M/S. MODERN HOTEL versus COMMISSIONER OF EXCISE & ORS.
[2015] 9 S.C.R. 789, Supreme Court of India, 2015
Outcome: Dismissed (Dismissed)
Segment: Facts
[2015) 9 S.C.R. 789 
MIS. MODERN HOTEL 
v. 
COMMISSIONER OF EXCISE & ORS. 
(Civil Appeal No. 2508 of 2008) 
AUGUST 19, 2015 
A 
B 
[VIKRAMAJIT SEN AND SHIV~ KIRTI SINGH, JJ.] 
Foreign Liquor Rules: Rule 13A(5), proviso - Excise 
Licence - Renewal of licence subject to payment of abkari C 
arrears due to Government - Firm having FL-3 licence to 
run a bar in its hotel- Reconstitution of firm on entry of a new 
partner - Subsequent request of appellant firm for renewal 
of its FL-3 licence - Rejected on the ground that one of the 
partners had conducted abkari business earlier and incurred 0 
dues to the Government which had further grown on account 
of interest and until 50% of abkan· arrears pending at the time 
of renewal of licence was cleared, the licence could not be 
renewed -Appellant filed writ petition - High Court from time 
to time granted renewal of licence on condition of part E 
payment of arrears totalling Rs.50 lacs in addition to licence 
fees - Writ petition was ultimately dismissed on the ground 
that one of the partners had suffered disqualification - In the 
instant appeal, I.A. filed seeking return of Rs. 50 lacs in view 
of the fact that the Government declared an Amnesty Scheme F 
wherein if the other conditions were satisfied, a lump sum 
payment of 75% of pnnc~oai dues could be sufficient to waive 
the remaining principal as well as penalty and interest -
Taking advantage of scheme, the defaulting partner paid 
75% of the principal amount- On the
basis of such payment, 
G 
this Court ordered refund of Rs. 50 Lacs from the concerned 
authority but on furnishing of required security - Held: 
Appellant is not entitled to receive refund of Rs. 50 Lacs on 
789 
H
790 
SUPREME COURT REPORTS 
[2015] 9 S.C.R. 
A account of subsequent deposit of required percentage of 
principal dues under the Amnesty Scheme of 2008 - The 
amnesty earned in 2008 must be confined to the arrears of 
interest outstanding at the relevant time in 2008 and by that 
date the earlier deposits of Rs. 50 Lacs had already been 
B appropriated towards interest - No fault can be found in 
appropriating that amount because there is no dispute 
regarding the actual outstanding amounts of principal and 
interest - Exercise of writ jurisdiction to help the defaulter 
would be inappropriate. 
c 
Dismissing the appeal, the Court 
HELD: 1. Appellant is not entitled to receive refund 
of Rs.50 Lacs on account of subsequent deposit of 
o required percentage of principal dues under the 
Amnesty Scheme of 2008. The amnesty earned in 2008 
must be confined to the arrears of interest outstanding 
at the relevant time in 2008 and by that date the earlier 
deposits of Rs.50 Lacs had already been appropriated 
E towards interest. No fault can be found in appropriating 
that amount because there is no dispute regarding the 
actual outstanding amounts of principal and interest 
which clearly find mention in the certificate dated 
10.11.2008 (Annexure P-6) to I.A. No.1 on which appellant 
F itself has placed reliance. [Para 9] [796-8-D] 
2. Since there was no challenge to the proviso to 
Rule 13A(5) of the Foreign Liquor Rules, the respondents 
were well within their legal rights to
insist that at least 
G 50% of the excise dues agai!lst the partners of the 
appellant was required to be paid in accordance with 
the proviso, to get the desired renewal. Such decision 
of the High Court does not require any interference. 
Section 5 of the Indian Partnership Act, 1932 (the Act) 
H provides unequivocally that the relation of partnership
MODERN HOTEL V.'COMMISSIONER OF EXCISE 
791 
arises from contract and not from status. Such contracts A 
clearly cannot override provisions in a statute or 
statutory rules. Section 49 of the Act stipulates for 
payment of firm debts and also of separate debts of any 
partner by use of firm's property and ifthere is no surplus 
then separate property shall be applied for payment of a B 
partner's separate debts. Other than the defaulting 
partner can always claim their loss, if any, from the latter. 
