1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION FIRST APPEAL NO.955 OF 1992 The State of Maharashtra ] (at the instance of collector, ] Appellant solapur) ] Vs. Gauri & Company ] (through its Managing Partner ] Respondents Smt. G.G. Babbur), Solapur ] Mrs. Geeta Mulekar, AGP for Appellant. Mr. P.D. Pise h/for Ms. A.R.S. Baxi, Advocate for Respondents. Coram : SMT. R.P. SONDURBALDOTA, J. Date : 19th December, 2008 P.C. 1. The appellant, State of Maharashtra, has filed the present appeal to challenge correctness and legality of the judgment and order dated 27th March,1991 passed by the Court of 5th Joint Civil Judge,Senior Division, Solapur in Special Civil Suit No.118 of 1999. The respondent, the original plaintiff is a partnership firm. 2. The respondent-firm carries on business of selling toddy from the shop at Ashok Chowk, New Pachha Peth, Solapur. The Bombay Prohibition Act, 1949 empowers the State to issue licenses to persons for a period of 2 12 months for tapping, procuring and selling toddy. For issuance of license, auctions are held and the highest bidder becomes entitled to the license to be used for a period of one year. In the public auction for the year 1985-1986 held by the appellant the bid given by the respondent in the sum of Rs.5,01,000/- was accepted being the highest and the respondent was issued license for the year 1985-1986 for the period 1st September,1985 to 31st August,1986. The grant of licenses by auction or tender is governed by The Maharashtra Toddy Shops (Grant of Licenses By Auction or Tender) Order, 1968 which is made in exercise of the powers conferred by clauses (k), (l) and (m) of sub-section (1) of Section 139 of the Bombay Prohibition Act. Clause 13 of the tender order requires the successful bidder, on acceptance of bid or tender, to pay at least 1/4th of the amount of the bid or tender on the next working day after the auction. Clause 16 provides for payment of the balance amount in six equal monthly instalments starting from the first of every following month thereafter. If any monthly instalment is not paid on the due date, the appellant is entitled to charge interest at the rate of 18.5% per annum on all outstanding instalments. As per these terms, the respondent was to complete the payment of Rs.5,01,000/- by 5th February,1986. However, by that 3 date, it had paid only a sum of Rs.3,45,125/-. 3. On 28th March,1989, the respondent filed Special Civil Suit No.118 of 1989 for recovery of Rs.72,325.92 ps. and for a declaration that the appellant is not entitled to claim and recover Rs.1,66,465/- from it by way of balance of the auction amount. It also sought a declaration that notice of demand dated 7th January,1989 served by the appellant is illegal, void, ab-initio and not binding upon the respondent. It sought consequential relief of injunction to restrain the appellant from selling in public auction immovable property belonging to its managing partner. In support of the above reliefs, the respondent contended in the plaint that on 17th March,1986, all of a sudden its shop was raided by the officers of the appellant and all the documents required for running the business including the license were attached and seized. The license was suspended on the same day by serving an order to that effect under Section 54(1)(B) of The Bombay Prohibition Act on the charge of adulteration. Consequently the respondent was unable to carry out business of tapping, procuring and selling toddy under the license from that day. The respondent contended that the total auction money paid by it by that date covered the period beyond suspension 4 of license. Therefore under Section 56(2) of the said Act, it is entitled for pro-rata refund of the auction money paid for that year and hence seeks to recover sum of Rs.70,965.67 ps. together with interest thereon at the rate of 9% per annum. amounting to Rs.897.25 ps. The learned trial Judge has rejected this claim by holding that Section 55 of the Bombay Prohibition Act totally bars refund of amount on account of suspension or cancellation of license. This finding is not challenged by either party. 4. As regards merits of the allegation of adulteration, the respondent contended that during the relevant period, the appellant had conducted raids in as many as 595 shops throughout the State, out of which only 106 cases were found to be genuine. In most of the cases from Solapur, in the analyst's reports, there was lot of confusion created by the authority in investigation. The respondent who had not caused any adulteration into the toddy, was unnecessarily involved and indicted. The appellant in its written statement has denied that raid conducted by its officers was on 17th March 1986 or that the license came to be suspended on account of adulteration on the same date as the raid. It contends that the Inspector of Prohibition and Excise 5 Department visited the shop of the respondent on 17th December,1985 and collected