RISDICTION Civil Appeal Nos 154  155N of 1971
From the Judgment and Order dated the 11th November 1969 Civil of the Punjab  Haryana High Court in writ Nos 1207 and 1607 of 1969 respectively
Harbans Singh IS Gujral CV Subbarao and RN Poddar for the Appellants is both the appeals
GK Arora for the respondents in CA 15471
TS Munjral and Mrs Urmila Kapoor for the Respondent in CA 1551971
The Judgment of the Court was delivered by SEN J
These appeals on certificate are directed against the Judgment and orders of the Punjab High Court dated November 191969 allowing the writ petitions filed by the respondents and quashing the impugned notices of demand for recovery of the difference between the amount which they had agreed to pay under the terms of auction of a liquor vend and the amount realized on re auction of the vend as also the defaulted instalments of the licence fee payable in respect of a liquor vend issued under section 60 of the Punjab Excise Act 1914  Act  for short
Put very shortly the essential facts are these
On March 11 1969 the Deputy Excise  Taxation Commissioner Hissar held an 719 auction for grating the right to sell country liquor for Mandi Dabwali for the year 1969 70 at the Collectorate
At the commencement of the auction the Deputy Excise  Taxation Commissioner had read out the auction announcements and conditions of auction as required under r 364 of the Punjab Liquor Licence Rules 1956  Rules  for short
The respondents Messrs Lal Chand Bal Raj etc offered the highest bill of Rs 1011000 and their bid was provisionally accepted by the Deputy Excise  Taxation Commissioner and they were declared to be the highest bidder as required under r 3622 of the Rules
Subsequently the bid was accepted by the Excise  Taxation Commissioner exercising the powers of the Financial Commissioner on March 21 1969 as required under r 3622 of the Rules
The respondents however failed to deposit Rs 50550 as security amount as required under r 3622A and thereby contravened condition No 15i of the conditions of auction and r 3623 of the Rules
They were accordingly served with a notice dated April 9 1969 by the Deputy Excise  Taxation Commissioner requiring them to show cause why the licence for country liquor vend Mandi Dabwali should not be put to re auction under r 3623A of the Rules and the deficiency in price and all expenses of such re auction recovered from them in the manner laid down in section 60 of the Punjab Excise Act 1914
in response to the same the respondents by their letter dated April 12 1969 tried to wriggle out of their contractual obligations by saying that before the auction it was announced that no wine shop shall be opened within a radius of three miles of liquor vend Mandi Dabwali but across the border the State Government of Punjab had sanctioned the establishment of a Iiquor shop at village Killianwali which was hardly 2 12 miles from the State border and this would mean that there would be two country liquor shops one at Mandi Dabwali in the State of Haryana and the other at village Killianwali in the State of Punjab and this was in breach of condition No 13iii read with r 378B of the Rules as applicable to the State of Haryana
Upon this basis the respondents represented that before requiring them to deposit the security amount they should be given an assurance that no other liquor shop would be opened
Although in the show cause notice the respondents were intimated that in case they desired to be heard in person they should appear before the Deputy Excise  Taxation Commissioner at Chandigrah on April 14 1969 but none of them turned up on 720 that date
On the same day the Deputy Excise  Taxation Commissioner rejected the representation of the respondents and directed re sale of the licence for retail vend of the country liquor shop at Mandi Dabwali for the year 1969 70 under r 3623 of the Rules
The respondents have purposely kept back the reply that they received from the Deputy Excise  Taxation commissioner conveying the rejection of their representation which intimated to them that the licence for retail vend of country liquor shop at Mandi Dabwali would be re auctioned on April 23 1969 at the Collectorate Hissar
By his letter dated April 15 1969 addressed to all the Excise  Taxation Officers in the State the Deputy Excise  Taxation commissioner forwarded the notice of re auction asking them to give wide publicity to the notice alongwith the announcements to be made at the time of re auction
Copies of the circular letter and the notice of re auction were sent not only to the commissioner Ambala and all the Deputy Commissioners in the State but also to the Chief Secretaries and the Excise Commissioners of different States and they were also requested to give wide publicity in their States regarding the re auction of the licence
At the time of re auction held on April 23 1969 there were as many as 52 bidders and ultimately the liquor vend Mandi Dabwali was re sold at the highest bid of Rs 665000 for the remaining part of the financial year
On May 8 1969 the respondents were served with a notice of demand of Rs 346000 representing the loss on re sale
The High Court by the judgement under appeal quashed the notice of demand following the decision in Kanhiya Lal Bhatia  Co vs State of Haryana  Ors