[Para 1 O] [796-D-G] 
3. The factum of excise dues of one of the partners c 
of the appellant and its subsequent payment under the 
Amnesty Scheme is not in dispute or controversy. 
Though large part of the interest amounting to several 
crores could not be recovered but that was on account 
of grace shown by the Government itself by formulating D 
the Amnesty Scheme of 2008. In such circumstances 
exercise of writ jurisdiction to help the defaulter would 
be inappropriate. It would be unjust to direct for refund 
of Rs.50 Lacs on the premise that its recovery in the 
E 
manner made is being questio!led by the appellant~ 
Appellant is now required to redeposit Rs.50 Lacs to 
meet its liability under the security furnished as per 
interim order of this Court dated 18.1.2010. [Paras 11, 12] 
[796-H; 797-A-D] 
.. F 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 
2508 of 2008. 
From the Judgment and Order dated 09.01.2008 of the 
High Court of Kera la at Ernakulam in W.A. No. 1055
of 2002. G 
Jayant Muth raj, Roy Abraham, Seema Jain, Himinder Lal 
• 
for the Appellant. 
Bina Madhavan, M.P. Vinod Jogy Scaria for the H 
Respondents.
792 
SUPREME COURT REPORTS 
[2015] 9 S.C.R. 
A 
The Judgment of the Court was delivered by 
SHIVA KIRTI SINGH, J. 1. The appellant is a partnership 
firm and is aggrieved by dismissal of its Writ Appeal No.1055 
of 2002 by an order dated 091h January 2008 wherein the 
B 
Division Bench has chosen to place complete reliance on an 
earlier Division Bench judgment dated 241h June 2005 in 
W.A.No.1151 of2005 (M/s. Hotel Highway &Anr. v. N.K. Subhin 
& Ors.). 
c 
2. The issue falling for consideration is mainly one of law 
relating to scope and interpretation of a proviso to Rule 13A(5) 
of the Foreign Liquor Rules as in force at the relevant time in 
the State of Kerala. Subsequently it appears that Rule 13A, 
dealing with grant of different kinds of excise licence, along 
D with proviso has been renumbered as Rule 13B w.e.f. 
1.4.2003. The relevant proviso needs to be noticed : 
"Providec;l further that no defaulter of abkari arrears due 
to the Government shall be permitted to renew the licence 
E 
unless he produces from the Excise Department a 
certificate to the effect that he has cleared 50% of the 
abkari arrears pending at the time of renewal of the 
licence," 
F.. 
3. The facts of the case need not detain us for long except 
noting that the appellant firm was having a FL-3 licence to run 
a bar attached to a hotel at Kundara in Kollam District. The 
partnership firm was re-constituted on 01.10.1995 and one 
Shri J. Sasikumar was admitted as one of the partners. On 
G
11.05.2001 the request of the appellant firm for renewal of its 
FL-3 licence was rejected by the Excise Commissioner on 
the ground that one of the partners had conducted abkari 
business in the year 1981-1982 and had incurred dues to the 
• 
Government of Rs. 70 Lacs which had further grown on account 
H of interest and until 50% of the abkari ;::irrears pending at the ·
• 
MODERN HOTEL v. COMMISSIONER OF EXCISE 
793 
[SHIVAKIRTI SINGH, J.] 
