Case: Messrs Karnal Distillery Company Limited  Vs. The Union Of India

2. The plaintiff, Karnal Distillery Co. Ltd. filed this suit for recovery of a sum of Rs. 25, 270, principal being Rs. 22, 264/6/3 and interest at the rate of 6 per cent per annum amounting to Rs. 3005/9/9. The case for the plaintiff/appellant is that on July 20, 1950 the plaintiff and Himachal Pradesh Government entered into an agreement under Ex.1 dated July 20, 1950 by which the plaintiff agreed to supply 12, 000 L. P. gallons, with 10% variation of quantity on either side, of country liquors to the liquor licensees of Mandi District during the remaining period of1 commencing from August 1, 1950, at the rates mentioned in the agreement. The plaintiff offered to supply 10, 800 L. P. gallons of liquor during the said period. The Himachal Pradesh Government accepted3 L. P. gallons. While the Government disposed of5 L. P. gallons, the remaining stock of8 L. P. galons was taken over by the Government. For this quantity of liquor the plaintiff submitted a bill for Rs. 22, 264/6/3 at the contractual rates and the interest due thereon. The main defence to the action with which we are concerned is that the plaintiff is not entitled to the contractual price of 2645.8 L. P. gallons of country liquor supplied to the defendant according to the rates mentioned in the agreement. The stand that was taken by the Government was that the liquor licences of Mandi to whom the liquor was supplied was necessary party and that the rights of the parties were not governed under agreement Ex.1 as the Government was acting as a sovereign body under the Punjab Excise Act and rules made thereunder.

Court's reasoning:
The clause does not contemplate that the contractor should look forward to the liquor licences for payment. There is no privity of contract between the contractor and the liquor licences. The construction of the first 3 clauses of the agreement would show that by the terms of the contract the Government had agreed to pay the contractor for the liquor supply. The other clause of the agreement also envisage the right of the Government to terminate the contract without any notice for breach of any of the conditions and for confiscation of the security deposit in the event of the breach of the terms of the contractThe decision is not helpful in deciding the question at issue for there is no dispute that the regulation of production and distribution of liquor is one of sovereign functions and the authorities could act under the several enactments and rules armed for the above purpose. But in the present case the agreement was entered into purely as a contract between the plaintiff and the Government for the supply of liquor at the particular rate. There is no doubt that a licence from the Government is necessary for the manufacture and the Government had in fact permitted the plaintiff to manufacture and supply the liquor and had contracted for the price to be paid and has also agreed on the price for the liquor supplied. We have also found that under the terms of the contract the Government had agreed to pay the price of the liquor supplied. Therefore the receipt of the supply and payment of the price for it is purely a bilateral contract and does not involve exercise of any sovereign power. The contractor having supplied the quantity is entitled to be paid at the rates specified. If on March 31 the Government wanted to seize or impound the liquor their obligation to pay at the contract rate does not cease7. The trial Court was therefore right in holding that Ex.1 is a bilateral contract and that its terms cannot be changed according to the will of the defendant. The trial Court is also right in coming to the conclusion that the quantity of the disputed liquor was not sold by the plaintiff to liquor licensees but was taken over by the Government. We are unable to agree with the view taken by the High Court that according to the terms of the contract the liquor was to be paid for by the liquor licensees direct at the price agreed to between the plaintiff and the Government. We are also unable to agree with the High Courts conclusion that the contract came to an end by efflux of time and as the plaintiff still had 264.8 L. P. gallons lying undisposed of the plaintiff is not entitled to be paid according to the contract price. As we have pointed out the contractors have fulfilled their part of the contract by supplying the quantity of liquor agreed upon. In the view that we have taken that the contract was between the plaintiff and the Government and the plaintiff can look to the Government for the value of the liquor supplied it is not necessary for us to consider the question whether the High Court should have permitted to treat the suit as one for award of compensation for the los suffered by the plaintiff due to the Governments wrongful seizure of the liquor. We are satisfied that on the terms of the contract the Government was bound to pay the price of 2645.8 L. P. gallons at the contracted rate and the plea of the Government that the contract had come to an end by efflux of time and that they could fix the price according to the Excise Rules and Regulations cannot be acceded8. The High Court had also declined to award costs to the plaintiff. Mr. S. P. Jaiswal, the party in person, brought to our notice the letter Ex.1 dated August 1, 1952 in which he requested that the agreed sum of Rs. 16, 333/5/may be paid to him without prejudice pending a settlement but this request was not granted. We find therefore that the plaintiff is entitled to the interest on the amount due.