Smt. Guruvamma W/O Late Annegowda vs State Of Karnataka Represented By ... on 5 January, 2007

[Cites 14, Cited by 1]

Karnataka High Court

Smt. Guruvamma W/O Late Annegowda vs State Of Karnataka Represented By ... on 5 January, 2007

Equivalent citations: 2007(4)KARLJ26

1. Writ petition by a person whose husband was a participant in an auction conducted under the provisions of the Karnataka Excise Act, 1965 [for short 'the Act'] read with the Karnataka Excise [Lease of rights of retail vend of liquor] Rules, 1969 [for short 'Lease Rules']. The State had invited bids and offers from the intending persons to offer their bid for such rights in respect of Mandya Taluk and Pandavapura Taluk in Mandya District. The husband of the petitioner having unfortunately died before he could reap the fruits of his successful bidding for these two Taluks by offering a monthly rent of Rs. 68,00,100/- in Mandya Taluk and a sum of Rs. 26,00,000/- in Pandavapura Taluk and the right to vending liquor which he had obtained having not been retained by the petitioner though there was an offer by the authorities under the Act that the petitioner could continue the right by exercising the option or willingness to be indicated within a stipulated time, the authorities having proceeded on the premise that the offer has been declined and having taken action for re-auctioning of the right of vending of liquor in the two Taluks and having found that such exercise had resulted in loss of revenue, had sought to make good the loss by demanding the so called loss from the petitioner by issuing a demand notice in terms of Annexure-A2.

2. Questioning such action and the demand, the present writ petition by the wife of the bidder who was successful and in whose favour the offer had been confirmed by the State.

3. It will be necessary to state a few facts to appreciate the circumstances leading to the present writ petition.

4. In terms of the Notification dated 12-4-1999 issued under the provisions of Rule-4 of the Lease Rules, the Commissioner of Excise in Karnataka had invited bids and offers for the right of retail vending of liquors in different Taluks in the notified areas of the District. In so far as present Page 0632 petition is concerned, we are concerned with the areas of Mandya and Pandavapura Taluks in respect of which the petitioner's husband had given his offers. The offers were to be given at the public auction held on 6-5-1999. It turned out that the offer of the husband of the petitioner in respect of Mandya taluk at a sum of Rs. 68,00,100/- per month and a sum of Rs. 26,00,000/-per month in respect of Pandavapura Taluk was the highest offer and accordingly this offer was accepted in terms of the order of confirmation by the Commissioner of Excise as on 12-5-1999.

5. It is the version of the respondents that this confirmation was communicated to and acknowledged by the husband of the petitioner as on 1-6-1999. This was also followed up by issue of a notice to the husband of the petitioner on 3-6-1999 calling upon the person to furnish bank guarantee in terms of Rule 17(1)(b) of the Lease Rules. It is thereafter, unfortunately the person himself died as on 16-6-1999 and it appears the matter came to a stand still for the fulfillment of any obligations on the part of the person.

6. It is after the respondents learnt about the demise of the husband of the petitioner as on 16-6-1999, an endorsement was given to the petitioner dtd. 26-6-1999 [copy at Annexure-A] apprising her that her husband had received and acknowledged the order of confirmation of the bid offered by the husband as on 1-6-1999; that he had also been called upon to furnish the bank guarantee and execution of the lease deed etc., which was to be by or before 15-6-1999; that such communication had been served on the power of attorney holder of her husband on 7-6-1999 and the same having not been complied within the stipulated time, the petitioner was being given an opportunity to indicate her willingness to retain the right of vending liquor in the two Taluks by expressing her willingness in this regard for retaining the same by or before 5 pm on 28-6-1999; that on her failure to indicate her willingness within the stipulated time, it will be taken that she is not willing to retain the contract and consequently the deposit that her husband had made will be forfeited in favour of the State and further action in accordance with law will be proceeded with.

7. It is the version of the petitioner that the petitioner was not aware of any earlier development prior to this and was never put on notice either for continuation or otherwise for deposit of any amount or for any forfeiture proposal to the endorsement dated 26-6-1999.

8. It appears that the petitioner responded to this endorsement in terms of her reply dated 28-6-1999 [copy at Annexure-B] addressed to the Secretary, Department of Finance & Excise, Bangalore and to the Commissioner of Excise apprising them that while her husband was in the process of preparation to comply with the requirements of Rules 16 and 17 of the Lease Rules he had died on 16-6-1999; that there were no male issues who could take care of his business activities; that neither herself nor her daughters had any knowledge or experience in the particular line Page 0633 of activity and they will not be able to carry on the business; that her husband had borrowed the amount of Rs. 68,00,000/- and Rs. 26,00,000/- which had been deposited pursuant to the provisional confirmation of this bid in terms of Rule-13 as on 7-5-1999 itself; that she was being pressed for repayment by the lendors and therefore requested to refund the amount; that thereafter the petitioner had filed the present writ petition, inter alia, contending that the respondents were not entitled to retain the deposited amount; that such retention was illegal and arbitrary; that the petitioner's husband having died even before the execution of the lease deed in terms of Rule-16 of the Lease Rules, no written contract had come into existence; that the earlier rights and obligations in terms of offer, acceptance and confirmation etc., had all got frustrated in the light of the death of her husband on 16-6-1999 itself; that the rules do not enable the respondents to forfeit the earnest money deposit in the event of the death of a person who had made the offer and which had been accepted pursuant to the provisional communication the deposit having been made; that it was not even known to the petitioner about the confirmation to the knowledge of the petitioner's husband and therefore cannot be said that there was any non-compliance on the part of her husband; that the death of the bidder having prevented him from going ahead with further actions in terms of the offer and acceptance, the contract gets frustrated and is not enforceable thereafter, that even to the knowledge of the respondents, they having not taken any action and having given the option to the petitioner to continue or not to continue and when once the petitioner had opted out of the same, there cannot be any further liability; that the petitioner is entitled for refund of the amount deposited by her husband and on such premise sought for issue of a writ in the nature of mandamus to direct the respondents to refund the earnest money deposit amount to the petitioner with interest etc.,.

9. Respondents who had been put on notice have been represented by Sri. Keshava Reddy, learned Additional Government Advocate and had filed their statement of objections on 5-1-2000.

