The records clearly disclose that husband of the appellant was a registered excise contractor. He had participated in the excise auction conducted on 5-5- 1999 in respect of Mandya and Pandavapura Taluks and he was the successful bidder offering highest bid. His bid was provisionally accepted and he had deposited one month kishth amount as EMD. The said offer was confirmed by the Excise Commissioner on 12-5-1999 and he was called upon to execute the lease agreement and furnish security as per the provisions of Rules 16 and 17 of the Lease Rules vide communication dated 1-6-1999. The records further disclose that the confirmation order was communicated to the appellant's husband on 1-6-1999. As per Rules 16 and 17, the successful bidder whose bid was confirmed has to execute the lease agreement and also furnish security and obtain license for his shop within 15 days of the communication of the confirmation order. However, the husband of the appellant has not fulfilled the provisions of Rules 16 and 17 and he died on 16-6-1999. The records also disclose that the power of attorney holder of Annegowda 16 who had participated in the auction was also served with the confirmation order on 7-6-1999. Since the offer made by the husband of the appellant was already confirmed, and a statutory contract had already been entered into between the highest bidder as well as the State Government, the husband of the appellant has to fulfill the provisions of Rules 16 and 17 of the Lease Rules. If the provisions of Lease Rules 16 and 17 are not fulfilled, the Government may cancel the right to retail vend of liquor and forfeit the EMD amount deposited by the bidder. Further, the Government may re- auction and if there is any loss, the same may be recovered from the defaulter. Rules 16 and 17 of the Lease Rules read as under:
16. Lease to be executed - The person whose tender, offer or bid is confirmed under Rule 15 shall [ (within fifteen days from the date of communication of such confirmation order ] or before the thirtieth day of June, whichever is earlier ] enter into an agreement of lease with the State Government incorporating the terms and conditions under which the right of retail vend of liquors is leased in his favour.
[Provided that where on account of the order of any court, such agreement of lease could be entered into within the period or before the date specified in this rule, it shall be entered into 17 within seven days from date of vacation of such order or the date of communication of the confirmation order, whichever is later.]
17. Application for licence and conditions to be fulfilled. - (1) The person in whose favour the disposal of the right of retail vend of liquors in confirmed shall, -
(a) [within fifteen days from the date of communication of the order of confirmation] make an application together with a list of sites with its boundaries selected for locating the shop or shops, for a licence in respect of each shop or group of shops, -
(i) to the Deputy Commissioner of the district where the disposal is of shops or group of shops [or the area or areas] within that district;
(ii) to the Excise Commissioner where the disposal is of shop or group of shops [ or the area or areas] situated in more than one district.
(b) [within fifteen days from the date of communication of the order of confirmation] furnish security for an "amount equal to [three and one tenth of monthly rent] in the form of cash deposit or [xxx] Government securities or other securities recognized by the Government or an irrevocable guarantee given by a Scheduled Bank [ x x x ]
9. Rule 18 of the Lease Rules provides for consequence upon or failure to execute the lease agreement. It provides that if the person in whose favour right of retail vend of 18 liquor was confirmed fails to comply with the provision of Rules 16 and 17, the State Government may cancel the said right and the EMD amount deposited by such person shall be liable to be forfeited by the State Government and re-
auction to be held at the risk of the defaulter if there is any loss to the State Government. Rule 18 reads as under:
18. Failure to execute lease agreement, etc, - (1) Where the person in whose favour the disposal is confirmed fails to comply with the provisions of Rules 16 and 17 the disposal of the right of retail vend of liquors [may be cancelled by the Government at its discretion and if it is so cancelled, the deposit made by such person] shall be liable to be forfeited to the State Government and the right of retail vend of liquors shall be disposed of afresh in such manner as the State Government may direct.
[Provided that till such disposal is made and fresh licences are granted, the Deputy Commissioner may continue the licence of the previous licensee in respect of the same shop or shops.] (2) The disposal under sub-rule (1) shall be at the risk of the defaulter who shall, however, be not entitled to any excess amount realised from such disposal] but shall be liable for the losses sustained by the State Government. [ The Excise Commissioner shall be entitled to assess such loss] and recover it as if it were an arrear of land revenue.