The High Court following its decision in Kanhiya Lall s case supra held that the State Government had no authority to demand the amounts for failure of which the vends were put to re auction on the ground that the licence fee levied was in the nature of excise duty
Recently this Court has in State of Haryana vs Jage Ram  Ors reversed the decision of the High Court in Kanhiya Lal s case supra and held that the amounts which the State Government had changed to the respondents were neither in the nature of a tax nor in the nature of an excise duty but were in the nature of a price which the State Government were entitled to charge as consideration for parting with its privilege in favour of the licensees
That being so the appeals must succeed on this short ground alone
Normally this would have entailed remitting the writ petitions to the High Court for a decision on merits but looking 721 to the fact that the demands raised were for the financial year 1969 70 we felt that no useful purpose would be served in remitting the matter to the High Court and heard the parties on merits
Apart from the question of validity of the charge which is common to both the appeals the questions raised in the two appeals are distinct and separate and they will have to be dealt with separately
It is convenient at this stage to set out the relevant statutory provisions
s27 of the Punjab Excise Act 1914 empowers the State Government to lease  no such conditions and for such period as it may deem fit the right of selling by whole sale or retail any country liquor or intoxicating drug within any specified local area
On said lease being granted the Collector under sub s2 thereof has to grant to the lessee a licence in the from of a lease
S34 of the Act provides inter alia that 1 Every licence granted under the Act shall be subject to payment of such fees if any as the Financial Commissioner may direct and 2 The authority granting such licence may require the licensee to give such security for the observance of the terms of his licence or to make such deposits by way of security as he may think fit
s581 of the Act confers power on the State Government by notification to make rules for the purpose of carrying out the provisions of the Act
In particular and without prejudice to the generality of section 581 sub section
2 thereof provides that the State Government may make rules with respect to matters enumerated therein
Under clf the State Government may make rules regulating the manner of holding auctions of liquor shops
S59 provides that the Financial Commissioner may by notification make rules by cl
a to regulate the manufacture supply storage or sale of any intoxicant cld prescribing the scale of fees or the manner of fixing fees payable in respect of any such licence and by clf prescribing the authority by the restrictions under and the conditions on which any licence may be granted
The licences in a large measure owe their existence to the rules framed by the Financial Commissioner under S59
S60 of the Act insofar as material reads 60 1 Recovery of dues The following moneys namely a all excise revenue b        722 c all amounts due to the Government by any person on account of any contract relating to the excise revenue may be recovered from the person primarily liable to pay the same or from his surety if any by distress and sale of his moveable property or by any other process for the recovery of arrears of land revenue due from land holders or from farmers of land or their sureties
 The Punjab Liquor Licence Rules 1956 framed by the Financial Commissioner in exercise of his powers under s59 of the Act make detailed provisions regulating the manner in which a licence for the retail vend of country liquor shall be granted by public auction and the conditions to which it shall be subject
R3622A of the Rule provides that a person to whom a country liquor shop has been sold shall deposit by way of security an amount equivalent to one twenty fourth of the amount of licence fee determined under r3616 within a period of seven days of the date of auction
R36232 provides that a person to whom country liquor shop is sold shall pay the amount of licence fee so calculated in 22 equal installments each installment being payable on tho 10th and 26th of each month starting from the month of April
In the event of failure to pay the instalment by the due date his licence may be cancelled
R3623A interdicts that any person whose bid has been accepted at the auction fails to make the deposit of the amount of security equivalent to one twenty fourth of the total licence fee as required under r3622A the Collector may resell the licence by public auction and deficiency in licence fee and all expenses for such resale shall be recoverable from the defaulting bidder in the manner laid down in s60 of the Punjab Excise Act 1914
In Har Shanker  Ors
vs The Deputy Excise  Taxation Commissioner  Ors this Court held that the writ jurisdiction of the High Courts under Art226 was not intended to facilitate avoidance of obligations voluntarily incurred
It was observed that one of the important purpose of selling the exclusive right to vend liquor in wholesale or retail is to raise revenue
The licence fee was a price for acquiring such privilege