10. In the statement of objections, it is, inter alia, urged that there was a failure on the part of the petitioner's husband for complying with the requirements of Rule-17 of the Lease Rules; that they had also failed to enter into an agreement of lease; that the confirmation in favour of husband of the petitioner, namely, Annegowda was determined in terms of Rule-18 of the Lease Rules and the earnest money deposit was liable to be forfeited; that the husband of the petitioner having failed to comply with the requirements of the rules even during his lifetime, the consequence in terms of Rule-18 necessarily follows; that while it was a fact that the petitioner had been given an option to continue the right and the contract for retail vending of arrack in the two Taluks in terms of letter dated 26-6-1999, the petitioner having not indicated her willingness, the confirmation was revoked and the earnest money deposit was forfeited and the right to vend the arrack was re-auctioned; that the consequence of re-auctioning Page 0634 was loss to the State Government which was required to be made good and at any rate the petitioner was not entitled for refund of the amount and prayed for dismissal of the writ petition.

11. Subsequent to the filing of the petition, the petitioner had been issued with an endorsement about the non-possibility of acceding to the request of refund in terms of the endorsement dated 30-10-1999 produced as Annexure-A1 to the application filed by the petitioner and that being followed by another demand notice dated 13-1-2000 produced as Annexure-A2 to the application, inter alia, indicating that the State Government suffered a total loss to the extent of Rs. 2,49,53,252/- and Rs. 65,65,759/-as a result of re-auctioning of the right to vend liquor in Mandya and Pandavapura Taluks respectively; that the petitioner being the legal heir of the person who had bid and who had defaulted is liable to make good an amount of Rs. 3,15,18,991/- and called upon the petitioner to make good this amount failing which action in accordance with law will be pursued. It is at this stage, the petitioner filed an application under Section 151 of the Code of Civil Procedure seeking to bring these developments also on record and praying for quashing of these two endorsements, namely, endorsement at Annexure-A1 regarding forfeiture of the amount and the further demand at Annexure-A2 calling upon the petitioner to remit the sum of Rs. 3,15,18,991/-.

12. The State Government has filed objections to this application reiterating their earlier stand and also indicating that as the petitioner had not accepted the offer to continue the right of vending the liquor in the two Taluks which had been re-auctioned on 14-7-1999 and highest bid secured in respect of Mandya Taluk is at Rs. 47,20,999/- and in respect of Pandavapura Taluk is at Rs. 20,53,500/- per month and that till that day, the existing contractor was allowed in terms of proviso to Rule 18(1) of the Lease Rules; that the net result of such an exercise was total loss of a sum of Rs. 3 crores etc., to the Government; that this amount was liable to be paid by the petitioner in terms of the provisions of Rule-18 of the Lease Rules and on the failure on the part of the petitioner to make good this amount, resorted to recover the same as arrears of land revenue.

13. It is also urged that the rents for parting with the right of retail vending of arrack in the two Taluks which was a privilege of the Government is for consideration and not by way of either tax or duty; that on the failure of the husband of the petitioner to comply with the requirements of Rules 16 and 17, action as contemplated under Rule-18 was taken; that it was all in accordance with the statutory provisions; that the action taken is well within the powers of the authorities and in consonance with the statutory provisions and neither endorsement nor demand notice can be quashed and prayed for dismissal of the writ petition.

14. A separate affidavit dated 29-1-2001 had been filed on behalf of the respondents and sworn to by one H.S. Siddaiah, Inspector of Excise for affirming the version that the order of confirmation of the bid offered by said Annegowda was actually served on Annegowda on 1-6-1999 at his residence at about 5 pm. Page 0635

15. On behalf of the petitioner, a rejoinder dated 29-3-2004 is filed denying knowledge about service of any notice, confirmation or any other thing on her husband; that the affidavit is not trustworthy or one that can be accepted; that there were contradictions and anomalies about the facts pleaded on behalf of the respondents; that therefore has reiterated the prayer for grant of relief in terms of the main petition and the interlocutory application.

16. It is in the Light of such pleadings and facts, the present petition is considered.

17. I have heard Sri. Madhusudhan R. Naik, learned Senior Counsel appearing for the petitioner and Sri Keshava Reddy, learned Additional Government Advocate appearing on behalf of the respondents. Very elaborate submissions have been made on either side.

18. The principal contention of Mr. Naik, learned Senior Counsel for the petitioner is that the respondents are not justified in calling upon the petitioner to take or continue the contract in terms of the bidding of her husband nor can they foist any liability on the petitioner whether for forfeiture of the deposited amount or for calling upon the petitioner to pay any further amount on the premise that the State had suffered loss for the reason that in the first instance the petitioner is not an eligible person to get a contract or lease in her favour being not a registered excise contractor in terms of Rule-4A of the Lease Rules; that when the petitioner is an ineligible person being not a registered excise contractor under the provisions of Rule-4A of the Lease Rules, there is no question of respondents either voluntarily or gratuitously offering the contract to be continued by the petitioner in terms of the communication at Annexure-A. It is submitted that for the same reason, if the petitioner is not even a registered excise contractor under the Lease Rules, there cannot be any liability on the person like the petitioner particularly just because the respondents had made some unauthorised offer to continue the right of vending of liquor in the two Taluks to which her husband had aspired for. It is submitted that at any rate, such unauthorised offer cannot bind the petitioner nor can be used as a basis for mulcting the petitioner with any liability as it is the version of the respondents that the petitioner having not exercised her option to continue the contract within the time stipulated under Annexure-A, the contract was revoked and the Government had to do alternative arrangements. It is for this reason that the learned Counsel for the petitioner submits that there is absolutely no liability on the part of the petitioner to pay any amount and on the other hand the petitioner is entitled for refund of the deposited amount.

19. Submission of learned Senior Counsel appearing for the petitioner is that the contractual relationship which had been brought about between her husband and the respondent-Government in the wake of the invitation for bid, offer of the petitioner's husband, provisional acceptance and confirmation etc., inclusive of all events that had taken place prior to the Page 0636 date of her husband's death as on 16-6-1999 at a point of time when actually lease agreement had not been entered into between the parties, all got frustrated on the death of her husband on 16-6-1999; that in view of such frustration, there is no further liability arising under such contract thereafter on any person including on the legal heirs of said Annegowda; that all action of the respondents creating liability or taking away any rights of the petitioner as a legal heir, in the sense, any action adverse to the interest of the petitioner subsequent to 16-6-1999 cannot sustain in law to be enforced on the petitioner; that the act of forfeiture and also the liability for making good the losses if any as a result of re-auctioning of the right to vend in the two Taluks having all been determined and quantified subsequent to the death of her husband on 16-6-1999, they are all not action which are sustainable or which can be enforced as against the petitioner; that in this view of the development, there cannot be any liability on the petitioner to make good any amount assuming that a liability could have arisen if her husband should have been alive and his actions could have resulted in such amount being recovered from him.