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10. Sri.M.R.Naik, learned Senior Advocate appearing for the appellant contended that the husband of the appellant had not received the confirmation order. He died on 16-6- 1999 i.e. even before receipt of the confirmation of right to vend arrack and executing necessary lease deed and furnishing necessary documents. Hence, the failure to comply with the provisions of Rules 16 and 17 does not arise. Apart from that, even though the confirmation order was received by the husband of the appellant within time, he died before expiry of 15 days of service of the confirmation order. There is no concluded contract. Hence, the question of cancelling the confirmation and forfeiting the EMD amount does not arise. As per Rule 9 of the General Clauses Act, 15 days time expires on the midnight of 16-6-1999. Due to the illness, husband of the appellant died prior to that date. The contract has been frustrated by his death and therefore, it cannot be construed as failure to comply, within the stipulated time.
11. The contention of Sri.M.R.Naik, or is not be accepted. During the pendency of the writ petition, on the similar 20 contention raised by the learned Senior Counsel, the learned Single Judge had called for records from the Department to verify whether the confirmation order was served on the said Annegowda or not. The concerned person had produced the original records containing thumb impression of the said Annegowda on the acknowledgement of service of confirmation order. The concerned officer also filed an affidavit stating that the confirmation order was served on Annegowda on 1-6-1999 itself and he has put his thumb impression. Nothing prevented the said Annegowda or his Power of Attorney Holder who had participated in the auction to execute necessary agreement by depositing 3 and 1/10th month rent within 15 days. The records produced by the Government Pleader clearly disclose that the said Annegowda was an illiterate person. His Income Tax Returns for the three assessment years prior to the death clearly disclose that he was not doing any excise business. First time, he had participated in the excise auction in the year 1999. However, he has not participated in the auction, only his Power of Attorney Holder had participated and he 21 deposited the EMD amount. On failure to execute the lease agreement and depositing security deposits, the authorities below had acted in accordance with Rule 18 referred to above and passed the order forfeiting the EMD amount.
12. We find there is no infirmity or irregularity in the said order. The judgments relied upon by Sri.M.R.Naik in GURUSWAMY case and V.K.ASHOKAN are not applicable to the facts of the present case. The question of violating the principles of natural justice does not arise. The rule itself contemplates that if the successful bidder fails to execute the lease agreement by depositing the security deposits, the State Government may cancel the confirmation order. The judgment relied upon by the learned Government Advocate Reported AIR 2002 SC 1248 (supra) is aptly applicable to the facts of the present case. Para 20 of the said judgment reads as under:
20. On the interpretation of Rule 18 in the instant case, it is clear that once a discretion has been exercised by the Government under Rule 18 to cancel the bid then a forfeiture of the amounts deposited is a consequences to the said act of cancellation and there is no discretion in the 22 Government whether to exercise the right of forfeiture or not. This being so, the question of affording an opportunity to the respondent before effecting the forfeiture cannot arise. Opportunity was granted before cancelling the bid. Admittedly, there was a default in non-compliance with the provisions of Rules 16 and 17. This being so, the appellant-State was right in its decision to cancel the bid and to forfeit the amount deposited under Rule 13(1).
13. The records clearly disclose that immediately after cancellation of the confirmation order, fresh gazette notification was issued on 3-7-1999 fixing the date for re- auction on 14-07-1999 in respect of Mandya and Pandavapura Taluks. The said gazette notification was not given wide publicity. Only two persons had participated in the re-auction held on 14-07-1999 in respect of Pandavapura Taluk and three persons had participated in respect of Mandya Taluk. Many of the Excise Contractors were not aware of re-auctioning. In view of that, the Government has suffered loss of more than Rs.3,00,00,000/- . Further on failure to execute the lease agreement by Annegowda, the first highest bidder, the second highest bidder was offered to carry on the said business in the offer 23 given by Annegowda and not in the offer given by the second highest bidder. If the offer given by the second highest bidder would have been accepted, the Government would not have suffered loss. It is sheer negligence on the part of the officers of the Department, for which the Government has suffered huge loss. The said loss cannot be fastened on the appellant. The learned Single Judge without taking into consideration this aspect of the matter, fastened the liability on the appellant. The said portion of the order cannot be sustainable in law. The learned Single Judge after considering the matter in detail and relying upon the various judgments cited by the learned counsel for both the parties passed the order impugned.
14. We find there is no infirmity or irregularity insofar as forfeiting the EMD amount is concerned. However fastening the liability on the appellant to pay difference of the kishth amount is contrary to law. Hence the order of the learned Single Judge requires modification. Accordingly, we pass the following:
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ORDER The appeals are allowed in part. The order passed by the learned Single Judge is modified. The demand notice dated 13-1-2000 issued by the Deputy Commissioner, Mandya is quashed. However, forfeiture of the EMD amount is confirmed.
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