One who makes a bid for the grant of such privilege with a full knowledge of the terms and conditions attaching to the auction cannot be permitted to wriggle 723 out of the contractual obligations arising out of the acceptance of his bid
Chandrachud J as he then was interpreting the provisions of the Punjab Excise Act 1914 aud of the Punjab Liquor Licence A Rules 1956 and speaking for the Court said The announcement of conditions governing the auction were in the nature of an invitation to an offer to 
those who were interested in the sale of country liquor
The bids given in the auctions were offers made by the prospective vendors to the Government
The Government s acceptance of those bids was the acceptance of willing offers made to it
On such acceptance the contract between the bidders and the Government became concluded and a a binding agreement came into existence between them
The powers of the Financial Commissioner to grant liquor licence by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned  by those who had their venture succeeded would have relied upon those very powers to found a legal claim
Reciprocal right and obligations arising out of contract do not depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract
By such a test no contract could ever have a binding force
 To the same effect are the decisions of this Court in State of Haryana  Ors
vs Jage Ram  Ors and the State of Punjab vs Ms Dial Chand Gian Chand  Co laying down that persons who offer their bids at an auction to vend country liquor with full knowledge of the terms and conditions attaching thereto cannot be permitted to wriggle out of the contractual obligations arising out of and acceptance of their bids by a petition under article 226 of the Constitution
The observations in Har Shankars case supra did not touch upon the question whether such a contract must be in compliance with article 299 1 of the Constitution
The question whether the process of licensing by public auction of liquor vend involves a contract at all or is merely the grant of a privilege and the bidding at a public auction is with a view merely to fix the price for the purchase of the privilege has been engaging the 724 attention of the High Courts for quite some time
In Smt
Nanhibai vs The Exercise Commissioner M P  Ors
the Madhya Pradesh High Court held that the State Government has the exclusive privilege of manufacturing selling and possessing intoxicants which it has power to lease for consideration under section 18 of the MP Excise Act 1915 and that every auction of excise contract for sale of intoxicants is a leasing of the Government s right of selling intoxicants
PV Dixit CJ speaking for the Court made following observations on this point which are pertinent  The principle that the State Government has exclusive right of manufacturing selling or possessing intoxicants or  any country liquor intoxicating drug runs through sections 13 to 18 of the Act
The important condition that must be satisfied before any licence can be granted to a person for manufacture or sale by any country liquor intoxicating drug is that the person must first obtain the privilege or the right of manufacturing or selling the intoxicating drug
In every auction sale of a liquor shop at which liquor is sold in wholesale or retail there is a sale of the lease of the Government s right of selling country liquor intoxicating drug
On the acceptance of a bid of a person at an auction sale contract for the demise of the Government s interest is brought into existence and this is followed by the grant of a licence to the person whose bid has been accepted
 These observations of the learned Chief Justice have since been approved of by a Full Bench of the High Court in Ram Rattan Gupta vs State of MP
The other two cases on the point which we must notice are Ajodhya Prasad Shaw  Anr
vs State of Orissa  Ors
and Ms Shree Krishna Gyanoday Sugar Ltd  Anr
vs State of Bihar   Anr 725 In Ajodhya Prasad Shaw s case the Orissa High Court and in Ms Shree Krishna Gyanoday s case the Patna High Court interpreting like provisions of the Bihar  Orissa Excise Act 1915 held that where the State Government in exercise of its powers under section 22 of that Act grants exclusive privilege to any person on certain conditions under section 22 1 and a licence is received by that person under section 22 2 it cannot be contended that it amounts to a contract made in exercise of the executive power of the State within the meaning of article 299 1 of the Constitution
RN Misra J speaking for the Court in Ajodhya Prasad Shaw s case tried to highlight the problem in these words Law is well settled and parties before us do not seek to canvass that this constitutional requirement is not mandatory
In the field it covers it is a prerequisite to bring into existence a valid contract
The question for examination in the present case is however different
Is there a contract at all and in case it involves a contract is it one purported to be made in exercise of the executive power of the State Government is the question for examination The learned Judge went on to say In case the result of our investigation is that it is not a contract in exercise of the executive power of the State in terms of the language used in the Article it would follow that this constitutional requirement has no application