20. In this regard, learned Senior Counsel for the petitioner draws attention of the court to the provisions of Section 56 of the Indian Contract Act, 1872 [for short 'Contract act'] and submits that the principal incorporated in Section 56 of the Contract Act should be employed in the matter of understanding the provisions of Rules 16 to 18 of the Lease Rules; that if such an interpretation is placed in understanding the Rules 16 to 18, the frustration of the contract that had been brought about by the offer, acceptance and confirmation on the part of the State Government would avoid the penal consequence which flow from the operation of Rule-18 of the rules and if so it is not open to the respondents either to forfeit deposit made by the husband of the petitioner or to call upon the petitioner to make good the amount computed as loss to the Government because the contract in favour of her husband was not continued; that it was revoked and the Government had re-auctioned the right of vending of liquor etc.,.

21. In the alternative, it is submitted by learned Senior Counsel for the petitioner that the operation of Rule-18 of the Lease Rules is only on the failure of a person to comply with the requirements of the provisions of Rules 16 and 17 of the Lease Rules; that undisputedly if the husband of the petitioner had been served with the order of confirmation of his offer as on 1-6-1999, he had a period of 15 days for either executing the lease deed or for furnishing bank guarantee; that in the light of the provisions of Section 9 of the General Clauses Act, the day of the receipt of the order has to be excluded and clear 15 days are to be computed and thereafter it would expire only by the midnight of 16th day and the husband of the petitioner having died before the expiry of midnight of the 16th day i.e., even when the person had still time to comply with the requirements of Rules 16 and 17 of the Lease Rules, it became an act impossible on the part of the person, in the sense, the requirement of Rules 16 and 17 of the Lease Rules Page 0637 to be complied got frustrated at that point of time and therefore the consequence under Rule-18 does not follow.

22. Submission is that if the situation is not one to which Rule-18 is attracted, neither can there be a forfeiture of the deposit nor can any liability be foisted on the premise that the re-auctioning had resulted in loss of revenue to the State.

23. In this regard, learned Counsel would lay stress on the word "defaulter" as it occurs in Rule 18(2) of the Lease Rules.; that the liability under Rule 18(2) is only on the defaulter and not on any other person and as the petitioner's husband had not become a defaulter before his death, there is no possibility of he being treated as a defaulter after his death and if the person was not a defaulter during his lifetime, there is no consequence of the penal provision under Rule 18(2) visit such a person who was not a defaulter and when the petitioner's husband himself was not a defaulter, there is no question of recovering any amount from the petitioner even as a legal heir.

24. In this regard, learned Senior Counsel for the petitioner would place reliance on the decision of the Supreme Court in the case of State of U.P. v. Kishori Lal Minocha wherein the Supreme Court had taken the view that in the absence of a concluded contract between the parties, there cannot be any claim for recovery of any damages or losses on the premise that there was a breach of contract on the part of one party. Submission is that as before the stipulated time for executing the lease deed in terms of Rule-16 had expired, the person having died, no written contract had been brought about and if there was no contract between the husband of the petitioner and the respondent-State, there cannot be any claim on the premise that due to failure on the part of the petitioner to comply with the requirements or to remit the Kist amount in terms of the bid, the State Government can recover the loss notwithstanding that such a provision having been made in terms of Rule-18 of the Lease Rules.

25. Alternative submission of Sri M.R. Naik, learned Senior Counsel appearing for the petitioner is that assuming that conceding for argument sake, the act of forfeiture invariably follows a revocation of confirmation of contract in favour of highest bidder as a result of failure of such person to comply with any requirements, loss sustained to the State Government by such failure on part of the highest bidder which can be recovered as if it were arrears of land revenue is only actual loss sustained by the State and not any other amount or an higher amount

26. In this regard, learned Counsel points out that the State having already forfeited the amount that had been deposited by the highest bidder and only for the reason that such highest bidder had not complied with the procedural requirement of executing a formal lease agreement and furnishing the bank guarantee etc., and that amount having reached the Page 0638 coffers of the State, in computing the actual losses if has resulted as a consequence of re-auctioning of the right of sale of liquor in the area, the process of computation of such losses should necessarily take into account the amount that the State: has realised even by way of forfeiture of the deposited amount from the bidder, that whether the amount reaches the coffers of the State by way of forfeiture or otherwise, the amount is received by the State and being only in the context of the particular transaction, while computing the loss for the purpose of Rule 18(2), that amount should necessarily be taken note of and the loss so determined can only be after giving credit to the deposit amount which is forfeited; that the demand made in terms of Annexure-A2 is definitely not sustainable.

27. Submission of Sri Naik, learned Senior Counsel for the petitioner on the premise that if the principle adumbrated in Section 56 of the Contract Act is to be applied to the present fact situation, that is pursuant to the death of the husband of the petitioner on 16-6-1999, the very contract i.e., offer of highest bid by the husband of the petitioner and acceptance of that offer by the State and confirmation of the same would become void in terms of the provisions of Section 56 of the Contract Act, in the sense that the agreement is one which is an act impossible of performance, in the sense, the person having died it is no more possible to perform the contract and in terms of Section 56 of the Contract Act, agreement being void, no consequence can flow out of a void agreement and therefore there cannot be any liability either for forfeiture or for making good loss by the petitioner.

28. In this regard, learned Senior Counsel for the petitioner would place reliance on the decision of the Supreme Court in the case of Satyabrata Gross v. Mugneeram Bangur and Co. and Anr. , particularly on the observations made in paragraphs 10, 15 and 16 of this Judgment Submission is that if in terms of Section 56 of the Contract Act contract would become void, by applying same principle even for contract that might have been statutorily brought about through provisions of the Lease Rules, it gets voided because of the frustration and therefore consequence under Rule-18 of the Lease Rules cannot flow.

29. Another decision of the Supreme Court relied upon by learned Senior Counsel for the petitioner is State of Haryana and Ors. v. Jage Ram and Ors. , It was a case where the bidder in whose favour the contract had been awarded had midway defaulted and thereafter the right of vending of liquor had been re-auctioned and as it had resulted in a loss, that was sought to be recovered from the original bidder. The Supreme Court accepted the view taken by the High Court that the State having not followed the requisite procedure for re-auctioning by giving sufficient and proper publicity, the loss as a result of such re-auctioning cannot be foisted on the original bidder as re-auctioning was not a fair or proper one which Page 0639 could have fetched commensurate return to the State, but being one more by private negotiation; that the loss resulting through such award of contract through private negotiation cannot be foisted on the original bidder etc.,.