the sample of toddy kept for sale in the shop. The sealed sample was forwarded by him to the Hafkins Institute, Bombay for analysis. The Institute had forwarded the report dated 13th January 1986 to the Prohibition and Excise Department expressing the opinion that the sample was found containing Chloral Hydrate, which is a poisonous substance. Chloral Hydrate is dangerous to human life, if the same is consumed. After receipt of the report, show cause notice dated 17th March,1986 was served upon the respondent for breach of condition of the auction sale and condition of license. With that notice, the license came to be suspended as provided under Section 54 of the Act. The respondent had filed an appeal against the order of suspension as provided under the Bombay Prohibition Act, which was dismissed by the appellate authority on 6th May 1986. The respondent has not carried the matter further. In the circumstance, suspension of the license under Section 54(1)(B) on the charge of adulteration must be considered to be valid. In any case the plaint does not contain any relief as regards suspension or cancellation of license. It concerns only the aftereffects of suspension. 6 5. The other reliefs sought in the plaint relate to recovery of balance auction amount by the appellant which are the only reliefs left for consideration in the instant appeal. As mentioned at paragraph 2 above, under clause 13 and 16 of the tender order, the respondent was to pay the entire auction amount of Rs.5,01,000/- by 5th February 1986. However, by that day it had paid only a sum of Rs.3,45,125/- leaving the balance of Rs.1,66,465/-. At paragraph 10 of the plaint, the respondent alleged that notice dated 7th January 1989 bearing No. RRC-4187 was issued by the appellant through it's competent authority calling upon the respondent to deposit the auction amount for the relevant years in the Collector's office within three days from receipt of the notice. On failure to deposit, the respondent was warned that its' immovable property would be sold by public auction and the amount recovered. The respondent contended that the notice of demand dated 7th January 1989 is illegal as the plaintiff had already paid excess amount to the appellant. It's license being in force during the period 1st September 1985 to 17th March 1986 only, the pro-rata auction money for this period was of Rs.2,74,159.33 ps. The respondent having already deposited Rs.3,44,125/-, the payment of auction money 7 was already in excess of the amount payable on pro-rata basis. The respondent also contended that there is no express provision in Bombay Prohibition Act,1943 enabling the State of Maharashtra to recover balance of auction money after suspension or cancellation of the license. Therefore, it is alleged that, condition at Clause 16 of conditions of public auctions of Toddy Licenses for the year 1985-1986 would be penal within the meaning of Section 74 of the Indian Contract Act. It is not open for the appellant to enforce a penal term requiring the respondent to pay the entire auction money since the license was cancelled subsequently. According to the respondent, the appellant could, at the most, claim and recover reasonable compensation under Section 73 of the Indian Contract Act for breach of condition of the contract. 6. The appellant denies that condition 16 of the contract is either unlawful as not being warranted by any provision of the Bombay Prohibition Act or that the same is penal in it's nature within the meaning of Section 74 of the Indian Contract Act. According to the appellant, the sale by public auction is in consonance with the provision of Section 114 of the Bombay Prohibition Act, which reads as follows : 8 “All duties, taxes, fines and fees leviable and any of the provisions of this Act or in respect of any license, permit, pass or authorisation granted under it .... may be recovered from any person liable to pay the same or from his surety, if any, as if they were arrears of land revenue”. 7. While considering the question of validity of notice dated 7th January 1989 and the consequent relief of injunction, the learned trial Judge considered one more ground of challenge which was not set out in the plaint, but apparently developed some time during the course of trial. It was contended by the respondent that it was not served with any show cause notice for non-payment of the balance auction money. The learned trial Judge has accepted the contention and opined that notice dated 7th January 1989 for recovery of unpaid auction amount was illegal, void and ab-initio as no opportunity was made available to the respondent for showing cause for such non payment. 