Case: Raja Mallaiah and Another Vs. Anil Kishore and Others

On August 20, 1979, a notification was published in the District Gazette, Hyderabad, by the Commissioner of Excise, Andhra Pradesh, giving notice of a proposal to hold an auction, from September 1, 1979 to September 3, 1979, of th e right to sell arrack in retail in respect of 78 arrack shops in the twin cities of Hyderabad and Secunderabad during the Abkari year, October 1, 1979 to September 30, 1980. The notification was published under Rule 4 of the Andhra Pradesh Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969, made in exercise of the powers conferred upon the Government by s. 72 read with ss. 17, 29, 31 and 64 ofthe Andhra Pradesh Excise Act, 1968. The notification mentioned that 22 out of the 78 shops would be auctioned in ten groups of two and three shops, while the remaining 56 shops would be auctioned individually. This was according to the pattern which obtained for the year 1978-79 for which year the auction fetched, an aggregate monthly rental of Rs. 32, 99, 537.72 ps. On account of some representations made by excise contractors in regard to some conditions regarding the bottling of arrack, the auction was postponed to September 7, 1979. The first auction was held on September 7, 1979, when no bids were received for the arrack shops. A second auction was held on September 12, 1979 and again there were no bids. On September 19, 1979, no auction could be held as all the bidders walked out. On September 2 1, 1979, the Collector (the auctioning authority) followed a peculiar procedure. First he auctioned 34 arrack shops in Hyderabad city individually and the bids fetched an aggregate of Rs. 6, 49, 700 (monthly rental). Then he put the 34 shops to auction as a single lot but there was no bid. Similarly he auctioned the 44 arrack shops of Secunderabad city individually and they fetched an aggregate bid of Rs. 6, 02, 100 (monthly rental). He then put the 44 shops to auction as a single lot but there was no bid. Thereafter he put the entire lot of 78 arrack shops to auction as a single lot. There was no bid. There was a tender but the tender had to be rejected as the tenderer was not present in the auction hall even after an announcement was made on the microphone and the auctioning authority waited for a considerable time. The auction was then postponed to September 22, 1979 and on that day, the same peculiar procedure was repeated. The 34 shops of Hyderabad city when auctioned individually fetched bids aggregating to Rs. 6, 75, 000. There were also tenders. The aggregate of the highest bid or tender for the different shops came to Rs. 7, 78, 060/55 ps. The 44 shops in Secunderabad city were then auctioned individually. The aggregate of the bids came to Rs. 8, 30, 000. There were tenders also. The aggregate of the highest bid or tender for the different shops came to Rs. 10, 82, 885 .27. Thereafter 34 shops of Hyderabad city were auctioned as one lot and there was a bid for Rs. 8, 00, 000 and a tender for Rs. 10, 55, 229. Similarly the 44 shops in Secunderabad city were auctioned as one lot and the maximum bid was Rs. 13, 50, 000 while two tenders were received, the highest of which was Rs. 14, 11, 111. The Collector then auctioned all the 78 shops as one lot. The highest bid was Rs. 24, 00, 000 while there were two tenders for Rs. 15, 11, 111/11 and Rs. 25, 55, 555/55. The tender for Rs. 25, 55, 555/55 for all 78 shops waspersons who were lessees of the arrack shops in the twin cities during the year 1978-79 filed two Writ Petitions in the High Court of Andhra Pradesh questioning the auction held on September 21, 1979, and September 22, 1979 on the ground that th e Collector had no jurisdiction to auction the 78 shops as one lot, thereby altering the entire pattern of the auction as notified earlier. It was pleaded that the action of the Collector was contrary to R. 12 of the Andhra Pradesh (Lease of Right to Sell Liquor in Retail) Rules, 1969, and the administrative instructions issued by the Excise Commissioner by which the Collector wasJ., who heard the Writ Petitions in the first instance, in a careful and well-considered judgment held: 1. The action of the auctioning authority grouping all the 78 shops into one group was opposed to the administrative instructions issued by the Excise Commissioner and hence contrary to R. 12; (2) the action of the auctioning authority was contrary to the rule also because the auctioning authority failed to record reasons, as he was required to do under the rule before he could regroup the shops; and, (3) the petitioners were not given sufficient time to make preparations to bid at the auction of 78 shops as a single lot since half an hours time only was given tothose findings Amareswari J., allowed the Writ Petitions and directed a re-auction to be held within a period of 15present appellants and some others, as well as the State of Andhra Pradesh preferred appeals under Clause 15 of the Letters Patent. The Appellate Bench consisting of Kuppuswamy and P. A. Chaudhary, JJ., did not agree with Amareswari Js view that the auction was contrary to R. 12 read with the administrative instructions or that the petitioners in the Writ Petition were not given sufficient time to make preparations for participating in the auction of the 78 shop s as a single lot. They, however, upheld the judgment of Amareswari J., on the ground that there was a contravention of R.12 of the Rules as the auctioning authority failed to record reasons for grouping the 78 shops into one lot.