I have already indicated that the settlement of the shop the collection of the fee and the grant of the licence are all statutory acts by the prescribed authority
The intention of the Constitution is not to extend the principles in article 299 1 to cover all possible contracts
This is why specific reference has been made to contracts in exercise of the executive power
It is not necessary for the present purpose to examine whether the licensing process involves a contractual agreement
Possibly there is an element of contract in the settlement but certainly it is not one entered into in the executive power of the State but is regulated by the statute or the rules made thereunder
In the circumstances in the case
Of a statutory licence even based upon a contract the requirements of this Article can not be invoked
 726 In Ms Shree Krishna s case supra NP Singh J speaking for the Court rightly observed that when the State Government in exercise of its powers under section 22 of the Act grants the exclusive privilege of manufacturing or supplying or selling any intoxicant like liquor to an person on certain condition there comes into existence a contract made in exercise of its statutory powers and such a contract does not amount to a contract made by the State in exercise of the executive powers
There is a distinction between contracts which are executed in exercise of the executive powers and contracts which are statutory in nature
Under article 2991 three conditions have to be satisfied before a binding contract by the Union or the State in Exercise of the executive power comes into existence 1 The contract must be expressed to be made by the President or the Governor as the case may be
2 It must be executed in writing
And 3 The execution thereof should be by such person and in such manner as the President or the Governor may direct or authorize
There can be no doubt that a contract which has to be executed in accordance with Act
2991 is nullified and becomes void if the contract is not executed in conformity with provisions of article 2991 and there is no question of estoppel or ratification in such cases
Nor can there be any implied contract between the Government and another person KP Choudhary vs State of MP Mulamchand vs State of MP State of MP vs Ratfan Lal and State of MP vs Firm Gobardhan Dass Kailash Nath
It is well settled that article 2891 applies to a contract made in exercise of the executive power of the Union or the State but not to a contract made in exercise of statutory power article 2991 has no application to a case where a particular statutory authority as distinguished from the Union or the States enters into a contract which is statutory in nature
Such a contract even though it is for securing the interests of the Union or the States is not a contract which has been entered into lay or of behalf of the Union or the State in exercise of its executive powers
In respect of forest contracts which are dealt with by this Court in KP Choudhary s Mulamchand s Rattan Lal s and Firm Gobardhan Dass s cases supra 727 there are provisions in the and the Forest Contract Rules framed thereunder for entering into a formal deed between the forest contractor and the State Government to be executed and expressed in the name of the Governor in conformity with the requirements of Act
2991 whereas under the Punjab Excise Act 1914 like some other State Excise Acts once the bid offered by a person at an auction sale is accepted by the authority competent a completed contract comes into existence and all that is required is the grant of a licence to the person whose bid has been accepted
It is settled law that contracts made in exercise of statutory powers are not covered by article 2991 and once this distinction is kept in view it will be manifest that the principles laid down in KP Chowdhary  Mulamchand s Rattan Lal s and Firm Gobardhan Dass s cases are not applicable to a statutory contract
In such a case the Collector acting as the Deputy Excise  Taxation Commissioner conducting the auction under r 3622 and the Excise Commissioner exercising the functions of the Financial Commissioner accepting the bid under r 3622A although they undoubtedly act for and on behalf or the State Government for raising public revenue they have the requisite authority to do so under the Act and the rules framed thereunder and therefore such a contract which comes into being on acceptance of the bid is a statutory contract failing outside the purview of article 2991 of the Constitution
We are clearly of the opinion that in the case of a Statutory contract like the one under the Excise Act the requirements of article 2991 cannot be invoked
In A Damodaran  Anr
vs State of Kerala  Ors the Court interpreting s28 of the Kerala Abkari Act 1967 which was in pari materia with s60 of the Punjab Excise Act 1914 held that even if no formal deed had been executed as required under article 2991 still the liability for payment of the balance of the licence amount due could be enforced by taking recourse to s28 of the Act
The Kerala High Court rejected the contention of the appellants by holding that the liability to satisfy the dues arising out