30. Submission is that in terms of the procedure and requirement of rules, the consequence under Rule-18 of the Lease Rules follow only on the failure and not otherwise and re-auctioning being not in terms of the rules, the liability does not fell on the petitioner in terms of the demand at Annexure-A2.

31. Countering such submission, learned Additional Government Advocate would very vehemently urge that the entire activity of leasing the right to vend liquor which is a privilege and monopoly of the State is now regulated by the statutory provisions; that the Act and particularly the Lease Rules govern the whole gamut of the parting of the right by the State in favour of private citizens, the manner in which it should be done and the consequence that visit upon a private person who agrees to take on lease such right but who does not fulfil the obligations of the requirements on his part.

32. Learned Additional Government Advocate would submit that in the first instance, the very right is one which is auctioned through public auction i.e., by inviting intending bidders to participate in an open public auction; that their bids are considered on a given day and given place and other conditions being satisfied the offer made by the highest bidder is provisionally accepted and thereafter confirmed in accordance with the requirement of the rules, the person is communicated of such confirmation and the subsequent contract, events are all regulatory; that the consequences flow from the statutory provisions and not merely on the basis of an individual or private negotiations; that the entire activity being streamlined by the statutory provisions, there is no option to deviate from the procedure prescribed by the statute; that a discretion if any can be exercised by the authorities only if it is provided under the statutory provisions and within the limits of such discretion and not otherwise.

33. Submission is that the bid offered by Annegowda at the rate as indicated above in respect of two Taluks, namely Mandya and Pandavapura had been accepted and confirmed and when once it is so confirmed, the contract even in the realm of private negotiation is concluded and becomes binding on the parties. It is submitted that the subsequent act of executing a lease agreement in terms of Rule-16 and furnishing the bank guarantee in terms of Rule-17 are all acts which are required to be complied on the part of the bidder who has given the highest offer only to enable him to obtain necessary licence which alone gives the bidder the actual right to start selling of liquor in the stipulated places/shops.

34. Submission is that non-execution of a lease agreement as contemplated under Rule-16 within the stipulated time is not one to relieve the person of the terms and obligations of the concluded contract the moment the bid of highest offer is accepted and confirmed and confirmation communicated to the bidder; that a concluded contract is in place the Page 0640 moment the bidder is served with the confirmation order and the consequences necessarily follow.

35. It is submitted that in the matter of operation of statutory provisions, there cannot be a dichotomy of the doctrine of frustration intervening to relieve any person of the consequence in terms of the statutory provisions. Learned Additional Government Advocate would submit that the doctrine of frustration even assuming the same has been incorporated in Section 56 of the Contract Act has no application to the situation of this nature where the entire scheme is regulated by statutory provisions and is not in the realm of a private contract between the parties; that the consequences are statutorily indicated and necessarily followed in terms of the statute; that the death of a person after a concluded contract has come into place does not in any way affect the rights and obligations under the contract; that the contract when reduced into writing in the form of a lease agreement as under Rule-16 would invariably include a person in whose favour the lease agreement is executed and also includes his successors, assigns, legal heirs etc.,; that the consequence necessarily follow and continue on the legal heirs and not as though the person claiming as his legal heir is immune from such consequence or liabilities.

36. Learned Additional Government Advocate would also submit that while in terms of the record, the period of 15 days had already expired by the time the husband of the petitioner died, it is alternatively submitted that it would not make any difference assuming that such 15 days had not expired by the date the person dies as it is computed from the point of service of the order of confirmation. The contention is that as urged earlier, the contract has already been brought about and the mere formality of executing the lease agreement no way detracts; that the rights and liabilities gets crystallized on the date when the order of confirmation is communicated and not thereafter. It is submitted that the liability for payment of the agreed lease rent gets crystallized on the day when the confirmation order is served on the bidder and not at any point of time later and failure to make payment of the amount necessarily brings about the consequence.

37. It is also the submission of Sri. Keshava Reddy, learned Additional Government Advocate that even in a situation where a promisor is dead, the obligations on the Promisor to perform the contract continues on the legal heirs in terms of the provisions of Section 37 of the Contract Act unless contrary intention appears in the very contract itself; that what is urged is that there is no contrary intention to discontinue the rights and liabilities and on the other hand the very fact that the petitioner - legal heir had been offered to continue the right of vending liquor in two Taluks to which her husband had bid and was successful being the highest bidder was even offered in terms of the offer at Annexure-A, that indicates that the rights and liabilities were continued in the hands of the legal heirs; that it cannot be one thing for continuing the right and different thing for avoiding the liability; that if the person has a right to continue, the consequences follow i.e., the liability also necessarily has to visit a person Page 0641 and therefore it is submitted that the consequence of not performing the contract can be followed even in the hands of the legal heirs and becomes binding on the legal heir.

38. One another submission is that assuming the theory of frustration is to be invoked, it is only the subsequent rights and liabilities that are avoided i.e., subsequent to the contract being frustrated even under the General Law and not the rights and liabilities that had already been crystallized and it is submitted that therefore the death of the person on 16-6-1999 does not bring about any change in so far as the liability for remitting the amount i.e., the lease rent in terms of the concluded contract on the part of the bidder and it follows the legal heir also.

39. Sri. Keshava Reddy, learned Additional Government Advocate would also submit that while the contract is in fact not one which can be characterised as frustrated etc., it was not a case where the agreement becomes impossible of performance even in terms of Section 56 of the Indian Cont ract Act but one which if at all might have become difficult or the person who was legal heir being incapable of performing.

40. Learned Additional Government Advocate would submit that there is a distinction between an act becoming impossible of performance and one which becomes not possible for performance because of incapacity of a person; that it is not that every inability or incapacity of a person which can render the contract void; that the contract was not one which was impossible of performance at the time of entering into or which becomes impossible of performance at the point of time later also.

41. Therefore, the submission of the learned Additional Government Advocate in the first instance is that there is no frustration and even assuming for argument's sake, there is a frustration, the rights and liabilities as had been crystalised before that are not affected and in the instant case, while it is submitted that the contract got concluded as on 1-6-1999 when the confirmation was communicated and it cannot be deemed to have not come into existence till the expiry of fifteen days from this date etc.,

42. With regard to the liability of the legal heir being inherited and that of the original bidder, the learned Government Advocate would draw my attention to the provisions of Rule 17 and 17A of the Karnataka Excise (General Conditions) Rules, 1967 [for short, the General Conditions Rules], and submits that the rights are virtually heritable and therefore the liability on the legal heir is not independent on liability but one which the person incurs as a legal heir and not on her/his own right.