Court's reasoning:
These are circumstance s of importance which naturally have to be considered. But one must give greater consideration to the statutory design and the importance of the provision in the context of that design. Generally one may say a provision which insists upon recording of reasons before an action is taken must prima facie be considered to be mandatory, as it is aimed at preventing arbitrariness. Where the rights of citizens are involved there can be no question that such a provision should be regarded as mandatory. Where the provision involves the public interest also the provision must be regarded as mandatory. Examined in that light the Andhra Pradesh Excise Act is an Act intended to raise and secure revenue to the State, without at the same time sacrificing the public interest involved which requires the regulation of trade in intoxicants. The administration of the Act is, therefore, vested primarily and centrally in the Commissioner of Excise who is expected to take a decision on all vital matters. The fixation of the number of shops, their location, and grouping are considered by the legislative delegate to be matters of such vital importance in Excise administration that the power in regard to these matters is vested in the Excise Commissioner. In that setting, the object of the rule is clearly seen to be to secure strict compliance with the arrangement already made by the Commissioner of Excise, the highest authority, and to permit no departure fro m the arrangement save in exceptional cases, on the clearest of grounds. What is involved is the protection of revenue and what is to be prevented is adhoc improvisation which jeopardises the revenue. That a particular improvisation yielded better results may be the exception which proves the rule. The public interest is thus seen to be served in two ways by the recording of reasons, first by protecting the public revenue and next by making public authorities not to function arbitrarily and also not appear to function arbitrarily. It is true that the Government is the exclusive owner of all rights and privileges in regard to intoxicants and no citizen has any right in regard todo not see how a departure from the rules and failure to record the reasons is permissible merely because no citizen has any right in the sale of intoxicants. The situation changes as soon as statutory provision and rules are made and the public is invited to participate in the auctions to be held as provided by rules. We do not doubt that the requirement regarding recording of reasons contained in R. 12 of the Andhra Pradesh Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969, is mandatory. It was argued that even if the recording of reasons was mandatory it was not a condition preceden t. It was said that the reasons could be recorded contemporaneously, that is to say, soon after the auction was held. We have grave doubt about the propriety of such a procedure. The object of the insistence upon the recording of rea sons is to eliminate arbitrariness. Reasons, if given, substitute objectivity for subjectivity. It is common experience that when reasons are set down in writing greater thought goes into it and greater objectivity is attained. Where the action to be taken involves a departure from what has already been decided by the apex authority and the public interest is involved, we cannot but hold that the reasons required to be recorded must be recorded before and not after the action is taken. The language of the rule also supports thisus examine if any reasons have been recorded at all. The note file has been produced before us. On September 20, 1979, the note file refers to a telephone message to the effect that the Commissioner was appraised of the situation and that he had instructed that the twin city arrack shops should be grouped into two to four groups. There is then a note that viable groups may be formed as per the guidelines given by the Commissioner. On September 21, 1979 the note file begins with the statement that `viable groups are formed as per the guidelines given by the Commissioner of Excise. There is then a narration of events that took place that day, written by the Excise Superintendent, signed by him and countersigned by the Collector. The note refers to the fact that the arrack shops were first put to auction individually, then in two and then in a single lot. The aggregate of the bids is noted. It is then mentioned that the auction is adjourned to September 22, 1979. There is nothing to indicate why a departure was made from the grouping that was announced in the original notice of auction. The note made on September 22, 1979 was admittedly wri tten (it is typed) after the auction on September 22, 1979. This note also merely narrates what took place. It is mentioned that the shops were put to auction first individually, then in two groups, and finally as oneit is seen that no reasons at all were mentioned on September 21, 1979 and even on September 22, 1979, such reason as had been given was ex-post facto and was not in accordance with the administrative instructions issued by the Commissioner of Excise. The general instructions given earlier on Jun e 10, 1975 and August 3, 1979 that `approved groups should not be enlarged under any circumstances was flouted. The instruction given on September 20, 1979, with express reference to the arrack shops of the twin cities though mentioned in the not e file both on September 20, 1979 and September 21, 1979 that the shops may be grouped into two to four groups was ignored on September 22,also notice that the allegation of the respondents that they were given but half an hours time on September 22, 1979, to prepare for the auction of the shops as a single group was not controverted. Having regard to the fact that the rules required large deposits to be made it is impossible to hold that half an hours time could be considered sufficient by any stretch ofhave already recorded the undertaking given by the respondents that they would give security of Rs. 35 lakhs within one week from April 21, 1980 and that they would start the bids at the re-auction in such a way that the aggregate of the bids would not be less than Rs. 35 lakhs.