8. The observation of the learned trial Judge that there is any violation of principle of natural justice is not supported by the record. It appears that the learned trial Judge lost sight of the notice dated 14th December,1988 sent by the appellant to the respondent 9 calling upon the respondent to pay a sum of Rs.1,66,465/ being the balance auction amount. The respondent was informed that if the amount was not paid within a period of 15 days from the date of the receipt of the notice, the property of the respondent described in the notice would be sold in the recovery proceedings. The respondent does not make a mention of this notice in either in the plaint or in the deposition. In support of it's case, the appellant has examined Arjun Daulatrao Kadam, a Clerk in the Prohibition and Excise Department. In his deposition he stated that as the contractual amount was due, the appellant issued revenue recovery certificate in the name of Tahsildar, Solapur for effecting the recovery and accordingly recovery notice was sent to the respondent through Revenue Officer. The original recovery notice is at Exhibit 48. The witness further stated that since even after service of notice, the respondent did not deposit the balance contract amount, final notice dated 7th January,1989 came to be served upon the respondent. Perusal of the deposition of this witness shows that there are no questions put to him in cross-examination on Exhibit 48. Consequently this part of the evidence is undisputed. In the circumstances, the observation of the learned trial Judge that there was no opportunity given to the 10 respondent by serving upon him a notice of demand prior to the auction proposed in the notice dated 7th January,1989 is not correct. Therefore, the ground of challenge to the impugned notice that the appellant had failed to observe the principles of natural justice is not justified and cannot be accepted. 9. It has been argued with some vehemence that there are two orders of different dates suspending the license for different reasons. One is the order dated 25th February 1986 and the other is dated 17th March,1986. The appellant refers to Order dated 25th February 1986 stating that the same is the order of suspension for non-payment. The order is at Exhibit 59. It states that 29 shops which include the shop of the respondent had failed to pay the instalment of auction amount for the month of January 1986 and therefore their licenses were temporarily suspended under Section 54(1)(A) of the Bombay Prohibition Act. The same order, however, carries a footnote to the Inspector that if at the time of service of the order, it is seen that the licensee has deposited the amount of instalment or any amount towards instalment, the order should be recalled and report to that effect be made to the Collector. Exhibit 59 shows 11 that the respondent had paid a sum of Rs.10,000/- on 5th February,1986 by challan of that date. In view of this payment, the order dated 25th February 1986 was not applicable to the respondent. Therefore, it cannot be said that the license of the respondent was suspended by the order dated 25th February 1986. The correct order of suspension of the license is dated 17th March, 1986. This order suspends the license of the respondent on the charge of adulteration of toddy. The learned Judge has commented in the judgment that in view of the order of suspension dated 25th February 1986, there could be no second suspension of the license by another order dated 17th March,1986. The comment is obviously unjustified since the order dated 25th February 1986 was not applicable to the respondent, in view of the payment made by him on 5th February,1986. 10. It is the case of the respondent that the suspension of license by the appellant has been on account of sale of adulterated toddy and since the respondent has been acquitted of the charge of adulteration, the ground on which the license was suspended is not valid and available to the appellant. In that case, any recovery of further amount from the respondent would be not justified. The contention of 12 the respondent that the charge of adulteration of toddy is not justified or proved in view of acquittal of the respondent by the Sessions Court is difficult to accept. The parameters to be considered while deciding criminal proceedings regarding the charge of adulteration would be different from the parameters to be applicable to the civil proceedings. In any case, it has been seen above that the appellant has not challenged the suspension and cancellation of the license beyond filing the appeal which was dismissed. Therefore, despite the acquittal by the Sessions Court, the suspension of the license continues to be valid. Therefore, it cannot be said that notice dated 17th March,1986 is barred on the above ground. 