43. It is further pointed out to the provisions of Rule 19 of the Lease Rules regarding adjustment of deposits and submits that the adjustment of the amount of deposit towards the loss would have been possible only if the amount had not been forfeited and as the amount in deposit which had been deposited by the husband of the petitioner had been forfeited in terms of the order dated 2-7-1999 passed by the government, in so far as the Page 0642 recovery of loss in terms of Sub-rule (2) of Rule 18 of the Lease Rules is concerned, that amount is not available; that the actual loss incurred by the government has to be calculated excluding the deposit which has been forfeited and if so calculated, the sum which has been called upon by the respondents to be payable by the petitioner in terms of Annexure-A is correct, which the petitioner has to pay.

44. Learned AGA has placed the relevant records before the court The calculation sheet which figures along with the demand made on the petitioner in terms of Annexure-A2 indicate the mode of arrival of the loss to the state government in terms of excise revenue and its loss that is sought to be made good in terms of the demand, learned Additional Government Advocate submits that the demand being in consonance with the provisions of the Lease Rules, particularly Rule 18 no fault can be find with the government and the writ petition has to be dismissed.

45. In support of the submission that the demand can be issued towards making good the loss sustained by the government, it has to be independent of the amount forfeited, the learned Additional Government Advocate has placed reliance on the decision of the Supreme Court in the case of State of Karnataka v. Saveen Kumar Shetty . By drawing particular reference to para-20, wherein the Supreme Court had occasion to examine the very Rule i.e. Rule 18 of the Lease Rules, and had opined that on the termination of the contract by revocation of the confirmation in favour of the highest bidder for any default, the consequence of forfeiture of the amount is one which necessarily follows; that there is no discretion left in favour of the authority either to forfeit or not to forfeit and when once the government revoked the contract in favour of the highest bidder, forfeiture inevitably follows as a consequence to the revocation. Based on this circumstance, the learned Government Advocate submits that the forfeiture is the consequence of non-compliance on the part of the highest bidder and that is an independent consequence and the further consequences of making good of the loss being thereafter pursuant to the re-auction of the rights of vending liquor in the area specified, that loss has also to be made good apart from the amount already forfeited and therefore submits that the government and the officers are justified in calling upon the petitioner to make good the loss as worked out in terms of the records.

46. Learned Additional Government Advocate would also submit that that the respondents have in fact followed the requisite procedure for the purpose of re-auctioning the rights which had been revoked in favour of the highest bidder and having invited fresh offers through gazette notification, having considered the offers received thereafter and the highest offer having been confirmed by the Commissioner in terms of Rule 15 of the Lease Rules, the procedure has been duly followed and therefore submits that this is not a Page 0643 case where the recovery of loss can be found fault with on the ratio laid down by the Supreme Court in the case of Jage Ram [supra].

47. Learned Additional Government Advocate has also drawn my attention to Sub-sections (3) and (4) Section 17 of the Act, which reads as under:

17. Power to grant lease of right to manufacture etc, (1) X X X (2) x x x (3) A lease referred to in Sub-section (1) or Sub-section (1A) may be determined, --

(a) If any duty or fee payable by the lessee is not duly paid; or

(b) In the event of breach of any term or condition of the lease by the lessee or any of his servants or any persons acting on behalf of or under the express or implied permission of the lessee; or

(c) If the lessee becomes incapable of carrying on the business; or

(d) If the conditions of the lease provide for determination at will Provided that no such determination shall be made unless the person affected has had a reasonable opportunity of showing cause against such determination.

(4) Where a lease is determined under Clause (a), (b) or (c) of Sub-section (3), the State Government may direct the Deputy Commissioner to take the right under his management and to lease it again by resale or otherwise; and if on such management or resale, the amount realized is less than the amount payable under the lease which was determined the loss shall be payable by the person whose lease was determined.

which provision enables the government to recover any loss to the government, and submits that assuming for argument's sake that the provisions of Rule 18 are not attracted, as contended by the learned Counsel for the petitioner, it is always open to the state government to recover loss from the lessee whose lease has been determined for any default in terms of the provisions of Section 17, particularly a indicated in terms of Sub-sections (3) and (4) of Section 17; that the action for recovery of the loss even if not referable to Rule 18 can also be independently sustained on the strength of the provisions of the Act.

48. In the light of such rival pleadings, submissions and contentions urged on behalf of the parties, let me consider the arguments in their order.

49. The first submission is that the petitioner being not a registered excise contractor in terms of Rule 4A, the petitioner was not enabled to carry the activity of vending liquor in the area under consideration and therefore no right or liability is either created in favour of or caused to the petitioner and particularly the offer at Annexure-A cannot be of any consequence for Page 0644 foisting a liability on the petitioner on the premise that the petitioner did not respond within the permitted time, is a submission, in my opinion, which is again linked to the question of legal heir or the petitioner acting as a person claiming under the deceased Annegowda - the highest bidder - whose offer had been accepted. Though it is a requirement under Rule 4A that every participant in an auction should be a person who is registered and who holds a registration certificate in terms of Sub-rule 5 of Rule 4A and a registration certificate granted under Sub-rule 5 is also not a transferable one as pointed out by the teamed counsel for the petitioner, the registration certificate is one which enables a person to participate in a tender or auction for disposal of the rights to retain vend of liquor for the excise year specified in such certificate and nothing more. It is no doubt true that such registration is also not transferable, but the registration has significance only for the purpose of participation in a tender/auction for the disposal of rights of retail vend of liquor and nothing more. In the case of petitioner's husband, that stage was over and the registration certificate had been worked out by the petitioner's husband by participating and offering his bid. Thereafter, it is only the further consequence of offering the bid, acceptance or otherwise of the bid by the State and communication of acceptance. The non-registration is not a matter which has any significance at the subsequent stages after the participation in the auction. The petitioner has come into picture as a person claiming under the highest bidder and not on her own. If the registration in favour of the petitioner's husband was one which could have enabled that person to retain the right to vend liquor in the notified area, it is so in the case of legal heir also and there is no requirement of any independent registration on the part of such legal heir. The consequence of breach of terms i.e. non-compliance with the offer which is accepted by the government and not paying the lease rent is not one attributable to registration or non-registration but because of the subsequent conduct of the parties and therefore the registration aspect or to be precisely the non-registration of the petitioner is of no consequence, as it is not that the petitioner is compelled to participate in the auction based on the registration earlier on the part of her husband, but it is only the lights and liabilities that had arisen and which had accrued earlier which has been continued by the legal heir. It should be noticed that a legal heir has no independent status other than as a legal representative. The rights and liabilities of the legal representative, if the right is one heritable, is coextensive with that of the person whose rights the legal heir succeeds and it is not of any significance or consequence whether the person himself or herself had qualification to acquire such right or otherwise. It is only in a representative capacity, the person succeeds to the rights of the deceased person and therefore there is no question of making a dichotomy of the personal interest of the petitioner and her interest as legal heir etc. If the petitioner would continue as legal heir for reaping any benefits under the contract finalized in favour of her husband, the liability arising under that contract is also as a sequel and not independently. If at all the legal heir has any right, it is to contend that so Page 0645 far as liability is concerned, it cannot exceed the value of the estate which the legal heir has succeeded when it comes to the question of enforcement of such liabilities and when a recovery action is resorted to in terms of the provisions of Section 63 of the Act, and nothing beyond. It is therefore that I am rejecting the first submission that the petitioner is not liable for the consequence and that the respondents could not have issued a communication of the nature at Annexure-A dated 26-6-1999 offering to the petitioner to continue the rights which had accrued to her husband and on her failure to indicate the choice within the permitted time, the consequences would follow otherwise. If at all the offer at Annexure-A is a concession shown in favour of the petitioner and therefore not one creating any independent liability under that.