Of a bid was enforceable under s28 quite apart from any contractual liability and this view was upheld by this Court on the ground that the word grantee  in s28 has a wide connotation to mean a person who had been granted the privilege by acceptance of his bid
It was further held that the statutory duties and liabili 728 ties arising on acceptance of the laid at a public auction of a liquor contract may be enforced in accordance with the statutory provisions and that it was not condition precedent for the recovery of an amount due under s28 of the Act that the amount due and recoverable should be under a formally drawn up and executed contract
This is in recognition of the principle that the provisions of Art2991 of the Constitution are not attracted to the grant of such a privilege to vend liquor under the Act
In Kishori Lal Minocha s case supra there was reauction of a liquor vend on the highest bidder s failure to deposit one sixth of the bid amount as security deposit and the question was whether the State was entitled to recovery in a suit the deficiency on reauction
The decision in Minocha s case is clearly distinguishable for two reasons first there was nothing to show that the bid had been accepted by the Excise Commissioner under r 3592 of the UP Excise Manual
Further r 357 under which the excise authorities put the vend to reauction had not been published in the official gazette as required by s77 of the UP Excise Act 1910 and thus had no statutory force
No such question arises in these cases as the liability that is sought to be enforced against the respondents by the impugned notices of demand is a statutory liability in terms of condition 151 of the conditions of auction read with r3623 of the Rules and the amount is recoverable from them in the manner laid down in s60 of the Act
The short question that falls for determination in these appeals is whether the State Government was entitled to realise the difference which the respondents had agreed to pay under the terms of auction of a liquor vend and the amount realised on reauction of the vend as also the defaulted instalment of the licence fee payable in respect of a liquor vend
The first of these questions arises in Civil Appeal No154N of 1971 while the second in Civil Appeal No 155N of 1971
We will deal with them in that order
Civil Appeal No 154 N of 1971 There is no substance in the contention that the respondent were not served with a notice under r363 of the Rules
The date of reauction was fixed by the Excise  Taxation Commissioner under r362
On April 14 1969 the Deputy Excise  Taxation Commissioner rejected the representation made by the respondents and directed resale of the licence for retail vend of country liquor shop 729 Mandi Dabwali for the year 1969 70
It is accepted before us that the Deputy Excise  Taxation Commissioner had conveyed to the respondents that their representation had been rejected and that the Iicence for retail vend for Mandi Dabwali shop would be reauctioned on April 23 1969 at the Collectorate Hissar
The respondents have withheld the document and an adverse inference must necessarily be drawn against them
It is quite obvious that the respondents were duly given notice of re auction as under r363
It is evident from the return filed by the State Government that copies of circular letter dated April 15 1969 by the Deputy Excise  Taxation Commissioner and the notice of re auction of even date issued by him were vent not only to the Commissioner Ambala but to all the Deputy Commissioners as well as to all the Excise  Taxation officers in the State but also to the Chief Secretaries and the Excise Commissioner of different State
From this it is quite apparent that wide publicity was given throughout the State of Haryana as well as in other State regarding the date and place of re auction as enjoined by r363 of the Rules
As already stated there were as many as 52 bidders present at the time of re auction
The decision in Jage Ram s case supra is clearly distinguishable on facts
There the Court on a consideration of the material on record found that there was nos substantial compliance either in the letter or in spirit with the requirements of r363 of the Rules
Since the re auction in that case did not conform to the rules the Court held that the defeating bidders could not be held liable to make good the difference between the amount which was payable by them and the amount which was fetched at the re auction
The principle laid down in Jage Ram s case supra is clearly not attracted in the facts and circumstances of the present case
The first contention regarding the invalidity of reauction held on April 23 1969 based on r363 of the Rules must therefore fail
Equally futile is the contention that the respondents had withdrawn their bid and therefore they could not be mulcted for the difference between the amount which they were liable to pay and the amount realized by re sale of the vend
This is not a case of the type reported in Union of India  ors
vs MS Bhim Sen Walati Ram which laid down the well settled principle that an offer can always be withdrawn before it is finally accepted and that a conditional acceptance is not an acceptance in law