time of renewal of the licence was cleared, the licence of the A 
appellant could not be renewed. Appellant preferred writ 
petition in the High Court of Kerala wherein by an interim order 
the respondent authorities were directed to grant renewal for 
the year 2001-2002 on the condition of payment of Rs.20 Lacs 
towards the arrears in addition to the licence fee. On such B 
payment the licence was renewed for that year. But the writ 
petition came to be dismissed on 02.04.2002 on a finding 
that a partnership firm could not claim a separate juristic identity 
as it is only a totality of every partner and so long one or more 
partner suffers from liability or disqualification, the licence could C 
not be renewed till the statutory requirement of the relevant 
rule was satisfied. The appellant filed appeal bearing 
W.A.No.1055 of 2002 before the Division Bench. By an interim 
order dated 15.04.2002 appellant's licence was ordered to D 
be renewed for the year 2002-2003 on similar condition 
re~iring payment of additional amount of Rs.20 Lacs over 
and above the licence fee. On compliance, the licence was 
renewed accordingly. On account of another interim order 
dated 13.05.2003 appellant's licence was renewed forthe ye~r E 
2003-2004 also on its paying Rs.10 Lacs in addition to the 
licence fee. The appellant's licence got further renewal upto 
the year 2007-2008 only on the strength of earlier
additional 
deposits of Rs.50 Lacs in total. The writ appeal itself was 
.heard on merits and dismissed by the impugned judgment F 
dated 09.01.2008 following earlier Division Bench judgment 
dated 24.06.2005. 
4. On behalf of appellant our attention was drawn to a · 
subsequent development mentioned in l.A.No.1 of 2009 filed G 
in this appeal. Paragraphs 9, 10 and 11 of the I.A. disclose 
that the Government of Kera la declared an Amnesty Scheme 
(One Time Settlement Scheme) on 26.05.2008 wherein, ifthe 
other conditions were satisfied, a lump sum payment of 75% 
of the principal dues could be sufficient to waive the remaining 
H
794 
SUPREME COURT REPORTS 
[2015) 9 S.C.R. 
A 
principal as well as all the penalty and interest. Ta.king 
advantage of that scheme the defaulting partner Mr. J. 
Sasikumar along with his partners of the other partnership paid 
75% of the principal amount, i.e., Rs.53,09,440/-and as a result 
the Excise Department on 10.11.2008 issued a certificate that 
B no amount was now outstanding from said Mr. Sasikumar. The 
certificate is an enclosure to the I.A. and discloses that on 
payment of earlier noted amount the defaulters including J. 
Sasikumar got amnesty from paying not only the remaining 
c 
25% of the principal amount but also from liability to pay 
Rs.2,73,47,650/- towards interest upto 31.05.2008. On the 
strength of such payment and subsequent development, in the 
I.A. the appellant sought an order from this Court for 
unconditional return of Rs.SO Lacs in total deposited by the 
D appellant for getting several renewal of its licence as per interim 
orders of the High Court. 
5. This Court on 18.01.2010 heard the parties in respect 
of l.A.No.1 and passed the following order; 
E 
"We have heard learned counsel for the parties in the 
I.A. We direct that, as an interim measure, the amount 
of Rs.50,00,000/-, which is claimed by the appellants by 
way of this I.A., be refunded to them subject to the 
outcome of the result of the main appeal, on furnishing of 
F 
security to the satisfaction of the Commissioner of 
Excise." 
6. In terms of that order the appellant has
obtained refund 
of Rs.SO Lacs from the concerned authority but Qn furnishing 
G of required security to the satisfaction of the Commissioner of 
'Excise. 
· 7. When this appeal was taken up for hearing learned 
•
counsel for the appellant initially took the stand that due to 
H passage of time and other reasons the appellant was not keen
MODERN HOTEL v. COMMISSIONER OF EXCISE 
795 
[SHIVAKIRTI SINGH, J.] 
to press the appeal provided the appellant was absolved of A 
(ts liability created by furnishing of security for Rs.50 Lac~. In 
other words, he wanted this Court to order for discharge of 
security furnished by him to the Commissioner of Excise. This 
prayer of the appellant was strongly contested by Ms. Bina 
Mad.havan, learned counsel appearing forthe respondents by B 
placing reliance upon averments made in the counter affidavit 
(additional) filed in response to I.A. No.1 of 2009. In paragraph 
6 of the counter affidavit the respondents have relied upon 
.relevant proviso to Rule 13A(5) of the Foreign Liquor Rules 
and have taken the stand that the liability or disqualification of C 
each of the partner in the defaulting firm shall be distributed 
but if such liability continues then for the purpose of the proviso 
the liability of one of the partners will be liability of the firm for 
the purpose of abkari arrears disentitling renewa·1 as provided 0 
in the proviso. According to respondents the Hi9h Cpurt has 
correctly decided the law that a partnership firm is a totality of 
every partner and that the default of one of the partners can be 
taken into consideration for treating the firm as a defaulter even 
if only one of its partners continues to be in arrE'.ars of abkari E 
dues. 