50. In so far as the next argument that the death of the husband of the petitioner as on 16-6-1999 has frustrated the contract; that in fact the petitioner's husband having had no occasion to execute the lease before the permitted time, the contract did not take effect to and no consequences follow is concerned, I am afraid that the doctrine of frustration is not one which can be called in aid in a situation of the present nature. In fact as has been observed by courts and even in terms of the decision Supreme Court in the case of Satyabrata Ghose [supra], the English doctrine of frustration is not one that can be imported or called in aid on a situation to situation basis or contract to contract basis, but is one which is now statutorily provided for under Section 56 of the Contract Act even in the realm of private contracts. It is not as though the courts are required to examine in a situation as to whether there is frustration or otherwise and relieve the parties of the consequences of a contract which is frustrated. That aspect is now statutorily taken care of in terms of Section 56 of the Contract Act and to the extent to which the provision applies in terms of the statutory provision itself. Even Section 56 of the Contract Act makes a distinction between an agreement which was impossible for performance at inception, which then becomes a void agreement in terms of first part, the second part being the contract becoming impossible for performance by subsequent development beyond the control of the promisor and therefore thereafter the contract becomes void and the third part providing for compensation to the promisee by the promisor. At the inception itself was the promisor aware of the impossibility of performance and as a result the promisee having been put to loss.

51. The present situation is one where, as contended by the teamed Senior Counsel appearing for the petitioner, that the contract became impossible on and after 16-6-1999 i.e. subsequent to the death of the person. The subject matter was not one impossible of performance at the inception. It is not one which becomes impossible of performance even after the death, as the rights and the liabilities being one heritable could be continued in the hands of the legal heirs. And the third part if it is to be applied, which is one providing for compensation.

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52. But all these are in the realm of private contract, but in the present case, the entire situation is governed by the statutory provisions and not a matter of contract in the true sense of the word. The rights and liabilities are statutorily determined and not by volition of the parties. It is only performance or non-performance of the party which is one giving rise to the consequences. When once the rights and liabilities are one that are to be continued even in the hands of the legal heirs or legal representatives, the question of frustration does not arise. I am of the view that the principles of Section 56 of the Contract Act can never be called in support of the promisor for relieving him/her of the liabilities, as that would amount to making a dichotomy of the promisor and the legal heir and virtually amounts to pleading that the legal heir is not a promisor and is not liable in terms of the promise. The doctrine of frustration in fact is one which relieves the promisor of the liabilities and if so the legal heir can definitely claim that benefit. But a legal heir cannot independently plead the doctrine of frustration to get himself/herself relieved of the consequences of breach of that promise.

53. Be that as it may, as I find that to a situation wherein a relationship of rights and obligations are brought about by the provisions of the statute, where the required procedure has to be followed and the consequences also follow in terms of the statutory provisions, the principles of Section 56 of the Contract Act cannot be invoked for relieving one from the consequences or the obligations under the statutory scheme and therefore the invoking the principles of Section 56 is of no avail to the petitioner for getting over any liability created under the statutory contract It is for this reason I am rejecting the submission on behalf of the petitioner in this regard.

54. That takes me to the next contention urged on behalf of the petitioner that the provisions of Rule 18 of the Lease Rules are not attracted for the reason that there was no default in terms of Rule 16 of the Lease Rules. Here again, the submission is based on the premise that the original bidder before he could execute the lease agreement within the permitted time, having died, the execution became impossible and the person not having become a defaulter at that time and if he is to be construed to be a defaulter later, that consequence is one to be avoided as the person himself is no more available and therefore the consequence as under Rule 18 cannot be visited on the petitioner being a legal heir of the promisor or bidder.

55. This argument again seeks to make a dichotomy of the original bidder and the legal heir being distinct and proceeds on the premise that the original bidder had not become a defaulter. In this regard the learned Counsel for the petitioner would draw my attention to the provisions of Rule 18 of the Lease Rules and submits that the liability of making good the loss of revenue to the state is only on the defaulter and not on any other person and it is for this reason the contention that if the original bidder - husband of the petitioner - himself was not a defaulter, no liability on the part of the petitioner also.

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56. Here again, if one has to look into the statutory provisions, it becomes obvious that it is a fact that the requirement of Rule 16 has not been fulfilled and in fact whether it is due to the reason of death of the original bidder or otherwise. It is a fact situation whether the lease agreement had not been executed within fifteen days of the communication of the order of confirmation. If at an if one were to construe the provision in a beneficial manner with regard to the time stipulation, it can only amount that the period of fifteen days may have to be extended in the hands of the legal heir, as the person would become defaulter only after fifteen days from the date of confirmation of the contract being communicated in the sense, it is to the knowledge of the legal heir also and fifteen days period elapsing thereafter.

57. Independent of the controversy that according to the petitioner her husband has not become defaulter and according to the respondents, the person had become a defaulter depending upon the period of 15 days having elapsed before the death of the person, as contended or urged on behalf of the petitioner, I am of the view that it would not make much difference as after the expiry of that period, necessarily the default takes places, when once the default takes place the provisions of Rule 18 is inevitably attracted.

58. I say so because when once it is found that the rights and liabilities are heritable and particularly the contract having been concluded with the confirmation of the acceptance of the highest bidder having been communicated to the bidder and this having happened even as on 1-6-1999, any rights and/or liabilities thereafter, if are heritable, they cannot be avoided on the premise that the person who could have executed the agreement was no more available by the time the permitted time expired. If the rights are crystallized and heritable, it is always open to the legal heir to fulfil the requirement and to seek furtherance of the rights.