In Bhim Sen Walati 730 Ram s case supra the Court held that the contract of sale was not complete till the bid was confirmed by the Chief Commissioner and till such confirmation the person whose bid had been provisionally accepted was entitled to withdraw his bid and that when the bid was withdrawn before the confirmation of the Chief Commissioner the bidder was not liable for damages on account of any breach of contact or for the shortfall on the re sale It was observed It is not disputed that the Chief Commissioner has disapproved the bid offered by the respondent
If the Chief Commissioner had granted sanction under cl33 of exhibit D 23 the auction sale in favour of the respondent would have been a completed transaction and he would have been liable for any shortfall on the resale
As the essential pre requisites of a completed sale are missing in this case there is no liability imposed on the respondent for payment of the deficiency in the price
 It is urged on the strength of these observations that the respondents were entitled to withdraw their bid by declining to make the security deposit
The contention cannot be accepted
For onething this was not a case where there was mere conditional acceptance of the highest bid of the respondents by the Deputy Excise  Taxation Commissioner at the time of the auction on March 1 1969 but their kid was also accepted by the Excise  Taxation Commissioner on March 21 1969 as required under r 3622A
The respondents could not
unilaterally by their letter dated April 12 1969 rescind the contract on the pretext that the State Government of Punjab hail opened 2 new Iiquor shop at village Killianwali across the State border which was contrary to condition No 13iii of the conditions of auction read with r 378B of the Rules
Even though this may have been in breach of the inter State agreement between the State Governments of Punjab and Haryana the opening of such a liquor vend by the State Government of Punjab at village Killianwali could not justify the respondents in not making the security deposit of Rs 50550
It appears from the return filed by the State Government that although condition No 13iii had been read out before the auction began as required under r 364 there was no mention that there was an inter State agreement between the two State Governments and that 731 it was a condition of sale that the State Government of Punjab would not open a liquor vend within a radius of three miles from the State border
Nor would this amount to a breach of the conditions on the part of the State Government of Haryana or furnish a ground absolving the respondents of their liability to pay the shortfall
The second contention that the respondents had withdrawn their bid and were therefore not liable for the loss of re auction of liquor vend at Mandi Dabwali cannot be sustained
In Har Shanker s case supra this Court held that the writ jurisdiction of the High Courts under article 226 was not intended to facilitate avoidance of obligations voluntarily incurred
It was observed that one of the important purposes of selling the exclusive ar right to vend liquor in wholesale or retail is to raise revenue
The licence fee was a price for acquiring such privilege
One who makes a bid for the grant of such privilege with full knowledge
Of the terms and conditions attaching to the auction cannot be permitted to wriggle out of the contractual obligations arising out of the acceptance of his bid
In dealing with the question Chandrachud J said  The powers of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned by those who held their venture succeeded would have relied upon those very powers to found a legal claim
Reciprocal rights and obligations arising out of contract do not depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract
By such a test no contract could even have a binding force
 To the same effect are the decisions of this Court in State of Haryana  Ors
vs Jage Ram  Ors and the State of Punjab vs Ms Dial Chand  Gian Chand  Co laying down that persons who offer their bids at an auction to vend country liquor with full knowledge of the terms and conditions attaching thereto cannot be permitted to wriggle out of the contractual obligations arising out of the acceptance of their bids by a petition under article 226 of the Constitution
732 Civil Appeal No 155 N of 1971 At an auction for the licence of retail vend for Butana in the Rohtak district for the financial year 1968 69 held by the Deputy Excise  Taxation Commissioner on March 11 1968 at the Collectorate Rohtak the respondents Messrs Ram Kishan Pritiam Singh  Co Offered the highest bid of Rs 140000
The Deputy Excise  Taxation Commissioner accepted their bid at the conclusion on the auction
On the same day the respondents deposited Rs 5811 equivalent to one twentieth of the licence fee representing the security amount and started operating the said licence wef April 1 1968
It appears that they drew their supplies by making applications to the a Excise  Taxation Officer Rohtak for the issuance of challans for deposits of still held duty in the treasury and after crediting into the treasury a sum equivalent to the excise duty payable on the strength of permits issued by him
Admittedly the respondents worked the contract throughout the period without making any payment of Rs 140000 towards the licence fee which was payable in 23 fortnightly instalments