8. So far as deposit of Rs.50 Lacs made by the appellant 
towards abkari dues as per interim orders is concerned, it
is 
respondents' clear stand that as per Rule 6(25) of Abkari 
F 
Shops (Disposal in Auction) Rules, 1974 the whole of Rs.50 
Lacs had to be and was appropriated towards interest existing 
·at the time the remittance was made and only the remaining 
dues of interest along with permissible 25% of the principal 
amount was subsequently written off as per Amnesty Scheme G 
of 2008. The claim of the appellant that the amount of Rs.50 
•• 
Lacs was required to be or had been kept in a suspense 
account has been strongly refuted as false with a positive 
statement that the said amount was appropriated towards 
interest in accordance with the relevant rules. 
H
796 
SUPREME COURT REPORTS 
[2015) 9 S.C.R. 
A 
9. Having heard the parties and applied our mind to the 
relevant facts and the rules we find ourselves in agreement 
with the submission on behalf of the respondents that appellant 
is not entitled to receive refund of Rs.50 Lacs on account of 
subsequent deposit of required percentage of principal dues 
B 
under the Amnesty Scheme of 2008. The amnesty earned in 
2008 must be confined to the arrears of interest outstanding 
at the relevant time in 2Q08 and by that date the earlier deposits 
of Rs.50 Lacs had already been appropriated towards interest. 
No fault can be found in appropriating that amount because 
C there is no dispute regarding the actual outstanding amounts 
of principal and interest which clearly find mention in the 
certificate dated 10.11.2008 (Annexure P-6) to I .A. No.1 on 
which appellant itself has placed reliance. 
D 
10. We are also of the considered view that since there 
was no challenge to the proviso to Rule 13A(5) of the Foreign 
Liquor Rules, the respondents were well within their legal rights 
to insist that at least 50% of the excise dues against the 
partners of the appellant was required to be paid in accordance 
E with the proviso, to get the desired renewal. Such decision of 
the High Court in our considered view does not require any 
interference. Section 5 of the Indian Partnership Act, 1932 
(the Act) provides unequivocally that the relation of partnership 
F arises from contract and not
from status. Such contracts clearly 
ca.nnot override provisions in a statute or statutory rules. 
Section 49 of the Act stipulates for payment of firm debts and 
also of separate debts of any partner by use of firm's property 
and if there is no surplus then separate property shall be applied 
G for payment of a partner's separate debts. Other than the 
defaulting partner can always claim their loss, if any, from the 
latter. 
· 
11. We have taken the aforesaid view for an additional 
H reason that the factum of excise dues of one of the partners of 
the appellant and its subsequent payment under the Amnesty 
••
... 
MODERN HOTEL v. COMMISSIONER OF EXCISE 
797 
[SHIVAKIRTI SINGH, J.] 
Scheme is not in dispute or controversy. This is apparent from 
A 
the certificate dated 10.1.:1 .2008. Though large part of the 
interest amounting to several crores could not be recovered 
but that was on account of grace shown by the Government 
itself by formulating the Amnesty Scheme of 2008. In such 
circumstances exercise of writ jurisdiction to help the defaulter B 
would be inappropriate. It would be unjust to direct for refund 
of Rs.50 Lacs on the premise that its recovery in the manner 
made is being questioned by the appellant. 
12. 
For the aforesaid reasons we find no merit in this C 
appeal and it is dismissed accordingly. It is clarified that 
appellant is now required to redeposit Rs.50 Lacs to meet its 
liability under the security furnished as per interim order of this 
Court dated 18.1.2010. It is directed to do so within six weeks 
along with interest at the rate of 6% per annum from the date D 
of receipt of that amount till its redeposit. There shall be no 
order as to costs. 
Devika Gujral 
Appeal dismissed.