59. It should be borne in mind that these are provisions occurring in a statutory scheme viz., the Karnataka Excise Act and the object of the Act being one to raise revenue, whether by state parting with its exclusive privilege of right of vending liquor or the state levying tax and duties on transaction of vending of liquor, all such receipts being characterized as excise revenue to the state in terms of the provisions of Section 2(11) of the Act and the scheme of the Act being for raising such revenue to the state, the provisions of Rule 18 of the Lease Rules being one to give effect to the provisions of Section 17 of the Act, they will have to be necessarily construed to further the object and to avoid losses of excise revenue to the state. That it is the focus of understanding the provisions and meaning to be attributed to the provisions should be to effectuate this purpose of raising revenue to the state and to prevent loss to the state exchequer. As one can see, Rule 18 is a provision which is specifically designed to prevent any loss to the revenue of the state, particularly in the matter of revenue by way of rent payable to the state for parting with its privilege of vending liquor in a particular area.

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60. While the object is to raise maximum revenue, which is achieved by public auctioning of the rights, the highest bid so offered is ensured to be sustained and effectuated by the provisions of the Lease Rules, particularly the provisions of Rules 15 to 18 of the Lease Rules. If such is to be the understanding and when the person - highest bidder - gets some rights in his favour by offering a price and which constitutes revenue to the state, any default or any breach on the part of the person is one which can be set right by ensuring that the amount is realized at the cost of such person committing breach. It is for such purpose Rule 18 is made. The bidder gets right to vend liquor in the area for which he has offered his bid. That is the only right the person gets. Non-compliance of requirement of Rule 16 or 17 if at all can be to the detriment of the bidder and cannot be to the state.

61. But this apart, even accepting the argument on behalf of the petitioner by the learned Senior Counsel that the word 'defaulter' as it occurs in Rule 18(2) should apply to a person defaulting and not otherwise and in terms of Rule 16, if the person becomes a defaulter, only on and after the expiry of fifteen days, though it may be a technically plausible argument in the sense the person does not become a defaulter till the fifteen days period has expired, the mere fact that the person dies cannot make any difference. Expiry of fifteen days' period does take place in the sense that the period does not stop at that point of time. It runs nevertheless and can complete its duration of fifteen days. Only the consequence will fall on the legal heir who perhaps could have inherited the rights. It is in this regard that the offer in terms of Annexure-A has some significance in the sense that the right having been continued in the hands of the legal heirs and notwithstanding the period of fifteen days having expired and the persons having committed default, the other consequences could have taken place, because the person was in the capacity of legal heir, further option was given to the legal heir to retain the right otherwise. It is obvious that the petitioner was not a person who was desirous of retaining the right for obvious personal reasons. An inability or assuming that to be a disability also, which is personal to a particular person cannot be construed as one which renders the act itself to be impossible of performance.

62. Be that as it may, when once the right itself would have been continued in the hands of the legal heir and if that right for continuation there is further requirement to be followed up with certain compliance, on the legal heir having not complied with such requirements, the default necessarily occurs and at that point of time when the action was taken for the revocation of the rights even in terms of government order dated 2-7-1999, there was necessarily a default in terms of Rule 16 and Rule 18(2) is also attracted When once Sub-rule (1) of Rule 18 is attracted, inevitably the consequence of forfeiture and malting good the loss in terms of Sub-rule (2) of Rule 18 follows.

63. In so far as the quantum of loss is concerned, in terms of the computation as indicated in the record, it is computed at the same as per the demand and it is common case of the parties that this loss is exclusive or without Page 0649 the amount forfeited in favour of the state in terms of Sub-rule (1) of Rule 18 of the Lease Rules.

64. While the learned Counsel for the petitioner would contend that whether it is by way of forfeiture or otherwise, this is an amount which has enured to the benefit of the state and to that extent, when computing the loss if any that should be given credit to, submission of the learned Government Advocate is that the amount having already been forfeited, it is no more available for such computation nor is one adjustable in terms of Rule 18 and therefore the demand excluding this amount forfeited deposit is justified.

65. The amount demanded in terms of the demand at Annexure-A2 is agreed to be the difference of actual revenue the state would have realized in terms of the highest offer of the husband of the petitioner and what is now realized for the period by the first fourteen days period being continued in favour of the existing contractor and the latter period in terms of the re-auction.

66. On a perusal of the records placed before the court, I am satisfied that for the purpose of re-auctioning, the respondents have followed the requisite procedure. The amount demanded is also in terms of the difference between what was realised and what could have been realized and this amount perhaps can be quantified as loss due to the breach of contract on the part of the highest bidder or on the part of the petitioner who has been roped in as the legal heir.

67. Then the question that will remain is in the computation of actual loss to the state, whether the state is justified in not crediting the amount forfeited in terms of Sub-rule (1) of Rule 18 of the Lease Rules.

68. The phrase 'loss sustained by the state government' as it occurs in Sub-rule (2) of Rule 18 of the Lease Rules is not exactly defined under any provisions of the Act or the Lease Rules. While it is true that the deposit made by the bidder who has not complied with the requirement of Rules 16 and 17 is liable to be forfeited to the state government for such non-compliance when once the government under its discretion cancels the right in favour of the highest bidder and amount becomes the property of the state, at the same time, it is an amount which has nevertheless reached the coffers of the state and has augmented the revenue of the state. The computation of the loss sustained to the state is in the context of a particular transaction and also because the state is not in a position to realize the highest bid amount that had been accepted by the state, as the rent payable for parting with its privilege of vending liquor in the area. While one can understand and appreciate the provisions for making good the loss in terms of Sub-rule (2) of Rule 18 of the Lease Rules as the person who has offered the highest bid eliminates the other competitors and gets exclusive right for himself in respect of the particular lease rights and therefore the state government can legitimately expect or look upto the person to make good the payment which he had offered, the amount if is to be computed in terms of the loss can never exceed this amount and can be arrived at only after taking into consideration of all such receipts that the state gets Page 0650 in the context of the particular transaction and as a consequence of the acts relating to the transaction. Breach of contract occurs only in the context of a particular transaction, which also further results in forfeiture of the deposit amount and that amount though may become the property of the state on forfeiture, it is nevertheless an amount available to the state and therefore cannot be ignored or excluded while computing the actual loss to the state that has occurred if the re-auction has resulted in the receipt of a lesser revenue to the state. I am of the clear view that while computing the loss for the purpose of Sub-rule (2) of Rule 18 of the Lease Rules, the state will have to necessarily take into account the amount that it has received by way of forfeiture under Sub-rule (1) of Rule 18 of the Lease Rules and such other amount which it has received pursuant to the re-auction. The computation of loss cannot be by excluding the amount which has been received by the state by way of forfeiture of the amount of the bidder or in any other manner.