The respondents on being served with a notice of demand for payment of Rs 13000 representing the first of such fortnightly installments filed a writ petition in the High Court and the High Court following its decision in Kanhiya Lal s case supra struck down the notice of demand
It is accepted at the bar that the respondents have not paid anything towards the licence fee of Rs 140000 due and payable by them
Upon these facts the Excise  Taxation Commissioner would have been justified in cancelling the licence in terms of r36232 of the Rules which is in these terms  A person to whom a country spirit shop is sold shall pay the annual licence fee in 23 equal instalments each instalment being payable on the 10th and 26th of each month starting from the month of April
In the event of failure to pay the instalment by the due date his licence may be cancelled
 There was a fundamental breach of an essential condition by the respondents
In a commercial contract of this nature for the performance of which a definite time has been fixed and the contract specifies the mode of payment ie specifies the dates on which The installments of the licence fee are to be paid time is of the essence 733 of the contract
R36231 of the Rules specifically makes time of the essence
It therefore follows that payment to the instalments on the due dates was a condition pre requisite to the performance of the contract and that the failure of the respondents to make such payments relieved the State Government of their obligations
The Excise  Taxation Commissioner would therefore have been justified if he had cancelled the licence under r 3623 and put the liquor vend to reauction for the remaining period of the financial year
Instead of taking this drastic step of cancellation of contract the Deputy Excise  Taxation Commissioner served the respondents with the impugned notice of demand for payment of the first fortnightly instalment of Rs 13000
The respondents were bound to pay the defaulted instalment on the due date but without complying with the notice of demand moved the High Court under article 226 of the Constitution challenging the demand on the ground that the licence fee partakes of the nature on an excise duty
As already stated the High Court following its decision in Kanhiya Lal s case struck down the notice of demand
The result has been that the respondents enjoyed the privilege of retail vend of country liquor Butana for the entire period without payments of any licence fee
On merits learned counsel appearing for the respondents had nothing to urge against the impugned notice of demand
The result therefore is that the appeals succeed and arc allowed with costs throughout
The judgment and orders of the High Court dated November 11 1969 quashing the impugned notice of demand served on the respondents are set aside and the writ petitions filed by the respondents are dismissed
NVK Appeals allowed


Summary:
The Deputy Excise  Taxation Commissioner held an auction for granting the right to sell country Liquor for liquor vend
The respondents offered the highest bid which was provisionally accepted and they were declared the highest bidder under Rule 362 of the Punjab Liquor Licence Rules 1956
Subsequently the Excise and Taxation Commissioner accepted the bid as required Rule 3622 The respondents however failed to deposit the security amount as required under Rule 3622A and thereby contravened conditions No 151 of the conditions of auction and Rule 3623
The Deputy Excise  Taxation Commissioner therefore served the respondents with a notice to show cause why the licence for country liquor vend should not be re auction under Rule 3623A and the deficiency in price and all expenses of such re auction recovered from them under Section 60 of the Punjab Excise Act 1914
The respondents represented that before the auction it was announced that no wine shop would be opened within a radius of three miles of the liquor vend but across the border the State Government of Punjab had sanctioned the establishment of 716 a liquor shop which was hardly 2 12 miles from the border and this would mean that there would be two country liquor shops one in the State of Haryana and the other in the State of Punjab and this was in breach of condition No 13iii read with Rule 3788 of the Rules
The Deputy Excise and Taxation Commissioner rejected the representation and directed the re sale of the licence for retail vend of the country liquor shop under Rule 3623
The shop was re auctioned
At the time of re auction there were 52 bidders and the shop was re sold at the highest bid of Rs 665 lakhs
The respondents were served with a notice of demand of Rs 346 lakhs representing the loss on re sale
In their writ petitions to the High Court the respondents assailed the notice of demand
Following the decision in Kanhiya Lal Bhatia  Co vs State of Haryana  Ors
the High Court held that the State had no authority to demand the amounts for failure of which the vends were put to re auction on the ground that the licence fee levied was in the nature of excise duty
In the Appeals to this Court on the question whether the State Government was entitled to realise the difference which the respondents had agreed to pay under the terms of auction of a liquor vend and the amount realized on reauction of the vend as also the defaulted instalments of the licence fee payable in respect of a liquor vend Allowing the appeals  HELD 1