11. The last contention of the respondent which has found favour with the learned trial Judge is that the notice is hit by Section 74 of the Indian Contract Act. The learned trial Judge has commented that the appellant was one party to the contract which was entered into with the respondent. The terms and conditions of the auction laid down a penal clause that in case of any breach of any condition the licensee would be required to pay the full auction amount irrespective of the fact that such license was suspended 13 or cancelled. Thereafter the learned Judge has referred to the provision of Section 74 along with the exception thereto, and Section 114 of the Bombay Prohibition Act. Then he has held as follows : “10. At this juncture, I am constrained to mentions that the terms and condition in respect of maintaining the purity of toddy and obstaining from making any adulteration was not cause for the Government to take action against the plaintiff-firm. As vehemently asserted by the learned counsel for the defendant that it was for the non- payment of the auction amount which had resulted into the action against the plaintiff-firm. Once the conclusion is drawn that the suspension and cancellation of license itself was illegal, the condition which authorities the plaintiff-firm to continue selling toddy for the stipulated period upto 31st August 1986 was infact breached by the defendant-State and the non- payment on account of such illegal suspension on the part of the plaintiff-firm cannot be covered under the exception to section 74 of the Indian Contract Act as non- payment cannot be said to be the act the performance of which is the public duty in which the public is interested and, therefore, bond so executed by the plaintiff- firm cannot be covered under this exception. At the cost it could be stated that the State Government was free to claim compensation under section 74 of the Indian Contract Act but for that the Government is required to go to the Court of law where the reasonable compensation can be ascertained by the competent court and the same can be awarded to the Government. But instead of doing this, by taking the shelter of the bond executed by the plaintiff-firm and also sub- section (2) of 114 of the Bombay Prohibition Act, the defendant has put the immovable property of the plaintiff-firm for public auction and which itself if illegal and not in conformity with the legal position.” 14 The learned Judge has obviously misdirected himself on the issue. His observation that the terms and conditions of the auction lay down a penal clause that in case of any breach of any condition, the licensee would be required to pay full auction amount irrespective of the fact that such license was suspended or cancelled is erroneous and not supported by the record. There is no connection drawn in The Maharashtra Toddy Shops (Grant of Licenses By Auction or Tender) Order, 1968 between the payment of the bid amount and cancellation or suspension of the license. As already seen above, a successful bidder , on acceptance of the bid or tender is required to pay atleast 1/4th amount of the bid or tender on the next working day after the auction. The balance amount is required to be paid in 6th equal monthly instalments starting from first of every following month thereafter. This was irrespective of suspension or cancellation of the license. As per the tender order, the only circumstance under which responsibility of a licensee whose license is suspended or cancelled to make the payment gets reduced is where the license is reauctioned. On reauction of the license, the new licensee would be making payment for the balance period and the earlier licensee is exempted 15 on pro rata basis from making payment for the period beyond reauction. The record in the instant case shows that the appellant did attempt at re-auction of the license but was not successful. In the circumstance, there can be no exemption for the respondent. The Maharashtra Toddy Shops (Grant of Licenses By Auction or Tender) Order, 1968 does not contain any penal clause in case of suspension or cancellation of license. The only penal clause therein is clause No.14A which is for forfeiture of earnest money and recovery of loss from defaulting tenderee who fails to pay 1/4th of the amount of tender as required under clause 13. 12. Mrs. Mulekar, learned counsel for the appellant lastly relies upon the judgment dated 21st July, 1997 of the Division Bench of our Court in Saprgiri and Co. Vs. State of Maharashtra & Ors. Reported in 1997 L.J.253 holding in similar circumstances that the action of demand notice calling for deposit of the balance of license fees is legal and in full conformity with Sub- clause 2 of Clause 16 of the order. In view of this decision also the impugned notice must be held to be valid. O R D E R 1. The appeal is allowed. 16 2. The impugned order is substituted by the following order. “The suit is dismissed with costs”. . Mr. Pise, learned counsel for the respondent makes an oral application for stay of operation of this order submitting that the property proposed to be sold in auction by the appellant is the residential property of the partners of the respondent. The appellant is directed that the action of sale by public auction be deferred for a period of eight weeks from today. (Smt.R.P. SondurBaldota, J.)