69. Though in this regard the learned Additional Government Advocate has placed reliance on the decision of the Supreme Court in the case of Saveen Kumar Shetty [supra], the decision is an authority only for the purpose of holding that when once there is a repudiation or revocation of the contract for breach of contract on the part of the bidder, the confiscation of the amount is inevitable; that it is no more in the discretion of the state to confiscate or not to confiscate the amount and therefore want of opportunity to the bidder or otherwise is of no consequence on the order of confiscation.

70. On this point, Sri Madhusudhan R. Naik, learned Senior Counsel appearing for the petitioner relies on Rule 15(1-C) of the General Conditions Rules, which reads as under:

15. Payment of Rent etc. (1) xxx (1-C) If the rent for any month is not paid on or before the date specified in Sub-rule (1) or before the expiry of the time granted under Sub-rule (1-A) or under Sub-rule (1-B), the lease shall be determined and the licence shall be cancelled and the right to vend liquor shall be disposed afresh in such manner as the state government may direct and such disposal shall be at the risk of the defaulter who shall be liable for al losses that may be sustained by the state government and the Deputy Commissioners may forfeit the deposits of the defaulter either in full or in part with the approval of the excise commissioner.

and submits that while under Sub-rule (1) of Rule 18 of the Lease Rules even for the authority there is no discretion to the government in terms of Rule 15(1-C), necessarily comes into picture and therefore the computation of loss cannot be automatic or without any opportunity etc.

71. It may not be very necessary for the purpose of this case to go further into this aspect, as the decision relied upon by the learned Government Advocate Page 0651 is only an authority for the purpose of according or not according an opportunity before forfeiture when once the government has exercised its discretion for cancelling the contract In so far as the computation of loss under Sub-rule (2) of Rule 18 of the Lease Rules is concerned, while it has to be on actuals and while the question as to whether there should an opportunity or not may become academic in this case, as admittedly as even in terms of the records, opportunity given is not availed by the petitioner, as she declined to receive the registered letters, which were written by the department, but significance here is on the actual quantification of the loss rather than the procedure to be followed in the matter of computation of loss. The controversy here is that what constitutes the actual loss and not what procedure the authority followed and what opportunity was given in the present case.

72. While on the basis of records, I am satisfied that there was an opportunity extended before the computation and therefore the computation cannot be faulted as one not after following the proper procedure and to this extent the computation is quite in order, in the present case question is one of computing the loss in terms of the requirements of Sub-rule (2) of Rule 18 of the Lease Rules. As neither Rule 18(2) of the rules nor other provisions throw much light on this aspect, I am of the view that one has to look into the general principles in the matter of computation of the actual loss. In this regard, the provisions of Section 74 of the Contract Act would definitely be a guiding factor for the purpose of computation of such losses. One should bear in mind that the loss here is not by way of penalty but by way quantifying the actual loss. While the forfeiture under Sub-rule (1) of Rule 18 of the Lease Rules is necessarily by way of a penalty, it is not so in the case of action under Sub-rule (2) of Rule 18 of the Lease Rules. Even in terms of the provisions of the Section 74 of the Contract Act, which provides for a compensation in the event of breach of contract at a stipulated amount whether called by way of penalty or otherwise, our courts have taken the view that the amount of damages can only be to the extent of the actual such loss or damages upto the limit stipulated and if the amount is not to be construed as an amount in the nature of penalty stipulated, the amount can be quantified so long as the amount does not partake the character of a penalty, the recovery for breach can only be to the extent of actual damages or such loss which is proved and not. otherwise. In this regard the decisions of the Supreme Court in the cases Fatech Chand v. Balkishan Dass and Maula Bux v. Union of India AIR 1970 SC 1988 would throw considerable light and would emphatically indicate that the loss should be actual loss and not any plausible sum or even the amount by way of terrorem.

73. Applying such principles, while it is a fact that the deposit has already been forfeited and has become the property of the state, it is nevertheless required to be taken into account for the purpose of computing the loss in terms of Sub-rule (2) of Rule 18 of the Lease Rules, even on the Page 0652 understanding of the provisions from the angle of purpose and object of the Act For the purpose of Sub-rule (2) of Rule 18 of the Lease Rules, it cannot be construed as one to enrich the coffers of the state beyond what the state could have realized in terms of the highest bid offered by the bidder. If so the real loss to the state is the actual difference between the actual price bid and the amount in reality received, whether by way of forfeiture or loss or in any other manner, so long as all the receipts relating to the transaction in question are taken into account If so understood and so construed, the demand in terms of Annexure-A2 in so far as it seeks to exclude the amount which was deposited by the highest bidder - husband of the petitioner - and which has been forfeited by the government, cannot be sustained. To this extent the demand is one not enforceable i.e. in the sense the amount can be enforced minus the amount forfeited as it is the specific case of the state that while it has computed the loss of amount the amount forfeited has been excluded.

74. In the circumstance, this writ petition is allowed in part The demand notice in terms of Annexure A-2 dated 14-1-2002 is sustained only to the extent of creating the liability on the petitioner as reduced by the amount forfeited i.e. Rs. 3,15,18,991 - 94,00,000 - 2,21,18,991. The demand in excess of this amount is hereby quashed by issuing a writ of certiorari. The state can recover this extent of the amount i.e., Rs. 2,21,18,991/- only from the petitioner in terms of the demand notice in accordance with law. Rule made absolute.

75. The interpretation and understanding of the Sub-rule (2) of Rule 18 of the Lease Rules in this manner does mean that in an event where the actual loss suffered is found to be less than the amount forfeited under Sub-rule (1) of Rule 18 of the Lease Rules, the person becomes entitled for refund of any amount, as the deposit amount has already been forfeited in favour of the state and cannot be sought for by the person. It is only in the matter of computation of loss for the purpose of Sub-rule (2) of Rule 18 of the Lease Rules the forfeited amount has also to be taken into account and for no other purpose.

76. I place on record my appreciation of the well researched assistance rendered by Sri Madhusudhan R Naik, learned Senior Counsel appearing for the petitioner and the equally spirited and competent defence put up by Sri M. Keshava Reddy, learned Additional Government Advocate in defending the case on behalf of the state.

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Karnataka High Court