i There is a distinction between contracts which are executed in exercise of the executive powers and contracts which are statutory in nature
Under Art299 1 three conditions have to be satisfied before a binding contract by the Union or the State in exercise of the executive power comes into existence 1 The contract must be expressed to be made by the President or the Governor as the case may be
2 It must be executed in writing
And 3 the execution thereof should be by such person and in such manner as the President or the Governor may direct or authorize
There can be doubt that a contract which has to be executed in accordance with article 2991 is nullified and becomes void if the contract is not executed in conformity with the provisions of article 2991 and there is no question of estoppel or ratification in such case
Nor can there by any implied contract between the Government and another person
726C E Smt
Nanhibai vs The Excise Commissioner MP  Ors AIR 1963 MP 352 referred to
Ram Ratan Gupta vs State of MP AIR 1974 MP 101
Ajodhya Prasad Shaw  Anr
vs State of Orissa  Ors  MS Shree Krishna Gyanoday Sugar Ltd  Anr
vs State of Bihar  Anr  approved
ii article 2991 applies to a contract made in exercise of the executive power of the Union or the State
but not to a contract made in exercise of statutory power
article 2991 has no application to a case where a particular statutory authority as distinguished from the Union or the States enters into a contract which is statutory in nature
Such a contract
even though it is for 717 securing the interests of the Union or the States
is not contract which has been entered into by or on behalf of the Union or the State in exercise of its executive powers
726F G KP Chowdhary vs State of MP   Mulamchand vs state of MP   State of MP vs Rattan Lal  State of MP vs Firm Gobardhan Dass Kailash Nath AIR  referred to
iii In an excise contract the Collector acting as Deputy Excise  Taxation Commissioner conducting the auction under Rule 3622 and the Excise Commissioner exercising the functions of the Financial Commissioner accepting the bid under Rule 3622A although they act for and on behalf of the State Government for raising public revenue have the requisite authority to do so under the Act and the rules framed thereunder and therefore such a contract which comes into being acceptance of the bid is a statutory contract falling outside the purview of Article 2991 of the Constitution
In such a contract the requirements of Article 2991 cannot be invoked
727B E A Damodaran  Anr
vs State of Kerala  Ors
  referred to In the instant case there was unconditional acceptance of the highest bid of the respondents by the Deputy Excise  Taxation Commissioner at the time of the auction on March 11 1969 and also by the Excise  Taxation Commissioner on March 21 1969 as required under Rule 3622A
The respondents could not unilaterally by their letter dated April 12 1969 rescind the contract on the pretext that the State Government of Punjab had opened a new liquor shop across the State border
Even though this may have been in breach of the inter state agreement between the State Governments of Punjab and Haryana the opening of such a liquor vend by the State Government of Punjab could not justify the respondents in not making the security deposit
This would not amount to a breach of the conditions on the part of the State Government of Haryana or furnish a ground absolving the respondents of their liability to pay the shortfall
730E G  731A B 2
Persons who offer their bids at an auction to vend country liquor with full knowledge of the terms and conditions attaching thereto cannot be permitted to wriggle out of the contractual obligations arising out of the acceptance of their bids by a petition under Article 226 of Constitution
731G Har Shanker  Ors
vs The Deputy Excise  Taxation Commissioner  Ors  State of Haryana  Ors vs Jage Ram  Ors  
State of Punjab vs Ms Dial Chand Gian Chand  Co referred to 3
i In a commercial contract for the performance of which a definite time has been fixed and the contract specifies the mode of payment
ie specifies the dates on which the instalments of the licence fee are to be paid
time is of the essence of the contract
732H 718 ii Rule 36231 of the Rules specifically makes time of the essence
It therefore follows that payment of the instalments on the due dates was a condition pre requisite to the performance of the contract
733A In the instant case the failure of the respondents to make payments relieved the State Government of their obligations
The Excise  Taxation Commissioner would have been justified if he had cancelled the licence under Rule 3623 and put the liquor vend to reauction for the remaining period of the financial year
Instead of taking this drastic step of cancellation of the contract the Deputy Excise  Taxation Commissioner served the respondents with the impugned notice of demand for payment of the first fortnightly instalment
The respondents were bound to pay the defaulted instalment on the due date
733B C 4
The decision of the High Court in Kanhiyalal Bhatia Court in State of Haryana vs Jage Ram  Ors